Summary:
- Angela Merkel addressed mega-merger in the German banking sector
- DAX (DE30 on xStation5) pulls back after failing to breach long-term moving average
- Bayer (BAYN.DE) once again got hit by the Roundup weedkiller case
Moods during today’s Asian trading session can be best described as mixed. Minor gains were spotted in Japan while shares in Australia moved lowerl. No clear direction could be spotted across Chinese indices as equities in Hong Kong traded lower while stocks from Shanghai advanced. However, clear direction could be spotted at the beginning of European trading. Major indices from the Old Continent all moved lower in the first minutes of trade with German shares leading lower.
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DE30 failed to break above the 200-session moving average yesterday (purple line on the chart above). The index is moving lower today, mainly due to steep sell-off of Bayer’s shares, and may test the breakout level at 11680 pts handle in the later part of the day. The aforementioned moving average and breakout level should serve as closest, respectively, resistance and support level in the nearby future. Source: xStation5
Topic of Deutsche Bank merger with Commerzbank is widely discussed in Germany. While Angela Merkel is slowly phasing out of active role in leading Germany she still remains an authority for many members of the German governing majority. The Chancellor addressed merger of the two banks yesterday and insisted that terms and decision should be up to management and shareholders of the two lenders. Such view is somewhat in contrast to what we are seeing. Namely, Olaf Schulz, the German Finance Minister, is one of the most vivid advocates of the merger and a kind of exerting pressure can be sometimes spotted in his remarks.
Meanwhile, reports surfaced saying that the German government plans to pass laws and set up a state fund by the end of the year. Fund is aimed at helping troubled German companies of strategic importance. Germany would be able to buy stakes in such companies with the money from the fund and eventually shield them from being takeover targets of foreign companies, especially Chinese ones. Note that such fund could be used to help Deutsche Bank and Commerzbank as well in case the combined equity has weak capital ratios.
Major European stock market indices after the first hour of trade:
- DAX (DE30): -0.81%
- FTSE 100 (UK100): -0.01%
- CAC40 (FRA40): -0.05%
- IBEX (SPA35): -0.09%
- FTSE MIB (ITA40): -0.06%
Bayer (BAYN.DE) sinks after US court said Roundup played a role in the development of cancer disease. Source: Bloomberg
Company News
Bayer (BAYN.DE) is sinking today being the worst performing DAX stock at press time. The company is once again being pressured by the case of Monsanto’s Roundup weedkiller. During the first phase of a trial the US court ruled that the product may have played a significant role in deterioration of victims’ health conditions. Such ruling raises scope for major financial fines to be imposed on the company once the trial ends and these concerns are likely to be the main reason behind Bayer’s share price drop today. Nevertheless, the company upheld its stance that the weedkiller is completely safe and denies any allegations.
Beiersdorf (BEI.DE) can be found among DAX leaders today after receiving an upgrade at Royal Bank of Canada (RBC). RBC raised recommendation for the stock from “sector perform” to “outperform” and set one-year price target at €100 implying 23% increase against yesterday’s close.
On the other hand, Munich Re (MUV2.DE) is underperforming after being hit by downgrade at MainFirst. The Bank lowered recommendation for the stock from “outperform” to “neutral” and set one-year price target at €205, 5.2% below yesterday’s close.
Bayer (BAYN.DE) is trading within a downtrend since mid-2015. Following a minor recovery in January and February the stock turned lower once again. In case steep downward move is to be continued we cannot rule out a test of the support level at €58.30, a level that served as an upper limit of the consolidation in late-2010 and as a swing level at the turn of 2018 and 2019. Source: xStation5
