DE30: Deutsche Telekom wins approval for Tele2 acquisition

Summary:

• Key European nations are reluctant towards toughening sanctions against Russia

• DAX (DE30 on xStation5) may eye closure of the Monday’s price gap

• German carmaker shares moved lower yesterday following report on import duties

Optimistic remarks concerning international trade boosted stocks in Asia today. The same theme seems to be in play at the beginning of the European session as most of the blue chips indices from the Old Continent opened significantly higher today. The biggest gains were seen on Russian and Dutch stock exchanges in the first minutes of trade while shares in Belgium lagged the most. Travel and food companies were the only sectors from the Euro Stoxx 600 index to open lower on Wednesday. On the other hand, miners and personal good companies outperformed the most in the first minutes of today’s session.

DE30 (DAX futures underlying) opened in the vicinity of 11400 pts handle today after painting a spinning top candlestick pattern yesterday. However, the German benchmark moved significantly lower following the launch of the session and is now trading around 11300 pts handle. In case the downward move is to extend investors may want to first watch the 11200 pts area (closure of the upward price gap from 26 November) and then YTD lows at 11050 pts. Source: xStation5

The latest spat between Russia and Ukraine near the Kerch Strait saw EU being called to act. However, the European authorities are likely to stay on hold for now. This is because the bloc wants to state facts prior to taking actions. Ukraine blames Russia for the incident while Russia blames Ukraine. The German Chancellor, Angela Merkel, spoke to the Russian President, Vladimir Putin, on Monday. Two leaders discussed possibility of launching an investigation on the scene with Russian and Ukrainian experts being among investigators. The Ukrainian President, Petro Poroshenko, issued a decree for martial law reasoning it with a threat of a full-scale war with Russia. The EU nations that border with Russia were among countries calling for tougher sanctions against Russia highlighting fears in the region. Nevertheless, whether we will see a full-bloc action against Russia or not depends on decision of key European players and those - Germany and France - are reluctant towards taking any actions until more evidence is available.

Major European stock indices after the first hour of trade:

• DAX (DE30): +0.18%

• FTSE 100 (UK100): +0.16%

• CAC40 (FRA40): +0.32%

• IBEX (SPA35): +0.79%

• FTSE MIB (ITA40): +0.20%

Tariff concerns continue to weigh on Continental (CON.DE) share price. Source: Bloomberg

Company news

The European car industry took a hit yesterday once the report surfaced saying that the US President may impose car duties as early as next week. Report prepared by the US Department of Commerce is said to have been already forwarded to Trump and now the President will make his decision. However, it is rather unlikely that he will do it prior to the G20 summit scheduled for this week. According to WiWo, the German business magazine, the report recommends imposing 25% duties on imports of all cars spare for Canadian and Mexican ones. News outlet also reported that the EU Trade Commissioner, Cecilia Malmstrom, will travel to Washington this week to discuss the matter with its US counterpart, Robert Lighthizer. However, this rumours were denied by the European Commission already. Malmstrom last met with Lighthizer on 14 November but the meeting failed to produce any kind of solution. Moreover, the EU Commissioner said after the meeting that the EU will retaliated against any tariffs imposed on the European car industry hinting that the issue may be here to stay for some time. Continental, Daimler, Volkswagen and BMW are among affected German companies.

Bayer (BAYN.DE) can be found among DAX outperformers today. The report surfaced yesterday saying that the company is set to cut jobs at its Basel-based consumer health division. Moreover, the cost reduction process may also involve sale of some smaller brands.

Deutsche Telekom (DTE.DE) won an EU approval for its acquisition of a part of the Dutch Tele2 (TEL2B.SE). The German telecommunications firm will acquire mobile phone business of its Dutch counterpart. What is especially pleasing about the EU approval is that no conditions were attached to it. The European authorities said that the combined entity will hold around 30% of the Dutch market and the merger will not impact price or quality of services significantly.

Continental (CON.DE) underperformed for the major part of 2018 on the back of trade war fears. The company took another dive yesterday and may be set to retest its latest low around the €128 handle. The company is trading over 40% lower YTD. Source: xStation5