DE30: European stocks move lower as attention turns to ECB

Summary:

• European equity markets begin Thursday’s trading on a weaker note
• ECB meeting among major risks to European stocks, the stronger euro may matter as well
• DAX (DE30) keeps trading within its range, Lufthansa (LHA.DE) loses after the company calls on Bundestag to step up efforts to implement reforms of security controls at German airports

European stock markets have begun the day on a softer foot feeling a rate increase in the US rolling through financial markets. However, having the Fed’s meeting already done, now focus turns to the European Central Bank meeting as it might be critical not just for the euro, but also for European stocks. Notice that the ECB is expected to announce that its asset purchase programme will terminate in the end of this year, but this has been priced in, hence more attention should be paid to forward guidance. Any more hawkish remarks with regard to a possible deposit rate increase might see the euro rising appreciably. On the other hand, one cannot forget about Italian woes, a topic which could be brought up by ECB members (expect some questions with regard to an impact of a Italian headache on ECB’s monetary policy). Meanwhile, the German DE30 keeps moving within its consolidation erasing its drops made immediately after the opening.

The DE30 has been able to retain its short-term bullish momentum despite further monetary tightening in the US. Source: xStation5

Technically speaking the German index has been able to stay above its short-term trend line so far, but the price might be under pressure during the ECB meeting later today. Either way, right now it looks that buyers may try to erase all losses made in early trading, but a move through 12900 points could demand much more from bulls.

Looking elsewhere one may notice that falls are seen across the board with the Italian FTSE MIB (ITA40) being hit the most. It’s interesting because it may suggest that Italy has the most to lose once the ECB terminates its bond buying programme this year. Notice that the ECB has already bought up a lot of Italian bonds implying that should it begin selling them out, it could drive Italian yields higher acting to the detriment of the highly indebted economy. Beside the Italian stocks market the FTSE100 (UK100) is losing 0.5%, the same loss is seen in France (FRA40) while the DE30 together with the EuroStoxx50 (EU50) are down 0.35% each.

Lufthansa (LHA.DE) is among the biggest laggards on Thursday. A majority of stocks is losing ground. Source: Bloomberg

Why is Lufthansa trading so weak? The German airline’s head Kay Lindmann called on the German Federal Government and Bundestag to swiftly implement reforms regarding security controls at German airports. This is a concept already announced as part of the new German Government’s coalition agreement. According to Lindmann "lack of efficiency and high costs are serious locational disadvantages for air traffic from Germany and a daily burden on our passengers".

Shares of Lufthansa are trading on the verge of a pivotal technical support. Source: Bloomberg