DE30: German automakers in retreat under tariff threat

Summary:

• German automakers decline at the beginning of the new week following a threat of tariffs from the US

• ECB signals that the ongoing economic slowdown could not be only temporary

• DAX (DE30) is retreating from the crucial technical resistance

European stock markets have begun the new week with mixed results despite a rally in Asia where the gains were spurred by hopes ahead of another round of trade talks in Washington between the world’s two largest economies. Meanwhile, a report sent on Sunday to the White House by the US Commerce Department is weighing on European automakers. While we have yet to get any details concerning this report, this has already affected auto producers in Europe. Let us remind that the falls seen in the morning (Volkswagen, Daimler, Continental and BMW) are a result of a threat that the US could impose tariffs on imported vehicles and auto parts from Europe. It is worth mentioning a speech delivered by Angela Merkel on Saturday where she said that “if these cars [imported from Europe to the US], which are no less a threat than those built in Bavaria, are suddenly a national security threat to the US, then that’s a shock to us,”. According to the IFO estimations Germany would be hurt by sanctions with a net negative effect on exports of 11.6 billion EUR. While we have a holiday in the US on Monday there is a possibility that some details pertaining to the above-mentioned report could be released. Some rumours suggest that the report submitted to the White House include tariffs on vehicles imported from Europe as an option to protect the US national security.

The net effect of automakers on the DAX has been modest so far with the German index hovering slightly below its last close level. However, from a technical standpoint bears could hope for an extended move even toward 10800 points after the price has failed to move through 11360 points. Thus, one may conclude that a risk/reward seems to be tilted in favour of sellers. Source: xStation5

In turn, in Europe there are more pronounced concerns that the ongoing economic slowdown could not be only temporary. The signals suggesting it have been sent in recent days by ECB policymakers. On Friday ECB’s Coeure suggested that the economic slowdown could be deeper while the inflation path shallower than initially thought. In turn, ECB’s Villeroy added then that the ECB could change its interest-rates guidance if it became clear that the situation wasn’t temporary. There have been some rumours that the ECB may be already holding talks about another TLTRO round to prevent the deeper economic slowdown. This scenario seems to be probable and the new TLTRO round could be announced yet this half of the year. If so, it would soften concerns about the more severe economic downturn. More details about any discussions about TLTRO could be known on Thursday when the ECB will publish the account from its latest meeting.

German automakers are on the back foot at the start of trading this week. Source: Bloomberg

Company news

Wirecard (WDI.DE) is surging more than 11% at the time of writing of this commentary after the German regulator took the unprecedented step of temporarily banning short sales of the stock for two months. It justified its decision saying that the price’s recent volatility risks undermining the broader stock market. Let us recall that Wirecard shares have moved up and down following a series of reports brought by the Financial Times alleging fraud at the payment company’s Singapore unit. In spite of the fact that the company has denied wrongdoing, investors have increased their bearish bets exerting massive downward pressure on the stock.