DE30: Resistance smashed following ECB meeting

Summary:

• European stock markets begin quite positive despite a US tariffs threat
• DAX (DE30) smashes resistance following the ECB meeting
• German banks among major losers as traders push back the first rate rise

Stocks seem to be the only class of assets benefiting from the yesterday’s ECB decision where the bank decided to postpone the first deposit rate hike "at least until summer 2019". This was the most bearish point in the statement, and the euro tumbled in the aftermath even as inflation projections for this and following year were revised up notably. As a result, the German stock market surged and broke through a major resistance placed at around 12900 points. This level has become a relevant support followed by 12550 points.

The DE30 soared on Thursday benefiting from quite a dovish ECB stance in terms of interest rate guidance. Source: xStation5

Technically speaking a lot has changed since the yesterday’s European Central Bank gathering. The euro tumbled in response to fairly the dovish outlook with regard to to rate rises in spite of the fact the ECB announced its APP to be winded down altogether since the beginning of 2019. As a result, stock markets got the largest boost which pushed the DE30 to the local resistance placed in the vicinity of a 78.6% retracement. However, after such precipitous declines a relief rally is often experienced, hence if so it could weigh on German stocks during the day. What could buyers do right now? Notice that the morning’s pullback might stem, in part, from profit-taking, and therefore one cannot rule out that more bulls might lurk nearby 12900 points.

German stocks are almost equally split in early trading on Friday. Lenders are among the most affected stocks being understandably lower due to a postponed rate hike. Source: Bloomberg

Following three central bank meetings (Fed, ECB, BoJ) now focus turns on a trade war thread. According to the newest revelations cited by Reuters the US is to be reportedly near a second tariffs list on Chinese goods worth even up to $100 billion. However, the second list is to be subject to the same public comment and hearing process as the first one was. This is expected to take time, hence it possible new levies are not expected to come into effect over the upcoming 60 days. Let us notice that on late Thursday Wall Street Journal informed that the US is already ready to slap China with tariffs on goods worth $50 billion. If both implemented it could be a double-whammy to the Chinese economy encouraging Beijing to retaliate (we’ve been already offered some news regarding retaliatory steps, but no detail have been released yet). According to Reuters estimates in April there were about 7600 consumer and industrial goods available for tariffs with a combined value of $101 billion in which China accounts for 40% or a bit less of US imports.

After an hour and a half of trading major stock indices are trading pretty flat except South Europe ones. Both IBEX (SPA35) and FTSE MIB (ITA 40) are down 0.7% and 0.6% respectively which might directly due to the latest ECB decision as both countries have seen massive bond purchases. Once the ECB halts its net purchases it might lead to a lowered demand weighing on prices and pushing borrowing costs for both highly indebted economies.