Summary:
- One-offs turned out to be major drag on the German growth in second half of 2018
- DAX (DE30 on xStation5) breaks to the highest level of the week
- Lufthansa (LHA.DE) forecasts lack of earnings growth after 2018’s slump in EBITDA
In spite of mixed trading during the Asian session, stocks from the Old Continent launched Thursday’s trading broadly higher. Swiss shares were among leaders in the first minutes of trade while Polish, German and UK equities lagged the most. Refiners and telecoms led gains in at the beginning of the session while miners underperformed.
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Despite brief pullback in yesterday’s after-session trading the German DE30 (DAX futures underlying) launched Thursday with a strong surge. The benchmark broke above the 11600 pts handle and continue to rise until it broke to new weekly high. The index may attempt to break above the resistance level at 11680 pts handle later today. Surpassing this level would leave way towards 11850 pts area open. Source: xStation5
Kiel Institute for the World Economy, the German think tank, published an interesting research relating to the condition of the German economy in the second half of 2018. Researchers decided to measure one-off factors that has hit Germany in the final two quarter of the previous year and adjust industrial production data to it. Authors estimated that temporary factors, like low water level of Rhine river, change in automobile regulations or brief plunge in drug sales, could cost Germany €34 billion. After adjusting industrial data for these factors researchers used it to model German economic growth. It turned out that in the absence of these one-offs German GDP growth would be 0.5 percentage point higher in Q3 and Q4 2018. It shows that the underlying condition of the German economy is still solid enough to ensure expansion but short-term country-specific risks can be more than enough to derail it. While these factors are mostly off the table now, more global risks (protectionism, Brexit) may continue to keep German economic activity depressed.
Elsewhere, the German foreign intelligence service representative appear before lawmakers’ committee on Wednesday to address the case of Huawei. German agent, whose name was kept secret, claimed that Huawei is not a trustworthy partner for Germany in 5G revolution as it cooperates with the Chinese secret services. This is another voice in Huawei debate supporting stance that the Chinese company must not be found in a situation that would allow it to get access to the German corporate secrets. While imposing ban on Huawei operations in Germany would be legally difficult, the German authorities are said to be looking for alternate measures that would have similar impact.
Major European stock market indices after the first hour of trade:
- DAX (DE30): +0.42%
- FTSE 100 (UK100): +0.43%
- CAC40 (FRA40): +0.80%
- IBEX (SPA35): +0.93%
- FTSE MIB (ITA40): +0.86%
Deutsche Lufthansa (LHA.DE) and RWE (RWE.DE) are being pressured by weakish guidances. Source: Bloomberg
Company News
Deutsche Lufthansa (LHA.DE) published 2018 earnings report today. The carrier experienced 7% drop in EBITDA last year but analysts expected even bigger decline. Nevertheless, Lufthansa issued a weakish guidance for 2019 and this can be named as the main reason behind today’s underperformance. The German carrier said it expects EBIT margin to fall in a range of 6.5-8% in 2019 after finishing at 7.9% in 2018. The company also plans to slow efforts aimed at increasing capacity due to already limited time slots at airports.
RWE (RWE.DE) also reported 2018 earnings today. The German utility company generated EBITDA of €1.52 billion and net income of €591 million throughout the previous year. For 2019 RWE expects EBITDA in the range of €1.2-1.5 billion and net income in the range of €300-600 million. The guidance can be seen as weak as it hints at earnings stalling or even declining. Nevertheless, the company proposed to pay €0.7 dividend for 2019 and plans to pay €0.8 dividend in 2019.
According to FAZ report, BMW (BMW.DE) is seeking cost cuts from its suppliers. The German newspaper claims that the carmaker contacted 30 of its biggest suppliers and provided them with price demands. The move is said to be related to BMW’s 360-degree programme.
Lufthansa (LHA.DE) dipped below the support zone around €22 handle at the beginning of today’s session. Downward move was halted by the combination of 200-session moving average and upward sloping trendline. Speaking of moving average, 50- and 200-session average just recently painted a golden cross, pattern considered bullish (orange circle). Source: xStation5
