DE30: Shares of carmakers drown as car sales slump, French PMI plummets

Summary:

• Bundesbank trims GDP projections for German economy for this and following year

• Falling car sales in Europe weighs on carmakers’ shares

• All French PMIs decline below 50 points in December

The European stock markets have kicked off the last trading day this week on the wrong foot following a bleak session in Asia. Among reasons we may point to disappointing figures from the Chinese economy signalling that economic slowdown is likely to continue in the months to come. On the other hand, there was the upbeat news from the US (but it had been basically priced in some time ago) as the country confirmed it would not impose additional tariffs on Chinese goods until March 2019 as per the temporary accord struck between the US and China during the G20 summit in Buenos Aires. As we are coming to an end of the week it could be worth looking at the weekly chart of the DAX (DE30) which does not look promisingly for bulls to say the least.

The DE30 broke clearly below its long-term trend line last week and it is likely to stay below this level this week as well. Note that this line was providing the support for buyers since mid-2011. While one can count on a bounce toward this line in the days to come, the broader outlook suggests that the market has already turned a bearish direction and it seems that it is only a matter of time when we see deeper declines (the breakout of the support zone placed around the current levels). Source: xStation5

European auto stocks are among the worst performing in early trading following the newest data on new car registrations for November. It showed that the number of registrations plunged 8.1% YoY marking the third consecutive decline, according to the European Automobile Manufacturers Association. This figure produced declines of 23% in September and 7.4% in October - the worse results came on the back of an introduction of new emissions standards on September 1. The association said that the data for December could result in the decline over the entire year with bleak prospects for the following year. Note that the Stoxx 600 Automobiles & Parts Index has plunged 25% on a year-to-date basis. Meanwhile, the new CEO of Audi said during a meeting with workers that “Audi needs readjustments including polishing the brand’s image, enforcing a culture change and strengthening its largest market - China.” Moreover, Audi’s global deliveries slumped as much as 17% last month reflecting a fading demand on luxury cars. As a result, the company lost further ground to its major competitors - Mercedes-Benz and BMW.

Shares of automakers are leading the losses within the DE30 this morning following the ugly data on new car registrations. Source: Bloomberg

The euro and European equities are also being burdened with the series of poor PMIs from European economies. In France all gauges plunged below 50 points, a level dividing economic expansion from contraction. The major reason were numerous protests (so-called yellow vests’ protests) caused by high cost of living including fuel prices. As a consequence, services PMI declined to 49.6 from 55.1, manufacturing PMI slid to 49.7 from 50.8 and composite PMI moved down to 49.3 from 54.2. Sentiment among managers deteriorated in Germany as well - manufacturing PMI slipped to 51.5 from 51.8, services PMI went down to 52.5 from 53.3 and composite PMI dipped to 52.2 from 52.3. Overall, the German data suggests that the manufacturing sector’s slowdown is likely to extend to the first quarter of 2019 hurting economies relying on German exports like Poland. From the entire Eurozone we were offered an array of disappointments alike - manufacturing PMI fell to 51.4 from 51.8, services PMI declined to 51.4 from 53.4 and the composite gauge dipped to 51.3 from 52.7.