Summary:
- Euro area economy said to get boost from expansionary fiscal policy this year
- DAX (DE30 on xStation5) trades below 11400 pts handle after steep decline on Friday
- Lufthansa (LHA.DE) trades lower after software problem reports
Equities from Europe and the United States finished last week on a weaker footing as significant declines were spotted on both sides of the Atlantic Ocean. As moods remained sour Asian stocks launched new week with a drop. Landscape did not change at the European opening either - major indices moved lower all across the Old Continent. Telecoms and real estate companies traded higher at the opening while all the other sector groups underperformed.
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For the first time in a decade net lending/borrowing is said to have a positive impact on the euro area economy. Source: Bloomberg, European Commission
Survey gauges from the euro area deteriorated and economic growth began to slow raising concerns that the bloc may be on recession track. However, the euro area economy is likely to get a significant fiscal boost this year. Higher public spending in countries like Germany or tax cuts in France (in the aftermath of Yellow Vest protests) are among the factors contributing to the biggest fiscal boost in a decade. Such a development is more than needed in Europe and may help currency bloc ease negative impact from deteriorating economic conditions, just as Trump’s tax reform helped the US economy. However, solving one problem creates potential to magnify another. While more expansionary approach to fiscal policy may help the bloc cope with slowing growth it will certainly not help countries like Italy or Spain reduce their indebtedness. Taking on additional debt by those countries creates scope for another euro area debt crisis in case economic growth fails to pick-up and offset it. Note that as conditions deteriorate all around the world, significant acceleration in economic growth may be challenging to achieve.
DE30 (DAX futures underlying) dipped below the upward sloping trendline and the 11400 pts handle on Friday. Decline was halted in the vicinity of the 50-session moving average (green line). Bulls try to recoup some losses today after getting a boost from better-than-expected IFO readings. A close above the 11400 pts could bode well for the future. Source: xStation5
The German Ifo Institute for Economic Research released its indices for March at 9:00 am GMT. The headline Business Climate index moved from 98.7 pts to 99.6 pts (expected 98.5 pts). Both, Expectations and Current Assessment, subindices move higher as well. The former jumped to 95.6 pts (expected 94 pts) while the latter moved from 103.4 pts to 103.8 pts. An upward revisions were also spotted in all cases. Such readings are in line with the latest rebound in the German ZEW indices but stand in contrast with PMIs. All of the aforementioned readings are survey based and therefore they sometimes tend to show contrasting picture. However, PMIs seem to be the most aligned with developments on the global scale.
Major European stock market indices after the first hour of trade:
- DAX (DE30): -0.34%
- FTSE 100 (UK100): -0.83%
- CAC40 (FRA40): -0.69%
- IBEX (SPA35): -0.58%
- FTSE MIB (ITA40): -0.18%
Fresenius Medical Care (FME.DE) and Fresenius SE (FRE.DE) surge after upbeat Commerzbank recommendation. Source: Bloomberg
Company News
Deutsche Lufthansa (LHA.DE) is one of the worst performing DAX members today. Reports surfaced that the German carrier is experiencing some software problems. As a result, Lufthansa may be forced to cancel 22 flights on Monday and more in the following days in case problems turn out to be more severe.
Fresenius Medical Care (FME.DE) is surging today thanks to upgrade at Commerzbank. Recommending for the stock was raised from “hold” to “buy”. A one-year price target at €90 implies significant upside potential. In turn, both Fresenius Medical Care and Fresenius SE (FRE.DE) can be found among DAX outperformers.
On the other hand, Bayer (BAYN.DE) can be found among the biggest DAX underperformers following a downgrade at Bank of America Merrill Lynch. BofAML lowered recommendation for the stock from “buy” to “neutral” and set one-year price target at €70. The Bank reasoned this change by saying that legal risks may continue to weigh down on Bayer’s share price.
