DE30: Stocks gain as investors look past geopolitics

• European stocks post small gains

• DE30 fails to break above 200-hour moving average

• European car sales dropped 57% YoY in May 2020

European stock markets continue to advance along with the US equity futures. Markets seem to be looking past geopolitical developments on the China-India border and Korean Peninsula. However, gains are much smaller than they were yesterday. Note that South Korea, China and India are important links in global supply chains therefore Asian geopolitics should be watched closely.

According to the Reuters report, Chancellor Angela Merkel does not expect a decision on the EU recovery fund to be made during a summit this week (Friday). Instead, she expects the bloc to agree on the deal in July. In case she is right, it means that we are ahead of tough and long negotiations that will see each country try to get as much from the €750 billion pool as possible.

Source: xStation5

A look at recent price action of DE30 index shows that the 200-hour moving average (purple) is proving to be a strong resistance. The index made two failed attempts to break above it yesterday - one during Asian session and one near Wall Street open. Another attempt was made today at the start of European cash session and once again we saw a failure. Long upper wicks of recent hourly candlesticks hint that a pullback may be on the cards now. There are no key readings scheduled for release later in the day. Powell will testify before Financial Services Committee at 5:00 pm BST but his message is unlikely to deviate from the one sent yesterday and, in turn, is unlikely to have a major impact on the markets. Should DE30 continue to decline, the first level to watch can be found at 12,150 pts. On the other hand, should we finally see a break through the aforementioned moving average, 78.6% retracement at 12,550 pts will be on watch.

DAX members at 10:11 am BST. Source: Bloomberg

European car sales data for May has been released today. Car sales in the European Free Trade Association and the United Kingdom declined by 57% year-over-year in May 2020. While the reading itself is not too encouraging, it marks quite a significant improvement from a drop of 78% registered in April. Below we presented how German carmakers performed:

• Volkswagen (VOW3.DE) - drop of 56.7% to 155,773 units

• BMW (BMW.DE) - drop of 57% to 39,631 units

• Daimler (DAI.DE) - drop of 55.2% to 39,035 units 

RWE (RWE.DE) can be found among DAX leaders today. Berenberg labelled the company as its top pick in the utilities sector. Berenberg said that RWE is likely to capitalize on a strong outlook for renewables. "Buy" recommendation was maintained while the price target was boosted from €30 to €35.50.

According to a Handelsblatt report, Deutsche Telekom (DTE.DE) could be facing much higher costs of 5G roll-out, should Huawei components and equipment be banned. Paper cites internal documents that stated costs would increase by at least €3 billion as the company will need to replace already built components. Both Deutsche Telekom and Huawei declined to comment on Handelsblatt's report.

Deutsche Telekom (DTE.DE) dipped at the beginning of this week but found support at the €14.50 mark and 200-session moving average (purple line). Upward move was resumed later on. Stock is testing post-pandemic highs in the €15.30 area today. Breaking higher would pave the way towards the long-term resistance zone at €16. Source: xStation5