DE30: Stocks start flat post ECB, BASF disappoints with earnings

Summary:

• European equities begin the Friday’s session relatively flat following robust gains made on Thursday
• ECB signals no rate hike at least till September, German yields slightly lower in the aftermath
• BASF (BAS.DE on xStation5) produces disappointing Q2 earnings, shares fall sharply

After solid gains made yesterday European stock markets have begun Friday’s trading pretty flat as many investors might decide to cash in on their recent longs after the remarkably successful week. From a technical point of view the German DAX (DE30) could be well positioned to continue to move north as it breached its crucial resistance closing the bearish gap at the same time. However, before we move to analyse charts let us present our view with regard to the July’s European Central Bank meeting.

The Bank clearly communicated that nobody should expect any interest rates hikes until the end of the summer next year. When asked about some misinterpretations of the June’s statements Draghi said that the only version of each statement the Governing Council agrees on is the English version. Having these words in mind one may conclude that the June’s statement was quite unequivocal - no rate hike at least until September 2019. Indeed, Draghi reiterated such a view on Thursday pushing the likelihood for a 10 basis points deposit rate hike to below 14% from above 20% prior to the press conference. Should this move be shocking for traders? The answer is no at all. On the other hand, Mario Draghi gave a bit food for thought for bulls as well paying attention to the latest increase of wage growth. He admitted the acceleration could have been driven by a wage drift, which measures the difference between wage being really offered to employees and the level of wage agreed based on the longer-term pay deals. Notice that such a situation usually occurs in the encouraging macroeconomic environments as companies are keen to pay more to their employees (possibly for extra hours) in order to meet rising demand.

EMU inflation expectations seem to be well anchored in the ECB’s acceptable area. Source: Bloomberg

At the end of the day, Draghi warned that is too early to declare victory on inflation even as headline price growth totalled 2% in June, which is slightly more than the ECB wants to achieve in the long-run. However, he ascribed this increase to higher oil prices which seems to add up given the dormant pace of core price growth. As a result, market-based inflation expectations keep running around 1.7% (take a look at the chart above) - the level being in the area acceptable by the ECB.

The DE30 broke through 12750 points opening itself the way for further gains. Source: xStation5

Moving to technical analysis one may notice the price smashed its crucial resistance in the wake of the ECB-post euro slide which saw European equities climbing across the board. As one may see, the index finally close the bearish gap it drew in mid-June and right now it seems to reasonable to expect the German stock market to move higher toward another important resistance localized nearby 13200 points (we had the double top in the neighbourhood of this level).

The DE30 breakdown shows the BASF (BAS.DE) is undoubtedly the worst performing stock this morning. Source: Bloomberg

Let us come forth with a quick overview of European equities this morning. First and foremost, the German benchmark is moving 0.25% higher, the French CAC40 (FRA40) is rising 0.15% while the EuroStoxx50 (EU50) is adding 0.25% and the FTSE100 (UK100) is climbing 0.3%. Notice that Asian stocks ended the day pretty mixed with Chinese indices slightly falling and the Japanese NIKKEI (JAP225) gaining 0.55% in spite of the fact that the JPY was performing quite well over Asian hours trading.

Company news

BASF (BAS.DE) keeps the worst place within the DE30 this morning on the back of sub-par financial numbers for the second quarter. Company’s adjusted operating profit missed the lowest analysts’ estimate producing 2.36 billion EUR whilst estimates ranged from 2.4 to 2.54 billion EUR. Revenue came in at 16.78 billion EUR and beat the median forecast at 16.59 billion. EBITDA as well as EPS fell short of expectations as well with the latter showing 1.77 EUR compared with 1.88 EUR expected (the real number was close to the lower bound of a range).

Thyssenkrupp (TKA.DE) informed that it intended to invest between $150 to $250 million in a new US headquarters for its elevators business claiming that it did not see indication that the elevators boom was waning. Notice that elevators make up a core business for the firm, albeit a notable part of earning is also generated by maintenance services. Shares are rising 0.4% at the time of preparing of this analysis.