DE30 tests 11,700 pts on EC recovery fund leaks

• European markets surge, EC recovery fund proposal in spotlight

• DE30 jumps above 11,700 pts

• Ryanair to appeal against Lufthansa state aid

European markets are rallying for another day and DAX is testing 11,700 pts handle. European Commission is expected to unveil its own proposal of the EU recovery fund today in the afternoon but some leaks saw daylight and an upward move accelerated. One German newspaper wrote that EC opts for a recovery fund worth €750 billion with €500 billion in grants (unlike loans, grants are not required to be paid back). Apart from that, Bloomberg reported that the EC wants to issue €500 billion in joint debt. Details are likely to be known in the afternoon during the "official" announcement.

Q&A with Christine Lagarde

Christine Lagarde, ECB President, held a 30-minute long Q&A session at 8:30 am BST today. Among highlights, ECB chief said that the scenario assuming "mild" economic damage from Covid-19 pandemic is already outdated. This scenario assumes 5% GDP contraction in the euro area in 2020. "Medium" and "severe" scenarios are more probable now and they assume a drop of 8 and 12%, respectively. The same message was repeated by another ECB member, Luis de Guindos, around an hour later. Overally, Lagarde is not concerned about high debt levels in the euro area and said she does not expect another euro debt crisis.

Source: xStation5

DE30 looks to be clearing an important resistance zone ranging between 11,450 pts and 61.8% retracement of February-March sell-off (11,600 pts). Reopening optimism as well as lack of clear retaliatory actions from China for US attack on Huawei or from US for planned Hong Kong bill keep bears in check and allow indices to rally. Looking ahead, DE30 is slowly approaching a swing level at 11,875 pts. The more important resistance zone, however, is far off the current levels and ranges between 12,450 pts and 78.6% retracement at 12,600 pts.

DAX members at 10:07 am BST. Source: Bloomberg

Yesterday we wrote that Lufthansa (LHA.DE) has finally agreed on a rescue deal with the German government. However, some opposition to this deal surfaced after the announcement. CEO of Ryanair, the biggest budget airline in Europe, said that the rescue deal is an illegal subsidy to German carrier. He added that awarding state aid to Lufthansa will make it much harder for other carriers to compete on flights to and from Germany. Executive said his company will appeal against the deal. Germany-Lufthansa agreement still needs to be cleared by EU competition watchdog.

According to a Reuters report, Daimler (DAI.DE) plans to invest $480 million in Farasis Energy during IPO. Farasis is a Chinese manufacturer of batteries for electric vehicles. The two firms had struck an agreement last year for supply of lithium-ion batteries and Farasis began building a factory in Germany. However, both companies declined to comment on the Reuters report.

Infineon Technologies (IFX.DE) announced that it has decided on a capital increase of around €1 billion. Capital will be raised by around 4% through share issuance and those shares will later be sold via private placement. Proceeds will be used to repay loans Infineon took to finance acquisition of Cypress Semiconductor. 

Christian Sewing, CEO of Deutsche Bank (DBK.DE), said that positive momentum in the fixed-income trading unit continued into April and May after having a strong first quarter.

Daimler (DAI.DE) made a break above a high from April 30 today. In turn, the stock is trading at the highest levels since March 6. Share price is quickly approaching €37 area, where some action took place during a February-March sell-off. Source: xStation5