Stock Market Comment: Volkswagen delays decision on investment in Turkey

• Italian government aims to tackle tax evasion in the country

• Volkswagen postpones investment decision amid unrest in Syria

• Ericsson delivers earnings beat on strong 5G demand

Global stock markets are enjoying strong gains this week thanks to more optimistic trade comments as well as progress made on getting Brexit done. While the optimism seems to be widespread, the situation in Syria is causing some concerns among companies.

Italian government aims to tackle tax evasion in the country

Italian ruling coalition, formed by the Five Star Movement and Democratic Party, approved a 2020 budget draft. The document can be seen as expansionary as it proposes tax cuts for middle-earners while scraping the planned increase in sales tax. To finance these proposals, the Italian authorities plan to take bolder steps in order to reduce tax evasion in the country. Italy plans to encourage the use of debit and credit cards. Retailers will face a fine of up to €2000 for not accepting credit cards while threshold above which cash transactions are illegal will be lowered from €3000 to €2000. The government plans to lower this threshold further, to €1000, in 2022. It is estimated that these actions will provide Italian budget with additional €3 billion revenue. While lowering the scope of tax evasion should help the public sector, companies are likely to be delighted with lack of sales tax increase.

Following another failed attempt to break above the resistance zone ranging at 22000 pts, the Italian FTSE MIB (ITA40) pulled back to the 100-session moving average (red line). The index managed to bounce from there being fuelled by trade and Brexit optimism. Significant momentum allowed Italian benchmark to finally break above the aforementioned resistance zone and ITA40 trades at the highest level since May 2018! The attention now shifts to the resistance zone ranging around the 22800 pts handle. Source: xStation5

Volkswagen postpones investment decision amid unrest in Syria

Turkish offensive in Syria gathers increasing attention and criticism from the developed world. It was just a matter of time until companies start announcing that geopolitical instability in the region is making them reconsider investments. The German carmaker Volkswagen (VOW3.DE) was one of the first to do so as it decided to delay final decision on Turkish production plant worth $1.4 billion. The plant was expected to have a production capacity of 300 thousand cars per year but the management decided to postpone the decision as it feared that going through with a plan will result in reputational damage to the company. Supervisory board of the German company will discuss the issue during its next meeting in mid-November.

After finding a support at the 200-session moving average (purple line) near the midpoint of a trading range, shares of Volkswagen (VOW3.DE) started to climb higher. Increased risk appetite this week allowed the stock to break above the 61.8% Fibo level of April-October 2018 slump (€164) that was the final hurdle limiting upward moves for over a year. The stock trades at 16-month high and attempts to make a clear break above the 78.6% Fibo (€170). Nevertheless, the company is still trading way off its 2015 peak at €240. Source: xStation5 

Ericsson delivers earnings beat on strong 5G demand

Ericsson (ERICB.SE), the Swedish telecommunications company, surges today after reporting earnings for the third quarter of the year. While the market was expecting operating income growth of 36.8% YoY, Ericsson reported earnings at 6.5 billion crowns, marking a 71% YoY increase. The company admitted that orders for 5G technology kick-off earlier than expected and they were the main driver of earnings. As 5G is a new technology and demand for it is unlikely to disappear anytime soon, Ericsson decided to boost full-year revenue target to 230-240 billion Swedish crowns, up from 210-220 billion previously. Ericsson is one of key 5G players along with Finnish Nokia and Chinese Huawei Technologies.

Ericsson (ERICB.SE) enjoys the best two-week period in a long time with its shares surging over 17%. Some resistance arose near the 61.8% Fibo level of the April 2014 - October 2016 downward move (90.70 SEK). In case bulls manage to smash it, way towards the resistance zone near YTD highs (95-96 SEK area) will be left open. Near-term support can be found at 86.50 SEK handle. Source: xStation5