European Equities: The DAX Pressures the Majors as Auto Stocks Crumble

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Updated: Mar 24, 2019, 16:53 UTC

A 2019 pause on interest rate hikes by the FED may not be enough should U.S - China trade talks lack progress. It could be a telling end to the week.

Frankfurt (All Buildings Are Complete and Moveable)

Economic Calendar

Thursday, 21^st March 2019

ECB Economic Bulletin

Friday, 22^nd March 2019

French Manufacturing PMI (Mar) Prelim
French Services PMI (Mar) Prelim
German Manufacturing PMI (Mar) Prelim
German Services PMI (Mar) Prelim
Eurozone Manufacturing PMI (Mar) Prelim
Eurozone Markit Composite PMI (Mar) Prelim
Eurozone Services PMI (Mar) Prelim

The Majors

The DAX was the story of the day on Wednesday. Sliding by 1.57% to fall into the red for the current week, the bad year keeps going from bad to worse.

On the data front, wholesale inflation figures out of Germany were the only major stats to provide direction through the day. Softer than expected producer price figures had limited impact on the EUR, however, with the markets looking ahead to the FED.

While the EUR was in a holding pattern ahead of the FOMC’s release of the economic projections and FOMC press conference, market optimism of a U.S-China trade agreement weighed on the day.

The European auto sector has been under scrutiny for some time now. Concerns over emissions scandals have shifted to fears that an extended trade war between the U.S and China could materially impact earnings.

BMW shares slid by 4.57% on Wednesday, with a profit warning for 2019 doing the damage. The company announced that it expected a material fall in profits and also of plans to make significant cost savings.

The impact of the emissions scandal continues to be felt across the sector as auto producers face higher costs to comply.

BMW’s stark warning for the year ahead weighed on Volkswagen, which ended the day with a 2.22% loss.

Interestingly the bad news comes before the U.S administration hits the EU with a more material threat of tariffs on European auto exports to the U.S. With economic growth in China slowing and Brexit uncertainty weighing, the last thing the sector needs is tariffs.

Away from the auto sector, Bayer saw the heaviest loss of the day. BAYN:GR tumbled by 10.09% on Wednesday following news hitting the wires that the company’s weed killer Roundup is causing cancer in men.

DAX 21/03/19 Daily Chart

Across the other Majors, not too far behind were the Pan-European Stoxx 600 and CAC, with losses of 0.78% and 0.8% respectively.

The Remainder of the Week

Following a more dovish than expected FOMC, the positive will be the prospects of a hold on interest rates through the remainder of the year. The bad news, however, may ultimately pin back the DAX and the rest of the majors.

The EURO rallied by 0.55% to hit $1.14 levels for the first time since the first week of February. With the European majors having an export-focused bias, the stronger EUR won’t be of much help near-term.

A pickup in the EUR and slide in U.S Treasuries will also be bad news for European banks, which have struggled in the current interest rate environment. Weaker growth coupled with falling yields will be another blow. Deutsche Bank shares fell by 3.32% on Wednesday. Even talks of a merger with Commerzbank failed to prevent the losses on the day. Commerzbank wasn’t far behind, with a loss of 2.08% on the day.

A lack of data today leaves the EUR in the hands of the ECB Economic Bulletin. Both European and U.S futures are in the red at the time of writing. It’s unlikely that the Bulletin will deliver anything particularly positive for the equity markets.

The majors may need to wait until tomorrow’s prelim private sector PMI numbers for March to shift sentiment. If forecasts are anything to go by, however, any upside may have to come from positive progress on trade talks between the U.S and China.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.