DE30: Firmer opening as Merkel, SPD reach preliminary accord


 European stock markets have begun the day firmer following new highs on Wall Street  
 Merkel and SPD reach a preliminary deal to negotiate a coalition government  
 Volkswagen (VOW.DE) leads the gains as Macquarie upgrades the stock
The European equity markets experienced quite the ugly performance on Thursday partly on the back of a surge seen in the single currency. The euro gained momentum as the ECB’s account illustrated that the Governing Council could adjust its forward guidance at the beginning of the new year. That said, one may expect that some more hawkish references will be already included in the January’s statement. Notice that we mentioned that the German DAX could be susceptible to more hectic moves due to swings in the common currency. Let’s add that the euro has just shot up above 1.21 at the time of writing climbing the highest since December 2014 - it could be a short-lived drag on the European indices but it the longer-term it’s unlikely to have a more detrimental impact on inflation given which factors are driving the currency higher.

The DE30 appears to be on the verge of a more severe pullback. Source: xStation5
A technical analysis seems to suggest that we are on the edge of a possible breakout of a pivotal support area placed at 13200 points. A quick slip below this point could incentivize more sellers to engage the bear market. If so a correction might easily extend making a 12820 handle likely to obtain. Nevertheless, do notice that bulls were able yesterday to keep the price above the support zone at the close suggesting that they might not to throw in the towel so easily. Let’s sum up that we’ve got the two contrary factors impacting the DE30. The first one is the jump in the single currency which might be a short-lived drag on the German index as the stronger currency could undermine exporters’ margins (at least in theory). On the other hand though there are revelations that the Merkel’s CDU and SPD have reached a preliminary accord to negotiate a coalition government (it could have helped boost the euro). According to people familiar with the discussions the hammered out agreement is to be announced in Berlin later today.

The DE30 reversed its gains following a surge in the euro as Merkal, SPD were to reach a preliminary accord.

While the beginning to Friday’s trading was quite good for the major European benchmarks they took a step back when a CDU/CSU preliminary deal was released. As for now the DE30 is gaining a touch more than 0.1%, the French CAC40 (FRA40) is trading unchanged, the EuroStoxx50 (EU50) is moving up 0.15% while the FTSE100 (UK100) is advancing 0.1%. Notice that another session in a row the Italian FTSE MIB (ITA40) is the best index across the old continent (along with the IBED this time round).

In Asian we had quite the successful session as the Hang Send surged 1.4% taking cue from Wall Street marking its fresh records yesterday. Elsewhere results were not so spectacular as the Shanghai Composite (CHNComp) ended up 0.1%, the Australian S&P/ASX 200 gained a modest 0.04% whilst the NIKKEI (JAP225) lost 0.25%.

Company news

Volkswagen (VOW.DE) is among the top performers within the DE30 as the stock was upgraded by Macquarie’s analysts. They claimed that the company is on track to deliver structural improvements and capital spending discipline. Therefore they decided to revise up their earlier call from neutral to outperform with the new price target lifted from 155 EUR to 210 EUR.