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DE30: North Korea roils European equity markets

Summary:

  • All major European stock markets have kicked off the day with losses
  • DAX (DE30 on xStation5) marks quite a significant bearish gap at the opening
  • RWE (RWE.DE) is down in early trading as Berenberg challenges further upside potential

Another week is beginning with the same scenario - a risk-off mode sparked by North Korea. Even though markets have already accustomed to such nuclear tests, at least to some extent, some havoc could be seen across FX as well as equity markets. On the flip side, given recent responses to North Korean ballistic missile launches and a terrorist attack in Barcelona one could expect that a risk-off flow might be a short-lived one.

link do file download linkThe DE30 remains contained within fairly a narrow range. A breakout of a local support or a resistance zone could commence a more durable move. Source: xStation5

Taking a look at an H4 chart of the DE30 we could assume that the price could reject a possibility of a breakout below 12075 points. A decline has been obviously a knee-jerk reaction after the North Korea’s detonation of a hydrogen bomb, however the index hasn’t been able to hold losses so far. As a result, a long shadow has been drawn suggesting bulls could be getting back to its direction.

Summing up a technical view, if the price manages to hold above 12075 points a move towards 12165 could be a base scenario. Then, bulls might run into an important resistance once again. This resistance appeared to be sufficient to halt further gains on Friday, hence there is a need to get more powerful momentum in order to break it durably. At the end, let us mention that the lower euro ex-change rate may help the German index as well.

link do file download linkHenkel is the sole stock being able to trade above the breakeven line. Source: Bloomberg

Despite a lively move to the upside seen in gold prices, Asian stocks’ performance was not unequivocal. Admittedly, the Hang Seng Composite (HKComp) slumped more or less 1%, its continental counterpart the Shanghai Composite (CHNComp) managed to add almost 0.4%. Moreover, the NIKKEI (JAP225) moved down 0.9% (mainly on the back of the stronger Japanese yen) while the Australian S&P/ASX 200 lost 0.4%.

Whipping through the European equity markets one could notice that after a grim start of the day, the climate has slightly improved. Either way, we are still a long way off from a closing of bearish gaps entirely. The DE30 is sliding 0.45%, the EuroStoxx50 (EU50) is edging down 0.4%, the CAC40 (FRA40) is going down 0.4% as well, whereas the FTSE100 has been the most resilient one to deteriorated spirits and is trading just 0.15% lower on the day.

Company news

Taking a closer look into the DE30, RWE (RWE.DE) is the weakest stock slipping more than 1.1%. A decline is a consequence of an updated recommendation from Berenberg. The stock was downgraded to hold from buy, although its new price target was lifted from 14 EUR to 21.2 EUR. Berenberg’s analysts added that further upside potential for the shares of RWE relies on blue-sky scenario.

Furthermore, EON (EOAN.DE) is losing ground as well. This move is a ramification of the story which came earlier today. There is guesswork that the lower EURGBP cuts back on EON’s profits even as the net effect has been partially offset by currency hedging.

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