Financial market research and analysis

Although the German services PMI disappointed in October by falling to 54.2 from 54.5 expected, Monday’s better-than-expected manufacturing PMI keeps the sentiment somewhat upbeat in Frankfurt.

A cheaper euro is also a good reason to smile as the single currency consolidates below the 1.10 mark versus the US dollar and targets the 0.70c mark against the pound. The utmost determination of the ECB and its concrete efforts to foster inflation and growth in the Eurozone makes it easier to convince that the weakness in euro will continue to develop. The majority of European stocks trade in the green. CAC’s Technip and Airbus lead gains in Paris as Germany’s Lufthansa and RWE are ranked among the best performers in Frankfurt.

Nevertheless, the DAX underperforms its European peers as the Volkswagen emission scandal spills over the petrol powered engines for the first time and weighs heavily on the German stock index. Additional 800’000 vehicles may be affected, from the very popular Polo, Golf to Passat. Audi and Porsche models could also be affected.
The more you dig, the trickier and more complicated it becomes.

And apparently, investors’ in carmakers across Europe are not less worried about the growing VW scandal.

Even BMW, which has beaten the EPS expectation by 8.55% in Q3 and announced a 10.54%-higher-than-expected net income this week, is down by 2.35%.

Renault (-1.60%) and Peugeot (-1.33%) are falling in concert and are among the few losers in the CAC. However the glass may well be half-full for VW competitors, as they certainly have a good market share to grasp as a significant number of VW consumers will likely walk away from VW galleries. At least for the next couple of years.

VW added €2 billion to economic risks. VW wrote-off another 8% in Frankfurt as investors retreat to the side-lines to wait for the thunderstorm to calm down. The EPS estimate fell by a dramatic 70% over the past four weeks as the VW sales are expected to take a serious hit. But not only. The image of German precision, strength, security and reliance are equally damaged. At this stage, it is very difficult to value the goodwill of Volkswagen.


Shanghai’s stock gain on out-dated news

Outdated news that a link between Shenzhen and Hong Kong exchanges would start in 2015, released accidentally by China’s central bank has been enough to trigger a stock rally in Shanghai’s Composite. Interestingly, there has been little pullback after traders became aware that it was a mistake, perhaps because traders preferred to sit on their long position after the services PMI improved to 52.0 in October, a three-month high from 50. There may well be some profit taking before the end of the week.