DAX
The DAX index and other European stocks bounced back today as the market remained optimistic about the health of the economy as more countries start to reopen. In addition to this, market participants are ignoring the risks of a trade war between the United States and China.
All companies in the DAX index are in the green today with the only exception being Beiersdorf and Wirecard. The stock prices of the two companies has dropped by more than 1%.
Wirecard, the financial technology giant, that replaced Commerzbank has been in trouble since last year when the FT started its investigation. Sequentially, the company’s board called for KPMG to conduct a full audit, which was released last week.
The whole problem centred on foreign intermediary companies that Wirecard has had relationships with. In its reporting, the FT accused the company of using these intermediaries to inflate revenue.
In its report, KPMG absorbed the company of any wrongdoing as a result of obstacles and lack of data from the company. The report also said that revenue of $1.1 billion was sufficient for reporting purposes but insufficient for a forensic probe.
After the report, Chris Horn, one of the biggest shareholders, asked the board to fire the founder and CEO. In a statement, Markus Braun said that he was not planning to step aside but was focused on improving compliance of the company. According to Bloomberg, he will soon launch nine projects to improve this compliance.
Shares of Volkswagen rose by more than 3.85% even as the company sent a warning about costs. In a statement to investors, the company said that costs for several parts had risen sharply because of the outbreak. The management said that parts suppliers had raised their costs because they were operating below capacity.
Further complicating the problem, is the fact that the world is in its biggest recession in decades. As a result, it will be difficult for VW and other automakers to offset these costs by raising prices.
Perhaps, investors are hoping that a meeting between Angela Merkel and auto manufacturers will help. They are proposing an introduction of a scrappage scheme to boost demand.
All companies in the DAX index except Beiersdorf and Wirecard rose today. The best performer was MTU Aero, whose stock rose by more than 5%. The other strong performers were Infineon, Vonovia. Daimler, Volkswagen, Continental and BMW. Other than Wirecard and Beiersdorf, other laggards in the index were SAP, Henkel, BASF, and Bayer.
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On the daily chart, the DAX index has been on a strong upward trend since March 19, when it was trading at €7,942. The price is now attempting to fill a gap that was created yesterday. Also, the price is slightly below the 50-day EMA and the 50% retracement level. Therefore, I expect the index to attempt to move above the 50% retracement at €10,848.
On the flip side, a move below €10,155 will mean that bears are totally in control, which could push the index lower. This price along the 38.2% retracement price.