German stocks, as measured by the DAX index, declined today as investors’ mood soured because of the low oil prices and corporate earnings. The GER30 index declined by more than 2% while the FTSE 100 index and CAC dropped by more than 1%. The Stoxx index, which covers the largest companies in Europe dropped by almost 2%.
Continental Falls After Rate Downgrade
Tyre manufacture, Continental, was the second-worst performer in the index after MTU Aero. The company’s shares dropped by more than 5% as investors reacted to a new ratings downgrade by Fitch. In a report yesterday, Fitch downgraded the company’s debt from BBB to BB+ and said the outlook was stable.
The company said that the ratings downgrade was because the company’s recent performance, together with the outlook for the auto industry meant that the company was in trouble. The agency said that it expects auto production to decline by 15% this year because more people will not be buying cars this year. It expects the growth to resume next year provided that there is no other outbreak.
In addition, the agency said that Continental’s profitability will be hampered this year. It expects its operating margin to drop to below 1% this year from 5.3% in 2019. This means the company will be making an operating loss for every tire it manufactures. Also, the company expects the FFO to decline to below 5% from less than 10% last year.
Meanwhile, automakers like Volkswagen, Daimler, and BMW dropped in reaction to the weak financials from Peugeot. SAP, on the other hand declined after the company released strong quarterly earnings. In a statement, the company said that its total revenue rose by 7% in the quarter. Its operating margin rose to 20.8% while its cloud revenue rose by 29%. The stock declined because the company laid-off its co-CEO.
Looking at the four-hour chart, we see a few things. First, the index has been on an upward trend since it bottomed at 7,911 in March.
Second, the index has formed an ascending channel. It has now moved below the middle line of the regression trend.
Third, the index has found some significant resistance at the 50% Fibonacci Retracement level. Therefore, I expect the downward momentum to continue as the index attempts to test the 38.2% retracement level and the lower line of the channel.