Stock Market News – Risk tilted to the downside for European car makers BMW, Daimler and Volkswagen
September 27, 2018 3:26 pm
US President Trump’s tariff action and overall confrontational trade rhetoric have been creating stock market winners and losers. European auto stocks lie on the losing camp, being the past-six-months worst performing sector within the pan-European gauge of equity performance, the Stoxx Europe 600. Meanwhile, the share prices of big players in the sector such as BMW, Daimler and Volkswagen are among those suffering considerable losses.
September’s PMI figures out of the eurozone showed the measure tracking manufacturing activity falling to its lowest since September 2016. According to IHS Markit, the authority releasing the survey results, the auto industry is taking the greatest hit from the slowdown in demand, while data showed exports remaining flat for the first time since 2013. All these are painting a rather unpleasant picture for European car manufacturers, which are being targeted by President Trump.
The odds for the Sino-American trade skirmish being resolved in a diplomatic manner look remote, at least currently. The latest tariff exchange between the US and China taking effect on Monday, the latter calling off planned trade talks between the two sides, and the former signaling that the 10% duties on $200 billion of Chinese imports would rise to 25% starting 2019 as well as threatening levies on an additional $267 billion of Chinese goods, all lend credence to the previous statement.
But why is the trade dispute between the world’s two largest economies alarming for European carmakers? Firstly, them being export-dependent makes them susceptible to declining trade activity. Secondly, China, which is seen as more vulnerable to suffering on the dispute, is the world’s biggest car market. Waning demand from the Asian behemoth can be reasonably expected to act as a drag on these companies’ prospects.
Moreover, a tariff war between Europe and the US – with carmakers being caught in the crossfire – is not completely off the table, despite discussions between Trump and European Commission President Juncker leading to a seemingly constructive outcome in late July.
Munich-based carmaker BMW issued a profit warning on Tuesday, saying it expects lower margins and profitability in 2018 than previously thought. Uncertainty stemming from a deteriorating outlook on international trade and rising costs were cited as the culprits for the decision. Indicative of the severity of the situation is that the company said there’s a chance it will miss its 8-10% operating margin in its automotive business for the first time in more than eight years. Consequently, the vehicle-maker’s shares were sold off to finish the day lower by 5.4%, while the following day they came within breathing distance of a two-year nadir.
For the record, the US houses BMW’s biggest production plant, with the Chinese market absorbing the largest chunk of the plant’s exported cars last year. From July 2018 onwards, the corporation’s vehicles manufactured in the US and heading to China are subject to levies amounting to 40%.
Taking a technical look at BMW’s stock, the bearish short-term momentum that is also evidenced by the stock hitting a three-month low of €76.67 on Wednesday and eyeing its lowest in around two years remains in place. Having said that, downside pressures seem to have eased somewhat as indicated by the RSI which no longer maintains a steep negative slope. Regarding the medium-term outlook, it is predominantly negative with trading activity taking place below the 50- and 100-day moving average lines.
A move down in the firm’s stock may meet support around the three-month low of €76.67 touched earlier in the week. Early July’s near two-year trough of €76.50 is also part of the area around this point, while steeper losses could receive additional support around the €70 round figure that could hold psychological importance. On the upside, resistance may come around the 23.6% Fibonacci retracement level of the downleg from €93.87 to €76.50 at €80.60. The region around this halted declines during August and September, while it also encapsulates the €80 handle. Further above, the 50% Fibonacci mark at €83.14 would come into focus; the zone around this also captures the current levels of the 50- and 100-day moving average lines at €82.28 and €83.19 correspondingly.
Elsewhere, it is not just BMW that’s feeling the burn on the back of tariff fears, but also iconic German names Daimler and Volkswagen. In particular, the year-to-date performance of the three is at -9.35%, -21.8% and -7.4% respectively, weighing on the DAX, Germany’s blue-chip benchmark that all three are constituent stocks of and which is trading lower by 3.7% year-to-date. DAX’s performance renders it the second worst performing major index in Europe, only favoring better to Spain’s IBEX 35 that is down by 5.1%.
Overall, the risks appear to be titled to the downside for the three German automakers and more generally the European auto sector. This view is fueled from the fact that an escalation in trade tensions seems much more likely at the moment than a shift back to the pre-Trump era of doing business. It should also be stressed though that should trade risks subside, then car stocks are likely to enjoy a relief rally.
Lastly, alongside other brands, BMW and Daimler will have the opportunity to generate excitement for their upcoming product offerings during the Paris Motor Show commencing next week (October 4). Volkswagen decided for its core brand to bypass the biennial gathering.
US President Trump’s tariff action and overall confrontational trade rhetoric have been creating stock market winners and losers. European auto stocks lie on the losing camp, being the past-six-months worst performing sector within the pan-European gauge of equity performance, the Stoxx Europe 600. Meanwhile, the share prices of big players in the sector such as BMW, Daimler and Volkswagen are among those suffering considerable losses.
September’s PMI figures out of the eurozone showed the measure tracking manufacturing activity falling to its lowest since September 2016. According to IHS Markit, the authority releasing the survey results, the auto industry is taking the greatest hit from the slowdown in demand, while data showed exports remaining flat for the first time since 2013. All these are painting a rather unpleasant picture for European car manufacturers, which are being targeted by President Trump.
The odds for the Sino-American trade skirmish being resolved in a diplomatic manner look remote, at least currently. The latest tariff exchange between the US and China taking effect on Monday, the latter calling off planned trade talks between the two sides, and the former signaling that the 10% duties on $200 billion of Chinese imports would rise to 25% starting 2019 as well as threatening levies on an additional $267 billion of Chinese goods, all lend credence to the previous statement.
But why is the trade dispute between the world’s two largest economies alarming for European carmakers? Firstly, them being export-dependent makes them susceptible to declining trade activity. Secondly, China, which is seen as more vulnerable to suffering on the dispute, is the world’s biggest car market. Waning demand from the Asian behemoth can be reasonably expected to act as a drag on these companies’ prospects.
Moreover, a tariff war between Europe and the US – with carmakers being caught in the crossfire – is not completely off the table, despite discussions between Trump and European Commission President Juncker leading to a seemingly constructive outcome in late July.
Munich-based carmaker BMW issued a profit warning on Tuesday, saying it expects lower margins and profitability in 2018 than previously thought. Uncertainty stemming from a deteriorating outlook on international trade and rising costs were cited as the culprits for the decision. Indicative of the severity of the situation is that the company said there’s a chance it will miss its 8-10% operating margin in its automotive business for the first time in more than eight years. Consequently, the vehicle-maker’s shares were sold off to finish the day lower by 5.4%, while the following day they came within breathing distance of a two-year nadir.
For the record, the US houses BMW’s biggest production plant, with the Chinese market absorbing the largest chunk of the plant’s exported cars last year. From July 2018 onwards, the corporation’s vehicles manufactured in the US and heading to China are subject to levies amounting to 40%.
Taking a technical look at BMW’s stock, the bearish short-term momentum that is also evidenced by the stock hitting a three-month low of €76.67 on Wednesday and eyeing its lowest in around two years remains in place. Having said that, downside pressures seem to have eased somewhat as indicated by the RSI which no longer maintains a steep negative slope. Regarding the medium-term outlook, it is predominantly negative with trading activity taking place below the 50- and 100-day moving average lines.
A move down in the firm’s stock may meet support around the three-month low of €76.67 touched earlier in the week. Early July’s near two-year trough of €76.50 is also part of the area around this point, while steeper losses could receive additional support around the €70 round figure that could hold psychological importance. On the upside, resistance may come around the 23.6% Fibonacci retracement level of the downleg from €93.87 to €76.50 at €80.60. The region around this halted declines during August and September, while it also encapsulates the €80 handle. Further above, the 50% Fibonacci mark at €83.14 would come into focus; the zone around this also captures the current levels of the 50- and 100-day moving average lines at €82.28 and €83.19 correspondingly.
Elsewhere, it is not just BMW that’s feeling the burn on the back of tariff fears, but also iconic German names Daimler and Volkswagen. In particular, the year-to-date performance of the three is at -9.35%, -21.8% and -7.4% respectively, weighing on the DAX, Germany’s blue-chip benchmark that all three are constituent stocks of and which is trading lower by 3.7% year-to-date. DAX’s performance renders it the second worst performing major index in Europe, only favoring better to Spain’s IBEX 35 that is down by 5.1%.
Overall, the risks appear to be titled to the downside for the three German automakers and more generally the European auto sector. This view is fueled from the fact that an escalation in trade tensions seems much more likely at the moment than a shift back to the pre-Trump era of doing business. It should also be stressed though that should trade risks subside, then car stocks are likely to enjoy a relief rally.
Lastly, alongside other brands, BMW and Daimler will have the opportunity to generate excitement for their upcoming product offerings during the Paris Motor Show commencing next week (October 4). Volkswagen decided for its core brand to bypass the biennial gathering.
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