The European Equity Market Index futures have been struck by high negative momentum at the opening today. The German DAX 30, which is usually the go-to index when investors decide to put some money in Europe, had a very bad opening as it is looking super rough. The reason, Turkey.
On paper, there is little to no correlation between the European equity index and the Turkish index, however, there is a lynchpin that ties everything together and that would be the European banks. This mooring, the markets were flooded by reports from the ECB that European banks have increased exposure to the Turkish Lira. This spells trouble for them, especially as the U.S. rams up its sanctions against Turkey. As the Turkish lira deteriorates against the dollar, the Euro seems to face the same fate because of the contagion effect.
Futures all around are looking very ugly, especially in Spain, France, and Germany. Indices in all three countries may be smoked as the Financial Times reported that BBVA, UniCredit, and BNP Paribas have the most Turkish exposure. Turkey will be another headache for European banks – the biggest group on the Stoxx 600. Lenders are already the worst performers this year thanks to feats of political uncertainty in Italy, still-low benchmark rates, and a flattening yield curve.
Looking back at the German Index, it seems that the move downward at this moment is inevitable, but to what extent will the index drop. The index is currently trading between two levels that constitute a bit of a wide consolidation zone with the 12,710 as the upper bound and 12,540 as the lower bound. The lower bound has been able to withstand the overall negative movement, so far, but the RSI is showing that it might not hold for long since the indicator is already printing below the 40-level, which might give the idea that the index is headed into a deeper dive, which it did as the index breaks through the lower bound heading towards a low of 12,470 which should hold the index place.
Deutsche Bank fell 3.4%, more than quadruple the country’s benchmark index. Hammer Partners downgraded the stock to a sell and Morgan Stanley downgraded the stock to an underweight/inline. Analyst consensus rating for the stock is equivalent to a sell.
The German DAX 30 Spot Index is currently down 2.8% so far this year. It currently trades 7.6% below its 52-week high of 13,596.89 reached on January 23 and 7.1% above its 52-week low of 11,726.62 reached on March 26. Of the 30 constituents of the index, 2 has risen, and 28 have fallen.
Currently, the best performers on the DAX 30 are Adidas (+0.48% at €209.50); Vonovia (+0.09% at €42.64); and Beiersdorf (-0.06% at €98.48). The worst performers are Deutsche Bank (-3.43% at €10.37); ThyssenKrupp (-2.42% at €20.58); and Commerzbank (-1.78% at €8.6).