- The IMF issued a warning about the potential stock market correction in the coming months
- DAX Index is trading at 12745 today, over 0.3% in the green, while the FTSE 100 is up 0.2% at 5869
- Shares of ThyssenKrupp exploded 25% higher on reports that Liberty Steel will buy the company’s steel unit
- LVMH, Daimler, and Volvo, all breeze past market’s expectations for the 3Q
European markets have modest gains today to break a series of consecutive losses on a daily basis. Separately, the International Monetary Fund (IMF) warned about the stock market correction in the coming months.
Fundamental analysis: IMF issues a warning
The IMF said financial markets may decline in the following months if the coronavirus crisis continues and the economic revival happens slower than expected. Stock markets have bounced back from their lows last month and are significantly higher compared to the start of the year.
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The S&P 500 is around 8% in the green year-to-date and the Nasdaq up about 30% for the same period.
“A disconnect persists, for example, between financial markets — where there have been rising stock market valuations (despite the recent repricing) — and the weak economic activity and uncertain outlook,” said Tobias Adrian, the IMF’s chief of the monetary and capital markets department.
However, Adrian also said that investor optimism could fade in case of delayed economic recovery.
“As long as investors believe that markets will continue to benefit from policy support, asset valuations may stay elevated for some time. Nonetheless, and especially if the economic recovery is delayed, there is a risk of a sharp adjustment in asset prices or periodic bouts of volatility,” he said.
Adrian is not the only one who noticed the clear disjunction between markets and the economy.
Gary Shilling, a popular US financial analyst warned in summer about a potential equity markets crisis, similar to the one in the 1930s, as economic recovery is taking longer than usual and much more challenging than anticipated. Furthermore, Bespoke Investment Group also warned of “a classic sign of a coiling market.”
Given the circumstances, the performance of the stock market has been remarkable this year, largely because of the extensive monetary stimulus injected into economies by central banks to prevent a collapse. The IMF believes global authorities need to maintain this strategy as the coronavirus health emergency shows signs of slowing.
Technical analysis: Earnings season hits the road
DAX Index is trading at 12745 today, over 0.3% in the green. Its British counterpart FTSE 100 is up 0.2% at 5869 as investors await news from the U.S. concerning the new stimulus plan. Here are the biggest movers today.
LVMH beats 3Q forecasts
LVMH (EPA: MC) stock price gained about 7% today after the luxury fashion giant posted sales that easily beat analysts’ forecasts for the third quarter.
“The update confirms our impression of a strong summer for luxury goods. China turned positive in the third quarter at Vuitton,” Bernstein analyst Luca Solca wrote in a note.
LVMH, which owns Louis Vuitton, Christian Dior, Celine and Fendi, reported that sales dropped by 7% compared to a year ago, but still comfortably ahead of the expected 12% drop.
The fashion behemoth reported revenue of €12 billion for the quarter, with revenue lower by 21% since the beginning of the year. Although sales in the fashion and handbag division rose by 12% on the back of the strong demand in China for Louis Vuitton flagship handbags, other units disappointed.
The company’s retail, perfume and cosmetics, as well as watches and jewellery units reported plunging sales by 29%, 16%, and 14%, respectively.
Still, the overall beat on sales was enough to send LVMH stock price 7% higher to trade at the 9-month high of €432.00. Investors will watch if stock can hold on to gains and secure a daily/weekly close above €427.75.
The next target on the upside is the 2020 high above the €438.00 mark.
ThyssenKrupp may sell its troubled steel business, shares explode higher
Shares of the German giant ThyssenKrupp (ETR: TKA) exploded 25% after German magazine Spiegel reported last night that Liberty Steel will make a bid for the company’s troubled steel business.
ThyssenKrupp sold its elevator business earlier this year to raise funds and it is now looking to get rid of its historic steel unit. It was this business that helped ThyssenKrupp create a conglomerate.
Although the German giant agreed to a joint venture with Tata Steel last year, the EU Commission blocked the deal. The company will now hope that a deal with Liberty Steel can be reached as it works to streamline its business, which suffered a €1 billion loss last year.
ThyssenKrupp stock price soared about 25% to €5.18 before paring back a portion of these gains to settle at €4.80. The next target on the upside for the bulls is €5.70.
Daimler and Volvo top 3Q estimates
Two major European rivals, Daimler AG (ETR: DAI) and Volvo AB SER (STO: VOLV), both reported higher-than-expected third-quarter numbers this morning.
The former smashed market expectations by reporting EBIT of €3.07 billion against the market consensus of €1.95 billion. The owner of Mercedes Benz brand reported an impressive free cash flow of €5.14 billion, while the market expected €2.97 billion.
“The third quarter shows a very strong performance and provides further proof that we are on the right path to reducing the break-even of our company,” said Harald Wilhelm, Member of the Board of Management of Daimler AG.
Its Scandinavian rival Volvo posted an adjusted operating profit of 7.22 billion crowns ($813 million), which is lower compared to 10.89 billion crowns reported a year ago. Still, shares soared as the market’s consensus stood at 5.82 billion crowns.
Shares of Volvo were also supported by the net order intake number of 57,530 trucks, an impressive rise by 61% compared to 2019.
“In the last two quarters, our organization and business partners have shown great volume flexibility by first handling a dramatic volume decline and then a steep recovery with maintained good productivity,” CEO Martin Lundstedt said in a statement.
Volvo stock price gained around 4% to come close to the record high of 184.45, set a few days ago. The stock price has moved lower in the meantime to 178.00 as the nearby support at 175 awaits.
On the other hand, Daimler share price gained around 5% to hit €49.42 as the buyers aim for a trip above the 2020 high at €50.31.
The International Monetary Fund said the performance of stock markets this year has been ‘remarkable’ but warned that may change if the coronavirus crisis persists and economic recovery is delayed.
On the other hand, European shares recovered today as Daimler, Volvo and LVMH smashed the market’s expectations. ThyssenKrupp, on the other hand, saw its stock price gain 25% on reports that Liberty Steel will make a bid today for the company’s embattled steel unit.