BMW to Phase Out Fossil-Fuel Burning Engines From Main Plant by 2024

The ICE engines currently made in Munich will be produced in BMW‘s factories in Austria and the UK in future, production chief Milan Nedeljkovic said, though cars using the engines will still be assembled at the Munich plant.

Still, by 2023 at least half the vehicles produced in Munich would be electrified – either battery electric or plug-in hybrid, the company said.

BMW has set itself a target for at least 50% of new global car sales to be electric by 2030, and CEO Oliver Zipse said at a conference last week the company would be ready with an all-electric offering if any market banned ICEs by then.

The i4 battery-electric car was made on a joint assembly line with ICE and hybrid models such as the BMW 3 Series Sedan and Touring, the company said, a shift that cost 200 million euros ($233 million) of investment in production infrastructure.

A similar mixed assembly line is already under way at the automaker’s Dingolfing plant, which produces the BMW iX alongside hybrid and ICE models.

The new model will be prioritised in decision-making over where to allocate scarce chips, the plant chief Peter Weber said. The company was well-stocked in other raw materials, Nedeljkovic added.

BMW has previously said it expects to produce 70,000 to 90,000 fewer cars than it could have sold this year because of the chip shortage that has plagued automakers worldwide.

It also committed to reducing emissions from transport logistics at the Munich plant, the company’s biggest, to zero in the next few years, without giving a specific date.

This will be achieved by making greater use of rail transport and battery-powered trucks to transport vehicles in and around the plant, it said.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Victoria Waldersee; Editing by Mark Potter and Nick Macfie)

Strong Buy for The Carmakers Across the Globe

Apple still stay below the up trendline, which is not really encouraging to any purchases.

British American Tobacco tests the lower line of the symmetric triangle pattern.

Royal Dutch Shell rises, thanks to the higher oil prices.

Rolls-Royce calmly rests on an important, horizontal support.

BMW aims higher with a very strong buy signal.

Porsche, on the other hand, is waiting for a proper signal. Breakout of the dynamic resistance will give us a buy signal and a break out of the horizontal support will give us a signal to sell.

Ferrari is above the horizontal support and upper line of the wedge, which is really optimistic.

Bayer tests the neckline of the iH&S formation but from the top!

Siemens continues the drop after the false bullish breakout and the breakout of the major up trendline.

Allianz stays above major supports with a very promising buy signal.

For a look at all of today’s economic events, check out our economic calendar.

BMW Says Chip Shortage, Raw Material Prices to Hit Second Half

By Nick Carey

BMW has so far been relatively less affected by the global chip shortage that some of its peers across the auto industry, which has been attributed to its strong relations with its supplier base.

Its German rivals Volkswagen AG and Daimler AG have both warned the chip shortage would dent their results in the second half, and Daimler has said the crisis could drag on into 2022.

BMW Chief Executive Oliver Zipse flagged similar pressures later this year.

“Our performance has benefited from strong customer demand during the first half of the year, enabling us to achieve significant growth,” Zipse said in a statement.

“However, in light of a number of prevailing risks, including raw materials prices and a shortage of semiconductors, the second six-month period is likely to be more volatile for the BMW Group.”

Chief Financial Officer Nicolas Peter said in a statement that BMW was able to offset the challenges of the chip shortage through “sheer hard work,” but added “the longer the supply bottlenecks last, the more tense the situation is likely to become.” [L8N2PA179]

BMW reported a better-than-expected second-quarter profit after a loss a year earlier when the German luxury carmaker was pummelled by the coronavirus pandemic.

BMW’s sales jumped nearly 45% in the second quarter, with sales rising almost 75% in Europe and 88% in the United States. Sales in China, which drove the carmaker back to profitability in the second half of 2020 after pandemic-related production shutdowns, were up nearly 12%.

The carmaker reported quarterly net profit of 4.8 billion euros ($5.7 billion) after a 212 million euro loss in 2020, more than double an average 2.2 billion euro forecast provided by Refinitiv.

The second-quarter results also received a 1 billion boost after BMW had to set aside less money than initially feared for expected European antitrust fines for alleged collusion with rivals.

The carmaker said it now expected its a full-year operating margin for the automotive segment to come in at the upper end of its forecasted range of between 7% to 9%.

($1 = 0.8420 euros)

(Reporting By Nick Carey; Editing by Kim Coghill and Tomasz Janowski)

BMW Boosts Corporate Venture Investment Pool to $900 Million

By Paul Lienert

BMW i Ventures, based in Mountain View, California, will manage the fund, as well as continuing to disburse money from its initial 500-million-euro fund. The two funds bring BMW’s total venture investment pool to nearly $900 million, one of the largest in the global auto industry.

Toyota Ventures, the corporate venture arm of Japan’s Toyota Motor Corp which frequently co-invests with BMW, earlier this month launched a second investment fund, totaling $300 million, with a focus on sustainability technology and startups, bringing its total assets under investment to more than $500 million.

BMW, through five-year-old i Ventures, previously has invested in more than 50 companies, including several that have gone or are planning to go public, among them ChargePoint and Proterra.

Its focus continues to be on early to mid-stage startup companies, many of them based in Silicon Valley.

Past investments have ranged from Boston Metal, whose technology enables emissions-free steel production, to Prometheus Fuels, a producer of carbon-neutral gasoline.

Marcus Behrendt and Kasper Sage head i Ventures as managing partners.

The new fund will invest in vehicle and manufacturing automation, data and connectivity, as well as in companies involved in efforts to reduce carbon emissions in every aspect of transportation, including supply chains, Sage said.

Behrendt said BMW will continue to consider co-investments with corporate partners such as Toyota, Porsche and Jaguar Land Rover. BMW i Ventures and Toyota Ventures have jointly invested in five startups, including May Mobility and Nauto.

(Reporting by Paul Lienert in Detroit; Editing by Nick Zieminski)

Exclusive: as China Plans New Rules, Global Automakers Move to Store Car Data Locally

By Yilei Sun and Tony Munroe

Cars are being fitted with an ever-increasing array of sensors and cameras to assist drivers.

But the data they generate can also be used by manufacturers to help develop new technologies, such as autonomous driving systems, raising privacy and security concerns, particularly when the information might be sent abroad.

U.S. electric carmaker Tesla is under public scrutiny in China over its storage and handling of customer data in the country.

Last week, Reuters reported that staff at some Chinese government offices were told not to park their Tesla cars inside government compounds due to security concerns over vehicle cameras, according to two people with knowledge of the matter.

Tesla said on Tuesday it had set up a site in China to store data generated by all vehicles it sells in the country.

Other automakers told Reuters they have done the same.

Ford Motor said it established a data center in China in the first half of last year and was storing all vehicle data locally.

BMW said it operates “local data centers in China for the Chinese vehicle fleet,” without saying when they opened.

Daimler said it runs “a dedicated vehicle backend in China, where vehicle data is stored.”

General Motors and Toyota Motor Corp declined to discuss how they manage their data in China, while France’s Renault said it does not yet have a car data center in China.

Nissan Motor and Stellantis said they would comply with rules in China but gave no further details.

Volkswagen said compliance with data protection rules was crucial for a successful digital transformation, but “as the regulatory environment is still in rapid development, it is too early for us to comment on the specifics.”

None of the carmakers said whether they would share data from China with their overseas offices.

Honda Motor Co and Hyundai Motor Co did not respond to requests for comment.

China introduced a cybersecurity law in 2017 that required all companies to store key locally-generated data onshore in China, but that was before “smart” cars made the issue a major concern for carmakers.

This month, China’s cyberspace regulator posted a draft rule that said automakers must seek customer approval to collect driving data. The rule, in the public consultation phase, would also require automakers to store data locally and get regulatory permission when they want to send such data to foreign entities.

In the wake of the 2017 cybersecurity law, the new proposals shouldn’t be a surprise to any automakers, said Tu Le, an analyst at China-based research firm Sino Auto Insights who was critical of manufacturers that have been slow to adapt.

“The lack of a ‘data’ strategy tells me that decision-making is still centralized at their home offices and that they’re still struggling to evolve into ‘digital’ first companies,” Le said.

The European Union’s General Data Protection Regulation also sets strict rules on how companies handle and store data.

It is unclear what impact China’s requirements will have on the way global automakers research and develop new models or technologies. It is not unusual for companies currently to share data from China to their headquarters to develop models, executives at various manufacturers said.

“Data will ultimately be the difference-maker for companies because that’s what they’ll use to build products and services that help differentiate themselves from their competitors,” Le said.

(Reporting by Yilei Sun and Tony Munroe in Beijing; additional reporting by Eimi Yamamitsu in Tokyo and Heekyong Yang in Seoul. Editing by Joe White and Mark Potter)


BMW Says Wind is at its Back After Pandemic Dents 2020 Profit

By Nick Carey

The premium German carmaker said it would have five fully-electric models available this year, as it races alongside the rest of the industry to roll out new zero-emission models in the face of tightening CO2 emissions targets in Europe and China.

Plant shutdowns in the first half of 2020 to slow the spread of the novel coronavirus led many in the industry to expect a disastrous year, but a market rebound spurred by China helped the industry recover faster than expected.

“Our performance in the second half of the year demonstrated just how strong the BMW Group is … we soon overcame the impact of weeks of plant closures and nationwide lockdowns,” Chief Executive Oliver Zipse said. “We are starting 2021 revitalised and with a favourable tailwind.”

BMW sales in China rose 7.4% in 2020 versus 2019, mostly offsetting declines in other regions.

Chinese consumers also helped propel BMW’s rival Daimler AG to a full-year pre-tax profit.

Volkswagen AG’s 2020 profit fell less than expected, again with a push from Chinese drivers eager to snap up premium Audi vehicles.

BMW said that, with the exception of the second quarter, it remained profitable throughout 2020.

Investments in electrification, self-driving technology and connectivity meant that research and development costs remained high at 5.7 billion euros ($6.8 billion), though more than 4% below the nearly 6 billion euros the company spent in 2019.

The company cut its other capital expenditures by more than 30% during the year.

The premium carmaker posted a full-year 2020 pre-tax profit of 5.2 billion euros ($6.22 billion), down nearly 27% from 7.2 billion euros in the prior year.

BMW ended the year with free cash flow of 3.4 billion euros, up from 2.6 billion euros in 2019 despite widespread lockdowns.

The carmaker’s pre-tax margin for the automotive segment fell to 5.3% from 6.8%.

(Reporting By Nick Carey; Editing by Thomas Escritt and Pravin Char)

The European Auto Sector Struggles as Car Registrations Sink

It’s a particularly quiet day on the Eurozone economic calendar today. There were no material stats for the European markets to consider ahead of the U.S session.

The lack of material stats did give EU car registration figures more airtime than usual.

Car Registrations Sink as Lockdown Measures Bite

German car registrations tumbled by 45.5% in January, month-on-month, reversing a modest 7.3% rise from December.

The slide in January left car registrations down by 31.1% year-on-year. In December, car registrations had risen by 9.9% year-on-year.

Things were marginally better out of France, where car registrations slid by 32.2% in January. In December, car registrations had jumped by 47.8% month-on-month.

Year-on-year, car registrations were down by just 5.8% in January. This was an improvement on December, where registrations had fallen by 11.8%.

While the domestic auto sector struggled in both France and Germany, Italy did buck the trend.

Car registrations rose by 12.2%, month-on-month, reversing most of a 13.7% slide from December.

Year-on-year, registrations were down by 14.0%, however. In December, registrations had been down by 14.9%.

While the numbers were dire, the auto sector has hopes of a strong recovery.

Market Impact

The European majors had a mixed morning as did the auto sector.

At the time of writing, Daimler was up by 0.96% to buck the trend.

It’s been bearish for the rest, however.

Continental was down by 1.69%, with BMW and Volkswagen down by 0.04% and by 0.41% respectively.

From France, Stellantis was worst hit, sliding by 2.07%, with Renault declining by 0.64%.

For the European majors, the DAX30 and the EuroStoxx600 were down by 0.58% and 0.32% respectively. The CAC was down by just 0.02%.

The EUR also took a hit in response to the numbers, falling from $1.208 levels to bring sub-$1.20 levels into play.

Market optimism of a speedy economic recovery and rebound in the sector cushioned the blow on all fronts, however.

At the time of writing, the EUR was down by 0.38% to $1.20598.

EURUSD 170221 Hourly Chart


European Equities: Economic Data, Earnings, and U.S Stimulus in Focus

Economic Calendar:

Friday, 31st July

French GDP (QoQ) (Q2)

German Retail Sales (MoM) (Jun)

French Consumer Spending (MoM) (Jun)

French CPI m/m (Jul) Prelim

French HICP m/m (Jul) Prelim

Spanish GDP (QoQ) (Q2)

Italian CPI (MoM) (Jul) Prelim

Eurozone CPI (YoY) (Jul) Prelim

Eurozone Core CPI y/y (Jul) Prelim

Eurozone GDP q/q (Q2) 1st Estimate

Eurozone GDP y/y (Q2) 1st Estimate

The Majors

It was a particularly bearish day for the European majors, with the DAX falling a to 1-month lows on Thursday.

The DAX30 slid by 3.45% to lead the way down, with the CAC40 and EuroStoxx600 falling by 2.13% and 2.16% respectively.

Particularly dire economic data from Germany and the U.S, corporate earnings weighed on the European majors. Trump’s tweet of considering a delay to the U.S Presidential Election added the market angst on the day.

The Stats

It was a busy day on the Eurozone economic calendar. Key stats included 2nd quarter GDP and July unemployment figures from Germany.

The Eurozone’s unemployment figures for June and prelim July inflation figures from Germany had a muted impact on the day.

Germany’s economy contracted by 10.1% in the 2nd quarter, following a 2% contraction in the 1st quarter. Economists had forecast a 9% contraction. This was the largest decline since calculations began 50 years ago.

According to Destatis,

  • An unprecedented slump in exports and imports of goods and services, household final consumption expenditures, and capital formation in machinery and equipment contributed.
  • General government raised its final consumption expenditure, however.

Year-on-year, the economy contracted by 11.7%, following a 1.8% contraction in the 1st quarter. Economists had forecast a 10.9% contraction.

On the positive, however, were better than expected German unemployment figures for July. The unemployment rate held steady at 6.4%, with the number of unemployed falling by 18k, following a 68k rise in June. Economists had forecast a 43k rise in the unemployed and for the unemployment rate to increase to 6.5%.

From the U.S

Late in the European session, 2nd quarter GDP and the weekly jobless claims were in focus.

In the 2nd quarter, the U.S economy contracted by a whopping 32.9%, following a 5% contraction in the 1st quarter. Economists had forecast a 34.1% contraction. Though this was of little consolation.

The weekly jobless claims were also on the rise once more. In the week ending 24th July, initial jobless claims rose by 1.434m, following a 1.422m jump from the previous week. Economists had forecast a 1.450m increase.

The Market Movers

For the DAX: It was a particularly bearish day for the auto sector on Thursday. Volkswagen slumped by 5.96% to lead the way down, with Continental sliding by 3.71%. BMW and Daimler saw more modest losses of 2.56% and 2.95% respectively.

Volkswagen reported an operating loss for the 1st half, while also slashing its dividend, which weighed heavily on the day.

It was another bearish day for the banks. Deutsche Bank fell by 2.65%, with Commerzbank sliding by 4.52%.

From the CAC, it was a particularly bearish day for the banks. Soc Gen and Credit Agricole slid by 5.07% and 4.69% respectively, with BNP Paribas falling by 3.97%.

It was even worse for the French auto sector. While Peugeot slid by 4.80%, Renault tumbled by 9.26%, off the back of a record net loss for the 1st half of the year.

Air France-KLM joined the broader pack, sliding by 4.59%, while Airbus SE bucked the trend, rising by 1.87%.

The upside for Airbus came in spite of second-quarter revenue sliding by 55%. Better than expected FCF and plans not to erode FCF in the 2nd half of the year supported the upside.

On the VIX Index

It was a back into the green for the VIX on Thursday. Partially reversing a 5.72% loss from Wednesday, the VIX rose by 2.74% to end the day at 24.76.

Particularly dire 2nd quarter GDP numbers and a 2nd consecutive rise in U.S initial jobless claims weighed on the S&P500 and the Dow.

U.S President Trump’s tweet of considering a delay to the November Presidential Election didn’t help…

The S&P500 and Dow fell by 0.38% and by 0.85% respectively, while the NASDAQ rose by 0.43%. The upside for the NASDAQ came in anticipation of earnings from Alphabet,, Apple, and Facebook after the market close.

VIX 31/07/20 Daily Chart

The Day Ahead

It’s another busy day ahead on the Eurozone economic calendar. Key stats include 2nd quarter GDP numbers from France, Spain, and the Eurozone. June’s consumer spending and retail sales figures for France and Germany will also draw attention.

Prelim June inflation figures for France, Italy, and the Eurozone are also due out but will likely have a muted impact.

On the earnings front, BNP Paribas and Air France KLM are also in focus on the day.

From the U.S

June’s personal spending and inflation figures, together with finalized July consumer sentiment figures are due out.

Earlier in the day, China’s private sector PMIs for July could influence the mood.

Away from the numbers, tech stocks will likely get a boost following better than expected earnings results after the U.S close.

There is also the expiration of the U.S enhanced federal unemployment insurance policy to consider. With another jump in jobless claims, disagreement on Capitol Hill risks a further delay to the stalled COVID-19 stimulus package.

When considering the state of the U.S economy and the continued spread of COVID-19, even the passing of the stimulus package may not be enough…

The Latest Coronavirus Figures

According to figures at the time of writing, the number of new coronavirus cases rose by 268,725 to 17,440,017 on Thursday. On Wednesday, the number of new cases had risen by 287,638. The daily increase was lower than Wednesday’s rise and down from 270,301 new cases from the previous Thursday.

Germany, Italy, and Spain reported 4,022 new cases on Thursday, which was up from 3,179 new cases on Wednesday. On the previous Thursday, 3,593 new cases had been reported.

From the U.S, the total number of cases rose by 58,655 to 4,626,692 on Thursday. On Wednesday, the total number of cases had increased by 69,828. On Thursday, 23rd July, a total of 69,116 new cases had been reported.

The Futures

In the futures markets, at the time of writing, the Dow was up by 169 points.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: The ECB and the U.S Weekly Jobless Claims in the Spotlight

Economic Calendar:

Thursday, 4th June

Eurozone Retail Sales (MoM) (Apr)

ECB Monetary Policy Decision (Jun)

ECB Press Conference

Friday, 5th June

German Factory Orders (MoM) (Apr)

The Majors

It was a 3rd consecutive day in the green for the European majors on Wednesday, with the DAX30 rallying by 3.88% to lead the way.

The CAC40 and EuroStoxx600 weren’t far behind, with gains of 3.36% and 2.54% respectively.

Mid-week, the momentum rally continued as market sentiment towards a speedier economic recovery fuelled demand for riskier assets.

There were no curveballs for the markets to fret over, as service sector PMIs supported the market optimism.

The Stats

It was a busy day on the Eurozone economic calendar on Wednesday. May’s services PMIs from Italy and Spain and unemployment numbers from Germany were in focus.

Finalized services and Composite PMIs from France, Germany, and the Eurozone also drew interest.

The PMIs

Spain’s services PMI rose from 7.1 to 27.9 in May, which was above a forecast of 25.0. In April, the PMI had tumbled from 23.0 to 7.1.

Things were marginally better from Italy, with the services PMI rising from 10.8 to 28.9. In April, the PMI had fallen from 17.4 to 10.8. Economists had forecast a rise to 26.5.

From France and Germany, the May PMIs came in at 31.1 and 32.6. These are up from 10.2 and 16.2 in April and May prelims.

In May, the Eurozone’s finalized services PMI came in at 30.5, up from a prelim 28.7 and April 12.0. In April, the Services PMI had fallen from 26.4 to 12.0.

The Eurozone’s Composite PMI came in at 31.9 in May, which was up from an April 13.6 and May prelim 30.5. In April, the PMI had fallen from 29.7 to 13.6.

According to the Eurozone’s finalized Markit Survey,

  • Private sector activity continued to contract at a marked pace in May.
  • Both the manufacturing and the services sectors suffered noticeable contractions in output.
  • At the country level, there was a broad-based improvement in the composite PMIs.
  • Italy was the best-performing, followed by Germany and then France. Spain remained the weakest performing member state.
  • While at a slower pace, incoming new business continued to fall at a marked pace.
  • Excess capacity led to a sharp fall in backlogs, with the net fall in employment severe and amongst the greatest on record.
  • Confidence remained negative, whilst up from March’s series low.

Germany’s unemployment rate increased from 5.8% to 6.3%. Economists had forecast a rise to 6.2%. Unemployment rose by 238k, following a 373k jump in April. Economists had forecast a 200k rise.

From the U.S

It was also a busy day in the U.S, with the ADP nonfarm employment change and ISM Non-Manufacturing PMI the key drivers.

In May, employment fell by 2.76m, following a 19.557m tumble in April. Economists had forecast a 9m fall.

The ISM Non-Manufacturing PMI rose from 41.8 to 45.4. According to the ISM survey,

  • The New Orders Index rose by 9 percentage points to 41.9%, with the Business Activity Index rising by 15 percentage points to 41.0%.
  • Labor market conditions remained dire, however, with the Employment Index rising by just 1.8 percentage points to 31.8%.
  • Just 4 non-manufacturing industries reported growth, with 14 reporting a decrease in May.

The Market Movers

For the DAX: It was another bullish day for the auto sector on Wednesday. Daimler rallied by 5.47% to lead the way, with BMW and Continental rising by 4.16% and 4.03% respectively. Volkswagen saw a more modest 2.56% gain on the day.

It was also a bullish day for the banks. Deutsche Bank rallied by 2.77%, with Commerzbank gaining 3.58% following Tuesday’s 7.83% breakout.

Deutsche Lufthansa recovered from Tuesday’s 2.41% loss, with a 5.58% gain on Wednesday.

From the CAC, bank stocks continued to move northwards on Wednesday. BNP Paribas and Soc Gen rallied by 4.84% and by 4.37% respectively, with Credit Agricole gaining by 3.46%.

The auto sector also saw green for a 3rd consecutive day, with Peugeot and Renault rallying by 5.95% and by 10.49% respectively.

Air France-KLM surged by 10.11%, with Airbus SE rallying by 7.39% off the back of a 7.17% rally on Tuesday.

On the VIX Index

It was a 2nd consecutive day in the red for the VIX on Wednesday. Following on from a 4.92% slide on Tuesday, the VIX fell by 4.40% to end the day at 25.66.

While economic data continued to reflect the impact of the coronavirus pandemic, employment and private sector PMIs continued to support the view that April was the bottom

This has been supported by the continued easing of lockdown measures and both monetary and fiscal stimulus.

The S&P500 rose by 1.36%, with the Dow and NASDAQ gaining 2.05% and 0.78% respectively.

VIX 04/06/20 Daily Chart

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. The Eurozone’s retail sales figures for April are due out.

We don’t expect the stats to have any influence, however, with the Eurozone having been in lockdown throughout the month.

The main event of the day is the ECB monetary policy decision and the press conference. Will ECB President Lagarde pour cold water on the market’s optimistic economic outlook? Few are expecting any further easing, but the promise of more may be good enough for the majors.

From the U.S, however, expect the weekly initial jobless claims to influence. Another 2m plus jump in weekly jobless claims may haunt the markets ahead of Friday’s labor market numbers.

On the geopolitical front, the markets will need to continue to monitor the news wires as well as the daily COVID-19 numbers.

The Latest Coronavirus Figures

On Wednesday, the number of new coronavirus cases rose by 121,534 to 6,592,445. On Tuesday, the number of new cases had risen by 112,694. The daily increase was higher than Tuesday’s rise and 110,221 new cases from the previous Wednesday.

France, Germany, Italy, and Spain reported 1,401 new cases on Wednesday, which was up from 938 new cases on Tuesday. On the previous Wednesday, 1,892 new cases had been reported. Significantly, all 4 member states reported more than 300 cases each for 1st time in 3-days.

From the U.S, the total number of cases rose by 21,763 to 1,901,428 on Wednesday. On Tuesday, the total number of cases had risen by 21,208. On Wednesday 27th May, a total of 20,392 new cases had been reported.

In the futures markets, at the time of writing, the DAX was up by 11.5 points, with the Dow up by 18 points.

For a look at all of today’s economic events, check out our economic calendar.

Germany Narrowly Avoids a Technical Recession

Europe’s largest economy and the world’s fourth-largest economy narrowly avoids a technical recession. A recession arises after two consecutive quarters of economic decline. In the second quarter of 2019, the German’s economy had contracted by 0.1% compared to a growth of 0.4% in the first quarter.

Source: Statistisches Bundesamt Deutschland

The preliminary GDP data shows a slim 0.1% expansion in the third quarter. The final figures will be published this Friday and any unexpected downward revision will again trigger fears of a recession.

After a decade of economic expansion, some cooling off was expected. However, Germany is currently being hit by several headwinds:

  • US-China trade war
  • Brexit
  • A major shift in the Automobile industry

Trade wars and Brexit are geopolitical risks that are impacting the overall global growth. However, since the automotive industry is a key economic factor that contributes to the success of the country, car industry woes are probably the core domestic challenges that the German’s economy is facing.

The country is facing a deep turmoil in the automobile industry which is reshaping its economy.

Automotive Crisis

Climate Change, Self-driving cars and the changing needs of customers are the deep and fundamental challenges that are reshaping the automotive industry in Germany.

The switch to electric cars and rigid European regulations on carbon dioxide are causing a structural shift in the auto industry. The electromobility era has arrived to help halt climate change and we are seeing global sales of electric cars rising significantly.

Self-driving cars are becoming popular which has forced German carmakers and suppliers to embark on an unprecedented collaboration in exploring the industry of autonomous cars. In the face of fierce competition, German high-end carmakers- BMW and the maker of Mercedes-Benz have joined hands to tackle the expensive self-driving car industry and catch up with American and Chinese rivals. Yet, all German companies are still lagging behind their competitors.

Uber and other ridesharing companies have also caused a shift in demand. The auto industry is finding itself in the midst of tectonic shifts. Companies like Uber are not only a threat to taxi companies but also to car companies. In many western countries, consumers are weighing the cost-benefit relationship and are moving away from car ownership.

Germany’s Economy

The services sector and the jobs market are flaring up well in Germany. We have seen robust growth in the services sector in recent quarters. However, for the month of September, Germany’s Services PMI Index came at 51.2 which marks a 37-month low and fuelled fears that the crisis in the manufacturing sector has spilled over to the services sector.

Also, the industrial sector led by autos has seen a decline in activity. The Manufacturing sector remains deep in the contractionary level. Even though the Manufacturing PMI ticked up from 41.7 to 42.1 in October, it remains close to a decade-low.

The rate of decline has eased which is providing a glimpse of hope but the manufacturing sector remains in a recession and there are concerns that the slowdown will spread across other sectors of the economy.

Exports to the Rescue

German’s exports have surprised in September with a stronger-than-expected increase. Exports rose to 1.5% and provided some relief that Europe’s largest economy will avoid a recession in the third quarter.

Even though a technical recession has been avoided, the German’s economy remains in stagnation. In the face of the global trade war especially threats of crippling tariffs on German cars, a shift in consumer trends, rising number of factory job losses, a slowdown in the manufacturing industry and Brexit uncertainties, the German government need to rethink the export-led growth model to revive growth.

The German government has room in the fiscal space to counter slower economic growth. However, the government has strived for fiscal soundness over the years and have been reluctant to run a budget deficit despite concerns over a growth slowdown.

The final figures will be released on Friday. Investors will continue to monitor if there will be considerations for an increase in fiscal stimulus and whether the German’s government will abandon the zero-deficit policy.

Deepta Bolaky, Market Analyst at GO Markets.

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European Equities: Private Sector PMI Numbers to Drive the Majors

Economic Calendar:

Friday, 22nd March 2019

  • French Manufacturing PMI (Mar) Prelim
  • French Services PMI (Mar) Prelim
  • German Manufacturing PMI (Mar) Prelim
  • German Services PMI (Mar) Prelim
  • Eurozone Manufacturing PMI (Mar) Prelim
  • Eurozone Markit Composite PMI (Mar) Prelim
  • Eurozone Services PMI (Mar) Prelim

The Majors

It was another day in the red for the European majors. The DAX continued to lead the way, falling by 0.46%. The EuroStoxx600 and CAC40 saw more moderate losses, the pair ending the day with 0.15% and 0.07% declines respectively.

The losses in the European majors came in spite of a pullback in the EUR through the day. The EUR slid by 0.34% against the Dollar on the day. Sentiment towards the Eurozone economy and sliding bond yields offset any support from a weaker EUR.

Sliding government bond yields continued to weigh heavily on the financial sector as the markets responded further to the latest FOMC economic projections.

Looking across the banking sector, Deutsche Bank (DBK) and Commerzbank tumbled by 3.01% and 3.36% respectively. France’s BNP Paribas and Italy’s UniCredit S.p.A didn’t do much better, sliding by 2.6% and 1.73% respectively.

It’s a double whammy for Europe’s banks. Slower growth has pinned back bank stocks from any major recovery. With the FED’s move to normalization now considered complete, any hopes of a shift in ECB monetary policy and pickup in bond yields have been dashed for now.

Following Wednesday’s sell-off in the Auto sector, there was no major rebound on Thursday. BMW continued to see red, down by 0.89%, with Volkswagen ending the day down 0.36%. Near-term direction for the sector remains in the hands of U.S – China trade talks, though the data will also need to be tracked.

The Day Ahead

Economic data out of both Europe and the U.S will provide direction through the day. Prelim private sector PMI numbers out of France and Germany will certainly have an impact on the EUR and the major indices.

The primary focus will be on Germany’s manufacturing PMI. With the sector now having been in contraction for 2-consecutive months, the markets will be looking for signs of a rebound. A pickup in new orders and new export orders would certainly provide some support through the day.

It’s not going to hang completely on the numbers out of Germany however. The Eurozone’s manufacturing PMI will also need to return to expansion in March to support the broader market.

Out of the U.S, a positive service sector PMI number later today could provide support to the financial sector and risk appetite in general. Positive numbers would give Treasury yields and European government bond yields a much-needed boost.

Outside of the stats, noise from the Oval Office will also need to be considered. A U.S delegate is scheduled to travel to Beijing for further trade talks next week. As has been the case in the past, the U.S President could deliver some rhetoric to further spook the markets going into the weekend.

At the time of writing, the DAX30 and CAC40 futures were in the red, tracking the U.S futures market. A slide in the Hang Seng and CSI300 will not be of much help for risk sentiment ahead of the European open.

European Equities: The DAX Pressures the Majors as Auto Stocks Crumble

Economic Calendar

Thursday, 21st March 2019

  • ECB Economic Bulletin

Friday, 22nd March 2019

  • French Manufacturing PMI (Mar) Prelim
  • French Services PMI (Mar) Prelim
  • German Manufacturing PMI (Mar) Prelim
  • German Services PMI (Mar) Prelim
  • Eurozone Manufacturing PMI (Mar) Prelim
  • Eurozone Markit Composite PMI (Mar) Prelim
  • Eurozone Services PMI (Mar) Prelim

The Majors

The DAX was the story of the day on Wednesday. Sliding by 1.57% to fall into the red for the current week, the bad year keeps going from bad to worse.

On the data front, wholesale inflation figures out of Germany were the only major stats to provide direction through the day. Softer than expected producer price figures had limited impact on the EUR, however, with the markets looking ahead to the FED.

While the EUR was in a holding pattern ahead of the FOMC’s release of the economic projections and FOMC press conference, market optimism of a U.S-China trade agreement weighed on the day.

The European auto sector has been under scrutiny for some time now. Concerns over emissions scandals have shifted to fears that an extended trade war between the U.S and China could materially impact earnings.

BMW shares slid by 4.57% on Wednesday, with a profit warning for 2019 doing the damage. The company announced that it expected a material fall in profits and also of plans to make significant cost savings.

The impact of the emissions scandal continues to be felt across the sector as auto producers face higher costs to comply.

BMW’s stark warning for the year ahead weighed on Volkswagen, which ended the day with a 2.22% loss.

Interestingly the bad news comes before the U.S administration hits the EU with a more material threat of tariffs on European auto exports to the U.S. With economic growth in China slowing and Brexit uncertainty weighing, the last thing the sector needs is tariffs.

Away from the auto sector, Bayer saw the heaviest loss of the day.  BAYN:GR tumbled by 10.09% on Wednesday following news hitting the wires that the company’s weed killer Roundup is causing cancer in men.

DAX 21/03/19 Daily Chart

Across the other Majors, not too far behind were the Pan-European Stoxx 600 and CAC, with losses of 0.78% and 0.8% respectively.

The Remainder of the Week

Following a more dovish than expected FOMC, the positive will be the prospects of a hold on interest rates through the remainder of the year. The bad news, however, may ultimately pin back the DAX and the rest of the majors.

The EURO rallied by 0.55% to hit $1.14 levels for the first time since the first week of February. With the European majors having an export-focused bias, the stronger EUR won’t be of much help near-term.

A pickup in the EUR and slide in U.S Treasuries will also be bad news for European banks, which have struggled in the current interest rate environment. Weaker growth coupled with falling yields will be another blow. Deutsche Bank shares fell by 3.32% on Wednesday. Even talks of a merger with Commerzbank failed to prevent the losses on the day. Commerzbank wasn’t far behind, with a loss of 2.08% on the day.

A lack of data today leaves the EUR in the hands of the ECB Economic Bulletin. Both European and U.S futures are in the red at the time of writing. It’s unlikely that the Bulletin will deliver anything particularly positive for the equity markets.

The majors may need to wait until tomorrow’s prelim private sector PMI numbers for March to shift sentiment. If forecasts are anything to go by, however, any upside may have to come from positive progress on trade talks between the U.S and China.