The DAX index is Germany’s response to the US Dow Jones Industrial Average. The index is made up of the 30 biggest companies in Germany and is used as a measure of how good or bad the economy is performing.
Yesterday, the DAX declined by 25 points and the futures point to a 36 lower open today. This is after investors continue to react to major corporate news from Germany. On Sunday, Deutsche Bank announced its long revitalization plan that fell flat with the market. The new plan involves four main things. First, the bank announced that it will exit its equities trading business. This is a retreat from the bank’s global ambition that might see it shed more than 18,000. Most of the job losses might be in London, New York, and Asia. Second, the bank intends to focus on its German retail operations and financing German companies. Third, the bank intends to create a bad bank that may have more than EUR 7.5 billion in assets. Finally, the bank intends to be a smaller operation that is focused mostly in German operations. Deutsche Bank is a shadow of its former self. It has a market cap of just $13 billion.
Deutsche is not the only German company in trouble. Yesterday, BASF announced that it was slashing its second quarter and full year earnings. BASF is the biggest chemicals company in the world with annual revenues of more than EUR 62 billion. In a statement, the company said that it expets its earnings before interest and taxes and excluding special items to decline by up to 30% from last year’s levels. Previously, the bank had forecasted growth of between 1 and 10%. For Q2, the company said that it expects a 47% YoY decline in profits. This decline will be driven by lower earnings in the materials, chemicals, and agricultural solutions segment. As part of the ongoing restructuring, the company said that it will cut more than 6,000 jobs by the end of 2021.
On a positive note, Thyssenkrup announced that it was considering selling its unit that manufacturers elevators. The company has received bids from competitors for the unit that is valued at more than $16.8 billion. The company had planned to list the unit in the public markets. Among the firms interested in a stake are CVC Partners and KKR & Co. Elevator rival, Kone has also expressed interests in the unit.
Last week, the DAX index reached a high of €12,650. This changed yesterday when the markets opened after the weekend announcement by Deutsche Bank. The index declined to a low of €12,475. On the chart below, this price is below the 25-day and 14-day moving averages while the RSI has dropped from a high of 80 to the current 38. The index may continue moving lower as investors anticipate more bad news from German companies.