European stock markets mirrored the slump in Asian markets, creating a big gap down at the start of trading on Monday. Germany’s benchmark DAX30 dropped more than 2.0% to 10,340.98 in early trade, following a 0.98% decline on Friday, after speculation that the U.S Federal Reserve may act as soon as this month on rate tightening was revived.
Boston Fed President Eric Rosengren, a voting member of the Fed’s policy committee who is widely considered as a dovish policymaker, stated in a speech on Friday that given the recent data, “a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy”.
Having advocated low rates in the recent past, Rosengren triggered market volatility the most by shifting his stance to from dovish to hawkish. The FOMC voting member’s speech echoed statements by other Fed Members recently, that warned over the risks of waiting too long to tighten policy, with the labor market nearing full-employment and inflation slowly returning towards the 2% target.
At the time of writing, none of the DAX’s constituents was trading higher. The worst performer was German utility company EON which dropped 12.44% in early trading. Today is the first day that EON is trading as a smaller company after Uniper SE, a new company containing EON’s power stations burning coal and gas, and commodity and energy trading businesses, was finally spun off and will trade separately on the Frankfurt stock exchange.
Uniper has started trading at €10.015 a share and the price has not recorded any changes yet. The stock will be included in the nation’s benchmark DAX index for one day only before dropping out.
The second biggest loser was industrial gas maker Linde AG which has lost 7.83%, after the news on Monday that the preliminary discussions about a merger between the German group and the Connecticut-based company Praxair Inc. had ended. Linde and Praxair had been in talks since mid-August about a merger in order to create the world’s largest supplier of industrial gases.
Other companies that recorded considerable losses include EON’s rival RWE, down 2.85%. Airline operator Deutsche Lufthansa, dropped 3.28%, and steel-maker ThyssenKrupp, plunged by 3.5%. Financial stocks were broadly lower, with Germany’s Commerzbank and Deutsche Bank losing 3.31% and 3.44%, respectively.
Fig: DAX30 D1 Technical Chart
The German benchmark is extending its retreat from 9-month highs at around 10780.00 for the third day in a row. The price has marked the first instance since mid-July that it has broken through the 50-day moving average. This crossover from above could be another confirmation for a reversal into a downtrend after the RSI index also broke through the 50-line from above to as low as 41.98.
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