Trade view /
11 August 2015 at 23:48 GMT
The declines on the major national European equity markets during Tuesday, August 11 were spectacular to say the least.
Take the German DAX
. It fell by 2.68% on the day as losses in the utilities, chemicals and technology sectors led shares lower. Falling stocks outnumbered advancing ones on the Frankfurt Stock Exchange by 582 to 162 and 38 ended unchanged.
The DAX volatility index, which measures the implied volatility of DAX options, was up 10.60% to 18.88.
It is not as simple as pointing to the unexpected fall in German investor confidence as the ZEW Centre for European Economic Research said its index of investor and analyst expectations, slid to 25 in August from 29.7 in July. The reading is the lowest since November and compares with a median estimate of 31.9 in a Bloomberg survey of economists.
The declines were felt outside of the Eurozone as UK stocks were lower after the close on Tuesday, as losses in the mining, automobiles & parts and forestry & paper sectors led the FTSE 100 lower by 1.06% at the close. The Swiss SMI was lower by 0.91% on Tuesday.
This selloff was inspired by the declines in China and is overall quite irrational. The Chinese authorities will use their vast wealth of reserves and every stimulus trick in the book to drive the economy back on track.
In Germany, the expectation is that GDP data for Q2 due on Friday will show gross domestic product accelerated to 0.5%. The rate of expansion will stay at 0.5% in each of the final two quarters of 2015. So I see that as confirming that the German economic engine is still humming along with no sign of stalling.
I am buying the DAX and will buy other European markets if Wednesday trade is stronger.
Management and risk
Entry: Buy at opening to add to long position, acquired at 10,787.00 on April 1, 2015
Targets: 11,400; 11,470;11,580
Time horizon: Strategic
— Edited by Adam Courtenay
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