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Research Market strategy
by Swissquote Analysts
Morning News

Volkswagen Prepares IPO for Traton

Topic of the day

Volkswagen plans to pursue an initial public offering for its Traton truck division. The German auto maker said the IPO is expected to be “before the 2019 summer break” and is subject to further capital market developments. Volkswagen postponed an IPO for the unit in March, citing challenging market conditions. The delay was unexpected since Volkswagen had transformed Traton into a separate wholly owned stock company to prepare for a potential listing. Traton said earlier this month that is still planned to become an independent company even after the IPO was postponed. In its latest quarter, Traton’s vehicle sales were up 7.4% from a year earlier, boosted mostly by the favorable development of Europe and Brazil. Volkswagen said also that it is investing slightly less than 1 billion euros (about $1.12 billion) in an electric vehicle battery cell plant in Germany. “We are pressing ahead with the electrification and digitalization of our fleet like no other automotive company,” Volkswagen Chief Executive Herbert Diess said in a statement.

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Swiss stocks

The SMI slid 1.2 percent Monday to 9,363 points, falling with markets worldwide under pressure from the US-China trade conflict, which further intensified with new punitive US tariffs on Chinese imports, as well as the escalation in the US-Iran dispute. The Swiss franc profited as a safe haven, making Swiss exports more expensive. Swatch and Richemont, both reliant on exports to China, fell 3.6 percent and 2.6 percent respectively. Semiconductors were also vulnerable, with Swiss second-tier stock AMS plummeting 8.6 percent. Among the big cyclicals, ABB slid 2.3 percent and Lafargeholcim 2.6 percent. Bank stocks were also hit, with UBS down 2.1 percent after analysts confirmed their “underweight” recommendation and lowered their target, saying its return on equity compared to competitors was disappointing. Credit Suisse fared worse, slumping 3.7 percent. The SMI’s losses were mitigated by defensive heavyweights Nestle and Roche. Nestle only slipped 0.1 percent, Roche closed unchanged.

International markets

Europe

The U.S., China trade dispute is dragging Germany's DAX bluechip index lower, according to analysts, "the trade conflict between Washington and Beijing has reached a new level of escalation." Germany's DAX fell 1.7% to 11859.7. The Stoxx Europe 600 dropped 1.3%, hitting its lowest level in two months. Metro Bank's expected GBP350 million capital raise is unlikely to solve its problems, says Citigroup. Citi notes weekend press reports claiming the U.K. challenger bank is set to announce its planned fundraising. The brokerage, which rates the stock as a sell, says the move may provide near-term respite but probably won't be enough. The brokerage says it's concerned Metro's strategy will jeopardize growth, consensus earnings are too high and Metro still will need more capital. Shares fall 6.8%. Regulatory approval from Norway's ministry of finance significantly increases the likelihood of Euronext's planned takeover of Oslo Bors going through, UBS says. The deal should boost Euronext's annual EPS by between 13% and 17%, but most of the upside is already priced into Euronext shares, which are up around 19% year-to-date, the bank says. UBS retains its sell rating on the stock, which trades 2% higher.

United States

U.S. stocks slid intraday, heading for one of their worst days of the year, after officials in Beijing and the White House exchanged fresh threats in a trade fight that many fear could crimp growth. The Dow Jones Industrial Average fell 533 points, or 2.1%, to 25408, on course for its biggest one-day loss since January. The S&P 500 dropped 2% and the Nasdaq Composite declined 2.8%. Major indexes have made a sharp retreat from records as trade tensions between the world's two biggest economies have ratcheted higher. Chinese officials said Monday that they would raise tariffs on roughly $60 billion worth of U.S. imports, following through on threats last week to hit back at the U.S. after its own increase in tariffs went into effect. Shares of manufacturers and chip makers slid anew Monday, extending a slide from late last week. Heavy machinery maker Caterpillar fell 4.3%, while Boeing lost 4.2% and memory-chip maker Micron Technology shed 3%. The group has been sensitive to developments on trade, especially because many analysts believe its profits are closely tied to global growth and demand from China. iPhone maker Apple, which assembles almost all of its goods in China, slid 5%. Meanwhile, shares of ride-hailing app Uber Technologies slumped 11%, dropping further after making a disappointing debut in the public markets Friday.

Asia

Asia Pacific stocks were solidly lower Tuesday following the drop in the U.S. markets on Monday. But many indexes were well off their opening lows in early trading, with Japan's Nikkei cutting its early losses by two-thirds as the trading day ramped up. The Nikkei was feeling added pressure from further gains overnight by the yen. Chinese equities were holding up better than many others in Asia after leading yesterday's declines. The declines are back, and mainland indexes are generally down about 1%, but less than that seen in a number of neighboring markets. Hong Kong stocks were sharply lower following yesterday's holiday and the start-of-week selling that's been seen globally.

Bonds

A broad flight to safer assets pushed the yield on the 10-year U.S. Treasury note to its lowest close since March, highlighting the spreading effects of the escalating U.S.-China trade battle. Yields, which fall when bond prices rise, have slid since President Trump tweeted on May 5 that the U.S. would raise tariffs on Chinese goods, dashing hopes on Wall Street that the world's two largest economies were just days away from settling their differences.

Analysis

HSBC raises LVMH target to 400 (375) EUR - Buy
Kepler raises Linde target to 176 (174) EUR/Buy - Trader
Barclays downgrades UBS target to 11,80 (12,50) CHF - Underweight
HSBC upgrades Royal Dutch Shell to Buy (Hold) - Target 2.740 (2.710) p

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