DAX driven lower by automotive sector

Corporate disasters drag equity indices lower.

Car factory
Source: Bloomberg
  • Emissions focus shifts from VW to BMW
  • DAX driven lower by automotive sector
  • No respite for Glencore as the shares oscillate around 100p

For the second day in a row shares in Volkswagen have tried to rise, as confirmation that CEO Martin Winterkorn’s resignation and his potential £21 million pension pot continue to sink in. Cynics in the City had instantly assumed that where one had transgressed others would surely follow, and reports in German press today have confirmed that newly-retested BMW results have come in at worse-than-expected levels.

The markets were swift to punish BMW, at one point knocking 10% off the share price. This second German car manufacturer having its reputation tarnished is less of a surprise, especially as the automotive sector is so competitive. The scrutiny that the automotive sector is under is having a particularly detrimental effect on the DAX, as 10% of the equities in the index come from this sector and even more disturbing is the fact that its index weighting is even higher.

The ripple effect from this will reach the four corners of Germany, as it is estimated that as many as one in six work in the automotive industry or an ancillary business.

Glencore continues to feel the pain as weakening growth in Asia carries on reducing demand for commodities, threatening to send the shares below the 100p level and becoming a penny stock. As yet, none of the Western economies have shown themselves to be resilient enough to make up this shortfall in demand and the Swiss-based London-quoted company continues to be punished. 

European woes have manifested themselves into US traders’ psyche, sending equities tumbling as the realisation that another major corporate indiscretion is sweeping the globe. Lawyers on either side of the Atlantic will be licking their lips in anticipation of 11 million VW owners seeking compensation from the manufacturer’s deceit.

Always a useful barometer of economic growth, Caterpillar’s news today has not done anything to increase optimism as the construction firm could cut as many as 10,000 jobs between now and 2018.

The succession of negative news flow has offered a little respite to embattled gold bugs who have enjoyed a $25 bounce in the precious metal as market conditions continue to wobble.  

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