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BMW Cautious as Earnings Slide on Global Headwinds
Topic of the day
BMW AG (BMW.XE) on Friday reported a sharp drop in profits and said it will double-down on efforts to improve efficiency as it expects headwinds that have buffeted the global auto industry over the past year to continue. The German luxury-car maker said aftertax profit for the year fell 17% to 7.21 billion euros ($8.16 billion), while revenue edged 0.8% lower to EUR97.48 billion, leading it to cut its dividend for the year. Across the globe, manufacturers have been struggling with rising trade tensions, a slowdown in China, the world's largest car market, as well as tighter emissions rules, while at the same time trying to stem high upfront investments into electric and self-driving cars. BMW said its earnings also took a high three-digit million euro hit from higher raw materials prices and exchange-rate effects. New emissions-testing rules resulted in fierce pricing competition over the summer, which ultimately weighed on sales and earnings. Operating profit at BMW's core automotive business fell by more than a fifth to EUR6.18 billion, from EUR7.89 billion a year ago. The segment's closely watched operating-profit margin dropped to 7.2% from 9.2%. Chief Financial Officer Nicolas Peter said he expects 2019 to be another challenging year for the entire sector. The company will therefore intensify efforts to improve efficiency and reduce product complexity, he said, without going into details. Global auto makers have been seeking out alliances and joint-ventures to share the enormous costs necessary to develop electric cars and self-driving technology. BMW joined forces with long-time rival Daimler AG (DAI.XE), the maker of Mercedes-Benz cars, to develop self-driving car technology and merge their car-sharing and ride-hailing services. Ford Motor Co (F) and Volkswagen AG (VOW.XE) are also working on a self-driving car venture.
The SMI closed virtually unchanged Friday, rising just 1 point to 9,483 points, with traders noting overriding reservation because of the never-ending Brexit saga and the ongoing US-China trade talks, with no trade deal in sight yet. Friday was also dominated by the evening’s upcoming “triple witching hour”, when stock market index futures, stock market index options and stock options would expire together. UBS slumped 1.1 percent. In February, a Paris court had found the bank guilty of aiding wealthy French clients evade taxes and imposed a record fine of EUR 3.7 billion and compensation of EUR 800 million. On Friday, on publishing its annual report, UBS said the increase in provisions for litigation, regulatory and similar matters as a result of these events had retrospectively reduced 2018 operating profit before tax and 2018 net profit attributable to shareholders by USD 382 million, thus cutting earnings per share by USD 0.10. Credit Suisse shares fell 0.2 percent in its wake.
The Stoxx Europe 600 rose 0.7%, boosted by gains in the autos and technology sectors. The U.K.'s FTSE 100 climbed 0.7% to 7,238.27, after finishing up 0.4% the previous day. The CAC-40 Index was up 174.10 points, or 3.33%, this week to 5405.32. The index saw its largest one-week point and percentage gain since the week ending Feb. 15. Meanwhile, the DAX finished up 227.85 points, or 1.99%, this week to 11685.69, the largest one-week point and percentage gain since the week ending Feb. 15.
U.S. stocks rose and ended the week with gains, as rallying technology shares helped offset losses elsewhere. The Dow Jones Industrial Average climbed 139 points, or 0.5%, to 25849. The S&P 500 added 0.5% and the Nasdaq Composite advanced 0.8%. All three indexes closed out the week around their highest levels of the year. Stocks managed to grind higher throughout the past few days, even as data pointed to further loss of momentum across the global economy. A Federal Reserve report showed U.S. industrial production rose less than expected and manufacturing production slid for a second straight month in February. That followed downbeat reports on industrial output in China, as well as data showing inflation remained subdued across the eurozone. The data helped fuel a rally in government bonds, sending the yield on the benchmark 10-year U.S. Treasury note to 2.598% from 2.628% Thursday. Yields fall as bond prices rise.
Asian markets rose as investors awaited an update on the state of ongoing trade negotiations between the U.S. and China. A report over the weekend said the proposed summit between President Donald Trump and China's President Xi Jinping to sign a agreement ending the trade war may be pushed back to June as the deal is taking longer than originally hoped to finalize.
A key U.S. government bond yield fell near its lowest levels of the year after a series of reports showed signs of weakness throughout the manufacturing sector, adding to concerns about the U.S. economy. The yield on the 10-year Treasury note, which helps set borrowing costs for consumers, businesses and state and local governments, broke through the bottom of its recent trading range. It settled at 2.594%, the lowest close since Jan. 3. The yield had been at 2.628% Thursday. Yields fall as bond prices rise.
UBS rises the RTL target to 50 (47,80) EUR – Neutral
Barclays lowers the RTL target to 55 (57,50) EUR – Equalweight
Citi lowers the Lanxess to 71 (80) EUR – Buy
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