Financial Markets: DAX Tops Record High on Tariff Reprieve, Defense Stocks Rally
Dax reaches a new record peak.
In a significant development for the European economy, Germany's DAX index hit a new record high on Tuesday, marking a 23% gain so far this year, as a reprieve on US tariffs and looming sanctions against Russia provided a temporary respite in ongoing trade tensions.
Tariff Delay and Market Reaction
The unexpected delay in the implementation of a 50% tariff on EU goods from June 1 to July 9, following discussions with EU leaders, has eased some uncertainty and opened the door for further negotiations.This is crucial for Germany, given its export-oriented economy. In response, German government bond yields, notably the 2-year and 10-year bonds, rose by 5 basis points, reflecting lingering risks of future tariffs. Meanwhile, European stock indices, including the DAX, registered a significant increase, reflecting investor optimism about the potential for a resolution in the trade dispute.
Defense Stocks Surge
While not detailed in the provided sources, the surge in defense stocks is typically linked to heightened geopolitical risks or increased defense spending, which may attract investment and support specific sectors within the DAX. Among the notable performers were Rheinmetall, Renk, and Hensoldt, which hit record highs, with Rheinmetall recording a new all-time high of 1,892 euros, Renk reaching 74.75 euros, and Hensoldt climbing to 87.05 euros.
Mixed Economic Indicators for Germany and the Eurozone
Economic indicators for Germany and the Eurozone remained mixed, with the German economy projected to stagnate in 2025 after slight contractions in the previous two years. Ongoing trade tensions are expected to weigh on consumption, investment, and exports. Private consumption is forecast to grow modestly in 2025 due to increased purchasing power and lower interest rates, but investment is likely to stagnate due to tighter financing conditions and weaker sentiment.
Future Meetings and Impact on Crude Oil Prices
On Wednesday and Saturday, Opec+ oil ministers will hold online meetings, and a gathering of the eight member countries that had agreed to additional voluntary cuts beyond official quotas. Market participants expect these meetings to result in an increase in crude oil production, following US President Trump's temporary suspension of tariffs against the EU. The price of the benchmark Brent Crude oil fell by 1.3% to 63.93 euros in anticipation of these meetings.
Foreign Exchange Market
The US dollar strengthened slightly on Tuesday, with the US Dollar Index, which measures the dollar’s performance against the currencies of its six major trading partners, rising by 0.4%. The euro, which had gained on Monday following Trump’s announcement of the delay in tariffs against the EU, fell by 0.4% to 1.1340 dollars. With the easing of tensions in the trade war, the price of gold fell by 1.3% to 3,299 dollars per ounce.
In a separate development, Artnet's stock surged by around 18%, nearing the level of an acquisition offer from an investment company, which is offering 11.25 euros per share. Artnet supports the offer, aiming for a delisting.
Investors' optimism about the potential resolution in the trade dispute led to a significant increase in European stock indices, including the DAX, with defense stocks such as Rheinmetall, Renk, and Hensoldt hitting record highs. The unexpected delay in the implementation of a 50% tariff on EU goods provided a temporary respite for German businesses, particularly those with export-oriented economies, and resulted in a rise in German government bond yields.
