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European Stocks Rebound on Germany Spending Plans, Tariff Hopes
(Bloomberg) -- European stocks rallied after Germany announced hundreds of billions of euros in defense and infrastructure investment, with addditional boosts coming from China’s ambitious growth targets and signals that the Trump administration may walk back some trade tariff measures.
Germany’s DAX Index led Wednesday’s gains, advancing 3.3% as of 12:15 p.m. in Frankfurt, after the chancellor in waiting, Friedrich Merz, unveiled the huge fiscal plan. The Stoxx Europe 600 Index gained 1.4%, while the construction and materials subindex hit a fresh record high. A UBS basket tracking German Fiscal Reform-sensitive stocks soared 8.9% to an all-time.
“The clear push from Chancellor-elect Merz for fiscal expansion in Germany is helping to consolidate the European re-rating story,” said Geoff Yu, FX and macro strategist for EMEA at BNY. While the prospect of a tariff pullback adds to the sentiment boost, Yu said the German announcement will be “far more crucial to trend growth and equity performance in Europe over the medium- to longer-term.”
Stocks sensitive to the economic cycle led gains, with cement company Heidelberg Materials AG jumping 14% for the biggest increase in the DAX, while Siemens Energy AG climbed 7.6%.
Defense stocks surged anew, with Germany’s Rheinmetall AG gaining 4.3% and Thales SA in France rising 7.0%. Dassault Aviation SA climbed 5.8% after its results beat estimates.
European shares have had a stellar start to the year, with the Stoxx 600 up 10% and approaching its all-time closing high of 563.13 set Monday. A strong earnings season and gains for defense stocks have offset concerns about trade tensions with the US.
Merz said Tuesday night that main center parties agreed to launch a €500 billion ($528 billion) infrastructure fund to invest in transportation, energy grids and housing. He also said the nation would amend its constitution to exempt defense and security outlays from limits on fiscal spending.
Over in the US, Commerce Secretary Howard Lutnick said there could be some tariff relief coming for Mexican and Canadian goods. The outlook, however, remains clouded as President Donald Trump, speaking later in his address to Congress, touted his tariff plans while noting that “there’ll be a little disturbance.”
European semiconductor stocks as well as airlines were among those that rallied Wednesday, helped at least in part by Lutnick’s comments.
Miners and steelmakers were particularly strong after China set ambitious growth targets for 2025, raising expectations for officials to unleash more stimulus later this year.
Still, traders remain nervous, with the VIX Index climbing to the highest since December. Traders are pricing in persistent volatility amid economic uncertainty.
--With assistance from Kurt Schussler, Winnie Hsu and Paul Jarvis.