Germany’s DAX is on fire! Fresh off its best session since 2022, the benchmark index is riding high, pushing past record levels as investors grow increasingly bullish on Europe’s biggest economy. The momentum continues, fueled by expectations of higher infrastructure and defense spending, as well as a key policy shift from U.S. President Donald Trump that’s sending German automakers into rally mode.
European Markets
Early Thursday, the broader European markets were a mixed scene. The Stoxx 600 index, which tracks companies across the continent, initially gained but later slipped 0.28% in London trading. But Germany? A different story. The DAX added another 0.5% after Wednesday’s stellar 3.4% rise—the biggest jump in nearly two years.
What’s Driving the DAX Rally?
Fiscal Reforms in Germany – Investors are optimistic about Berlin’s plans to loosen debt restrictions and boost infrastructure spending. Chancellor-in-waiting Friedrich Merz has been vocal about injecting fresh funds into the economy, with a proposed €500 billion infrastructure fund in the works.
Defense Spending Boom – As European leaders gather in Brussels for a defense summit, there’s growing confidence in military investments. With geopolitical tensions still running high, the Stoxx Aerospace and Defense index has already soared 34.4% this year, and investors see more upside ahead.
Trump’s Auto Tariff Exemption – A major relief for German carmakers, Trump’s surprise move to delay tariffs on automakers from Canada and Mexico for a month has given the industry breathing room.
German auto stocks were in the fast lane – the Stoxx autos index climbed 1.6%, with some big names leading the charge:
Mercedes-Benz: +5%; Porsche: +3.3%; Volkswagen: +3.4%; Continental AG: +3.3%; BMW: +3.3%
Auto stocks had been under pressure earlier in the week amid tariff concerns, but this exemption has sparked fresh optimism. Trump’s decision came after a meeting with auto executives from General Motors, Ford, and Stellantis, signaling that further negotiations could be in the works.
Big Moves in Other Sectors
Beyond autos, other big movers included –
—Air France-KLM (+18%) – The airline group crushed earnings expectations, sending its stock soaring.
—Lufthansa (+7%) – Despite a drop in annual profits, the results came in ahead of analyst forecasts.
—Deutsche Post/DHL (+11%) – Announced a €1 billion cost-cutting plan, leading to 8,000 job cuts but boosting shareholder confidence with an expanded buyback program.
ECB Rate Cut on the Horizon?
Investors are also eyeing the European Central Bank (ECB), which is widely expected to cut interest rates by 25 basis points, bringing them down to 2.5%. With inflation cooling off in recent months, the ECB’s decision could further shape market sentiment. But there’s still uncertainty ahead, especially with Trump’s potential trade tariffs on the EU.
The Last Bit
With Germany’s DAX at record highs, all eyes will be on how policymakers balance fiscal reforms, defense commitments, and trade negotiations in the coming weeks. While the tariff exemption is a temporary win for automakers, the long-term outlook will depend on how trade relations between the U.S., Europe, and other major economies evolve.
For now, though, German stocks are in the driver’s seat.
