European stock markets rallied on Tuesday, snapping a three-day losing streak. The pan-European Stoxx 600 index rose 0.67%, while Germany’s DAX and France’s CAC 40 climbed 1.13% and 1.08%, respectively. The rally was driven by hopes that U.S. President Donald Trump may soften his tariff stance.
Trump recently signaled some flexibility on certain levies but also introduced a new 25% levy on buyers of Venezuelan oil. Despite the recent rebound on Wall Street, European markets have continued to outperform their U.S. counterparts this year. The Stoxx 600 has gained 8.9% year-to-date, and Germany’s DAX is up 16%.
In contrast, the S&P 500 is down 3%, and the Nasdaq has fallen 5.4%. Analysts attribute the strong performance of European markets to relatively cheaper valuations, expectations for increased defense spending, and more accommodative monetary policies. The possibility of a permanent ceasefire in the Ukraine war has also provided optimism toward Europe’s economic outlook.
European markets rally on tariff hopes
The banking and industrial sectors have been the top performers in Europe. The financial sector gained 23% in the past three months, driven by robust earnings results, generous dividends, and share buyback programs.
Industrial stocks, particularly defense companies, have benefited from plans to boost defense spending in the EU. However, risks remain in the European markets. Trump’s tariffs are expected to impact the global economy due to trade barriers.
Central banks, including the European Central Bank, foresee higher inflation and slower economic growth, which could restrain business growth. German biotech firm Bayer saw a significant rebound on Tuesday, increasing more than 5% after recovering from a 7% loss in the previous session. The company had been ordered by a U.S. court to pay $2.1 billion in damages related to its Roundup weed killer.
British oil major Shell climbed 1.5% after announcing plans to increase shareholder returns, cut spending, and focus on its liquified natural gas (LNG) operations. The company aims to increase shareholder distributions to 40-50% of cash flow from operations and maintain progressive dividends of 4% per year.
