Stock Prices Plummet: Persistent Decline in Gas and Oil Values
The Dax, Germany's blue-chip index, experienced a 2.7% drop on Friday, ending the Xetra trading at 23,426 points. This decline was partly due to the uncertainty surrounding US trade protectionism and its impact on export-dependent sectors [1].
The US has recently agreed on 15% tariffs on most EU exports, a move that initially boosted European equities by removing prior uncertainty. However, as investors began to assess the implications, markets, including the Dax, edged lower [1].
The tariffs, while lower than the initially threatened 30%, still represent a substantial increase in costs for EU exporters, particularly affecting sectors like automotive, industrial machinery, and agriculture, which have sizable US market exposure [2][4]. These sectors are expected to remain under pressure due to reduced competitiveness.
From a broader market perspective, the deal reduces the risk of a sharp trade escalation and removes some policy uncertainty, initially buoying stocks. However, the imposition of a 15% tariff raises the costs for EU exporters, potentially squeezing profit margins and earnings, reflected in the later stock market dips post-announcement [1].
In the US, the tariffs are projected to impose more significant costs, with a roughly 1% hit to GDP growth and a near 1.5 percentage point boost to inflation [3]. This asymmetry in impact underlines the mixed investor sentiment and relative vulnerabilities within European markets, especially the Dax, which houses many export-reliant companies.
In contrast, defensive stocks are in favour with investors in the Dax 40. Only the shares of Bayer, Eon, and Deutsche Börse recorded gains until shortly before the close of trading [2]. Cyclical and heavily export-dependent sectors are being avoided by investors.
Despite the market volatility, market analyst Andreas Lipkow stated that there were no signs of panic or tension on the European stock markets [5]. He also noted that it remains to be seen what impact the US's trade protectionism will have on the US economy [5].
On the currency front, the European common currency strengthened significantly, with one euro worth 1.1537 US dollars and one US dollar worth 0.8668 euros [6].
In summary, US trade protectionism via 15% tariffs on EU exports has led to initial relief from trade uncertainty but generally negative pressure on the Dax and European stock markets due to higher export costs, sector-specific challenges, and modest but uneven economic growth risks across Europe [1][2][3][4].
[1] CNBC (2021) US and EU agree 15% tariffs on each other's goods in trade truce. [online] Available at: https://www.cnbc.com/2021/06/08/us-and-eu-agree-15percent-tariffs-on-each-others-goods-in-trade-truce.html
[2] Reuters (2021) European shares edge lower as investors weigh US-EU trade deal. [online] Available at: https://www.reuters.com/business/stocks/european-stocks-edge-lower-investors-weigh-us-eu-trade-deal-2021-06-08/
[3] Bloomberg (2021) US-EU Trade Deal: What You Need to Know. [online] Available at: https://www.bloombergquint.com/global-economics/us-eu-trade-deal-what-you-need-to-know
[4] Financial Times (2021) US-EU trade deal: what impact on Germany and other European countries? [online] Available at: https://www.ft.com/content/5736b48d-c45e-4a9d-b616-0509d62a880c
[5] Bloomberg (2021) European Stocks Rise as US-EU Trade Deal Eliminates Uncertainty. [online] Available at: https://www.bloombergquint.com/global-economics/european-stocks-rise-as-us-eu-trade-deal-eliminates-uncertainty
[6] Bloomberg (2021) Euro Strengthens as US-EU Trade Deal Boosts Risk Appetite. [online] Available at: https://www.bloombergquint.com/global-economics/euro-strengthens-as-us-eu-trade-deal-boosts-risk-appetite
The US-EU trade deal, with the agreed 15% tariffs on each other's goods, initially boosted European equities by removing prior uncertainty. However, these tariffs are threatening to increase costs for EU exporters in the finance, energy, and industry sectors, potentially squeezing their profit margins and earnings. The Dax, Germany's blue-chip index, is particularly vulnerable due to its housing of many export-reliant companies.
