In the wake of the trade agreement with the U.S. three days ago, concerning developments have emerged in Europe. The euro is plummeting, suggesting that investors who were previously seeking European equities are now selling them off.
The DAX has temporarily severed its connection to Wall Street, where new records are being set, while the DAX remains trapped in a trendless trading range, oscillating between 24,000 and 24,500 points. Investor interest appears to have evaporated, and the tariff deal, perceived by many as humiliating, has left the Frankfurt floor in a state of shock.
In stark contrast, the U.S. is ramping up efforts in artificial intelligence. Microsoft has demonstrated that it can deliver greater AI capabilities for less cost through improved software solutions. This ability to achieve economies of scale has sparked a rally in Microsoft’s stock, resulting in a market capitalization increase of over $300 billion—equivalent to the entire market capitalization of Europe’s largest software company, SAP. The demand for “Copilot” licenses is skyrocketing, selling in the tens of thousands. Microsoft’s quarterly results underscore how quickly AI tools have transitioned from being “nice to have” to becoming perceived standards in the industry. The depth of AI integration within the economy and the dynamism it brings are clearly reflected in these numbers.
The Nasdaq has reached a new record high, with the S&P 500 following suit in early morning electronic trading. This surge on Wall Street comes despite a recent Federal Reserve meeting, where two out of twelve Open Market Committee members expressed support for rate cuts. However, the remaining ten, including Chairman Powell, preferred to maintain the current stance, indicating that there would be no imminent rate cuts in September and potentially none throughout 2025.
Comment provided by Jochen Stanzl, Chief Market Analyst at CMC Markets
