CMC Markets: DAX with chance for record high, a deal with pros and cons

Speculation surrounding a trade agreement between the United States and the European Union has paid off, potentially allowing the DAX to achieve a new record high at the beginning of the week. The previously feared no-deal scenario and a subsequent trend reversal have been avoided, enabling the DAX to align itself more closely with the strength of Wall Street without as much headwind.  

Whether the DAX maintains this outperformance over the U.S. markets will depend on how the EU leverages the new trading landscape with the U.S. It is crucial for the EU to bolster its economy and ensure that the momentum generated from the trade agreement translates into real-world benefits for European markets. Relying solely on the trade deal with the U.S. will not be sufficient.  

There remains a prevailing sense that the agreement does not constitute a significant win for either party involved. While it is positive that an escalation of tariffs has been avoided, the deal feels more like a compromise than a triumph. It is the best outcome achievable under the circumstances, but it falls short of fostering a sense of collective progress in transatlantic trade. The agreement carries the signature of Trump’s “America First” approach, suggesting that benefits may be skewed.  

Similar to Trump’s trade agreement with Japan, several details remain unresolved in the current negotiations. For instance, there are conflicting reports regarding pharmaceutical products that account for a quarter of U.S. imports from the EU. Clarifying these points will be essential for the trade deal’s long-term effectiveness.  

On a positive note, the reduction of auto tariffs to 15% is a significant development, likely to benefit automotive stocks in today’s trading. Investors may react favorably as they digest the implications of this change.  

By Jochen Stanzl, Chief Market Analyst at CMC Markets.