Wall Street experienced a notable decline for two consecutive days as new tariffs took effect on Tuesday. The U.S. imposed 25% duties on imports from Canada and Mexico, alongside an additional 10% tariff on Chinese goods. These economic measures have created ripples across global markets as investors weigh the potential impacts on trade and growth.
Meanwhile, in Europe, the yield on German 10-year bonds surged by more than 20 basis points, reaching 2.682% at 7:30 a.m. London time. This increase reflects market reactions to Germany's evolving fiscal strategies. The German government is planning a substantial economic overhaul with a proposed 500 billion euro ($529 billion) credit-financed special infrastructure fund spread over ten years. This fund aims to finance critical infrastructure projects and stimulate economic growth.
In addition to the infrastructure fund, Germany is also considering reforms to its constitutional debt brake system. This reform aims to enable defense spending beyond the current limit of 1% of GDP, marking a shift in fiscal policy to bolster military capabilities and further drive economic expansion.
"At this stage, it looks as if Germany will run budget deficits comfortably over 3% of GDP over the next couple of years rather than keeping the deficit at around 2.5% as we had previously assumed," said Andrew Kenningham, chief Europe economist at Capital Economics.
Amid these financial maneuvers, corporate earnings updates provided some positive news. The German sportswear giant Adidas reported a robust 19% increase in revenues at neutral currency rates, totaling 5.97 billion euros ($6.34 billion) over a three-month period. This performance surpassed LSEG analysts' forecasts of 5.72 billion euros, highlighting the company's resilience in a challenging economic environment.
Similarly, ASML, a leading Dutch semiconductor equipment manufacturer, reported an increase in full-year 2024 net sales, rising to 28.2 billion euros ($30 billion) from 27.5 billion euros. However, ASML's net income slightly decreased to 7.6 billion euros from 7.8 billion euros, reflecting some financial headwinds amidst broader market volatility.
"Geopolitical announcements regarding export control restrictions and customer capital expenditure cuts created volatility in the investment community," ASML noted.
European stock markets are also responding positively to the developments in Germany and elsewhere. The U.K.'s FTSE 100 index is forecasted to open 56 points higher at 8,806, while Germany's DAX is expected to rise by 416 points to 22,733. France's CAC is projected to open 146 points higher at 8,176, and Italy's FTSE MIB is anticipated to climb by 403 points to 38,282.
These anticipated gains reflect investor optimism about the potential for economic growth spurred by governmental policies and corporate earnings exceeding expectations.