The financial markets of Europe are currently faced with significant turbulence, with the Frankfurt Stock Exchange Index (Dax) down 2% despite recent massive investment dishes in European defense shares, which has made Rheinmetall evaluated more than the Volkswagen automotive giant.
This change is a direct consequence of NATO members preparing for a potential expansion of commercial conflicts. European investors closely monitor the next stages of the US administration concerning pricing policies. Recent discussions in the US Congress have aroused concerns about the potential consequences if these tensions increase more.
Challenges for major European economies
It is still too early to determine whether the euro zone is faced with a large -scale crisis. The composite PMI of the HCOB euro zone, a key indicator of the EU commercial activity, oscillates at 50.2 points in February 2025. This reading, which varies from 0 to 100, is just above the critical threshold 50, suggesting minimum growth.
In response to economic uncertainty, Germany plans to inject 500 billion euros into an infrastructure fund, which will mainly support defense expenses. In addition, the German government has increased bond yields by 40 basic points to around 2.9%, with the potential to reach 3% in the coming days.
Meanwhile, France’s bond yields at 10 years old increased by 23 base points to 2.73%. At the same time, the French services sector should decrease by 0.8% in 2025, reporting a new slowdown in economic activity.
These measures taken by some of the largest European economies emphasize that the EU has trouble balanceing growing defense spending by President Donald Trump’s threats to withdraw American troops from their allies on the continent.
The drop in oil prices from Brent adds complexity. Making from 12.5%, from $ 80 to $ 70 since the start of the year, countries like the Netherlands, Norway and the United Kingdom deal with obstacles as major oil extractors.
Analysts already call for this situation a “toxic cocktail” of stagnant growth, persistent inflation and growing commercial risks. Geopolitical uncertainty and policy changes continue to raise critical issues for investors who try to sail in this volatile environment.
However, the recent decline in DXY 5.67%, compared to its recent 110.170 summit, suggests that the US dollar does not work as well as many might expect. Although the trade balance can move, the overall impact seems to be a loss for all the parties involved, without a clear winner emerging from these current tensions.
