The DAX index continued its strong downward trend on Monday as investors dumped their global equities as risks jumped. It slumped to a low of €18,900, its lowest level since September 12 last year. It has plummeted by more than 17% from the highest point this year.
The German DAX’s crash has mirrored the performance of other global indices. In Europe, the CAC 40 index dropped by 5.65% on Monday, while the Euro Stoxx 50 moved downwards by 6%. Other indices like AEX, FTSE MIB, and Swiss Market Index (SMI) also dived by over 5%.
Donald Trump adamant about tariffs
Top indices like the German DAX, Swiss SMI, Italy’s FTSE MIB, and the French CAC 40 dropped as Donald Trump remained adamant about the US tariffs on other countries. In a Truth Social post, Trump lamented about the substantially high trade deficit the US has with the European Union.
Data shows that the US had a goods trade deficit worth over $235 billion with the EU last year, a 12.9% increase from a year earlier. However, the trade deficit narrows substantially when services are included. The US had a service surplus of over $109 billion in 2023, meaning that the overall surplus deficit is less than $60 billion.
We have massive Financial Deficits with China, the European Union, and many others. The only way this problem can be cured is with TARIFFS, which are now bringing Tens of Billions of Dollars into the U.S.A. They are already in effect, and a beautiful thing to behold. The Surplus
Also, the numbers don’t factor the fact that many US companies do a lot of business in Europe. Some of these firms are Procter & Gamble, Apple, Microsoft, and Colgate-Palmolive.
Trump insists that his tariffs are necessary to reduce these tariffs, which he believes are unsustainable. However, analysts worry that his thinking is flawed. For one, his basis for the 20% tariff he imposed on Europe was wrong.
Instead of imposing a real reciprocal tariff, Trump simply calculated the trade deficit, divided it with the total exports to the US, and then multiplied it with 100. He then divided the final figure with 2, coming up with 20%, a figure that economists and non-economists believe is flawed.
At the same time, a trade deficit is not necessarily a bad thing. A deficit is calculated by subtracting imports from exports. The challenge is that the US imports so much without selling more goods.
One way to lower the deficit would be to boost exports, which is highly unlikely because of the high labor costs and regulations.
Top DAX, IBEX 35, FTSE MIB, and SMI indices laggards
Most companies in the DAX, IBEX 35, FTSE MIB, and the SMI indices have crashed as investors predict a recession in the both sides of the Atlantic. The most affected companies are those that do a lot of the Atlantic.
Infineon, a top semiconductor in the DAX index, has plunged by over 22% in the last week because of its exposure to the US, which accounts for 10% of its total sales. The other top laggards in the DAX are firms like Siemens, Adidas, Siemens Energy, Mercedes Benz, and Volkswagen.
The top laggards in the IBEX 35 are companies like Repsol, ArceloMittal, IAG, and Bankiter, and Amadeus were among the top laggards.
Is it safe to buy the dip in these European indices?
Analysts are questioning whether this is the best time to buy the dip in European indices like the German DAX, IBEX 35, FTSE MIB, and Swiss Market Index (SMI).
Most strategists believe that many of these indices will bounce back later this year once the market exits the extreme fear zone. Many of them recommend staying on the sidelines until the market stabilizes. Others recommend using the dollar cost averaging approach, which involves buying the dip slowly as the dip intensifies.
They believe that these indices will ultimately bounce back once the Federal Reserve and the European Central Bank (ECB) intervenes.
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