After a shaky end to the third week in May, European markets started Monday on a strong note.
They rebounded after U.S. President Donald Trump postponed his proposed 50% tariffs on EU goods. The result was a sigh of relief across trading floors and a healthy jump in stock prices.
The pan-European STOXX 600 index (.STOXX) rose 1%, marking its biggest one-day gain in two weeks and successfully reversing May 23rd’s 0.9% slump. Investors had been rattled after Trump unexpectedly called for stiff tariffs, citing slow progress in trade negotiations with the European Union.
But on Sunday, May 26th, Trump hit pause by extending the tariff deadline from June 1 to July 9. This gives EU leaders more time to finalize a deal. European Commission President Ursula von der Leyen, confirmed the extension, noting the bloc needed more runway to reach an agreement.
Defence, Autos, and Luxury Said Watch Us
The automobile and parts sector (.SXAP), which is highly sensitive to tariff news, rose 1.8%, though gains were held back by a 3.3% drop in Porsche (PSHG_p.DE).
Defence stocks were the day’s big winners, with Germany’s Rheinmetall (RHMG.DE) and Italy’s Leonardo (LDOF.MI) both rising more than 3%. This helped the aerospace and defence index (.SXPARO) advance 1.7%, and gave the broader industrial goods and services index (.SXNP) a 1.5% boost.
Thanks to this rally, Germany’s DAX (.GDAXI) climbed 1.7%, closing in on record highs.
Luxury brands, which rely heavily on U.S. consumers, also got a lift. Shares of LVMH, Kering, and Richemont each gained around 1%, which reflects renewed confidence despite geopolitical headwinds.
Are We Being Too Optimistic?
According to Mark Haefele, CIO at UBS Global Wealth Management, the market may be reacting too optimistically. “While more time for EU-U.S. negotiations is good news, the speed of the rebound suggests investors might be pricing in a little too much hope,” he said.
The euro also gained, along with other risk-sensitive currencies, while eurozone government bond yields stayed mostly flat.
Investors are closely watching signs of a potential U.S. economic slowdown, especially after Moody’s downgraded the U.S. credit rating on May 16.
Meanwhile, Thyssenkrupp (TKAG.DE) surged 8.8% after reports emerged of an upcoming shareholder vote on spinning off its warship division. And Zealand Pharma (ZELA.CO) topped the STOXX 600 with a 10% rally.
With Trump’s tariff threat on hold, the European market has a bit more breathing room. However, trade tensions and global uncertainty remain very real. Smart investors should keep an eye on upcoming EU-U.S. developments and stay diversified across sectors that can weather both political and economic storms.
