Increase in European Investments Trend
The stock market in Europe faced a mixed bag of results in Q2 2025, with the introduction of U.S. tariffs on European exports playing a significant role. The tariffs, initially proposed at 30% but recently negotiated down to a 15% ceiling, have negatively impacted sectors heavily reliant on U.S. trade, such as pharmaceuticals, autos, and industrial goods.
Carl Zeiss Meditec's financial results were not well received, causing the stock to drop by double digits at one point during the day. Deutsche Telekom and Merck's earnings reports were met with sell-offs, reflecting the elevated trade costs and economic uncertainty that reduce profit margins and market demand.
However, Siemens' earnings were well received, resulting in the stock ending in positive territory. Investors bought into European stocks, including Frankfurt, on Thursday, with the Dax increasing by 1.1%. The Dax experienced a daily high of 24,392 points on Thursday, attributed to the optimism driven by the expected interest rate cut by the US Federal Reserve.
The higher tariffs on imports from several countries, ordered by US President Donald Trump, have been in effect since 6:01 AM CEST on Thursday. The tariffs have contributed to downward pressure on earnings for major European companies like Siemens, Allianz, Deutsche Telekom, and Merck during Q2 2025.
Despite these challenges, Allianz is on track to meet its annual target with a strong profit increase in the last quarter. Allianz shares were in demand, gaining ground. Rheinmetall's share price experienced a sharp decline, despite reporting record revenue in its munitions business in the second quarter.
Thomas Altmann, portfolio manager at asset manager QC Partners, stated, "Now we'll see step by step how big the impact on trade volumes and corporate profits will be." The US Federal Reserve is expected to cut interest rates at its September meeting, according to market participants, which is boosting sentiment in the stock market.
The EU's commitment to invest heavily in U.S. energy and industrial sectors aims to alleviate tariff tensions and build longer-term stability. However, these arrangements will take time to offset near-term tariff effects, including on Q2 earnings reports. The broader economic impact includes slowed Eurozone growth and sector-specific challenges mostly in pharmaceuticals, autos, and industrial goods exports to the U.S.
In summary, while the reduction of U.S. tariffs from 30% to 15% in mid-2025 has softened the blow, the remaining tariffs continue to impose costs that have weighed on European stocks and dampened Q2 earnings for major European corporations exposed to U.S. markets and trade. The ongoing trade uncertainty is expected to keep equity markets range-bound, with sector-specific impacts heavily dependent on exposure to U.S. tariffs and supply chain adjustments.
The financial results of Deutsche Telekom and Merck, along with Carl Zeiss Meditec, were negatively impacted by the ongoing U.S. tariffs, causing sell-offs and stock drops. As these tariffs continue to impose costs, they remain a significant factor affecting the finance sector in Europe.
