European markets reach new highs as US-China tariff cuts boost DAX and FTSE

European markets reach new highs as US-China tariff cuts boost DAX and FTSE

European equity markets kicked off the new week with strong gains, as the Germany 40 (DAX 40) reached a fresh record high and the FTSE 100  hit an almost six-week high.

Their gains followed the announcement that the United States (US) and China have agreed to temporarily reduce tariffs, alleviating concerns about a prolonged trade war and the risk of recession. The agreement includes a reduction of tariffs by 115%, lowering US tariffs to 30% and China's tariffs to 10% for the next 90 days.

Trade agreements boost European markets

The earlier and more substantial tariff reductions reduce growth risks in both the US and China, which is great news for the Germany 40, given that the US and China are both huge markets for German exports. The FTSE 100 has received additional support in recent sessions from a 25 basis point (bp) rate cut from the Bank of England (BoE) last week, as well as the signing of the US-UK trade deal. While the finer details are still being finalised and a 10% baseline US tariff remains on most UK goods, US tariffs on UK cars drop from 27.5% to 10% for 100,000 vehicles annually, and steel/aluminium tariffs fall from 25% to 0%.

Attention shifts to peace talks and economic data

With the noise around tariffs set to ease for the moment, attention this week will focus on peace talks in Turkey between Ukraine and Russia, and Thursday night's UK first quarter (Q1) gross domestic product (GDP) release. The expectation is for Q1 growth of 0.6%, which would see the annual rate at 1.2%. This outcome, along with last week's Bank of England 25bp rate cut, is expected to see the BoE keep interest rates on hold at 4.25% until it delivers another 25bp rate cut in September.

FTSE 100 technical analysis

From its record high of 8908, the FTSE 100 fell 1364 points to a low of 7544 in early April, before its impressive rebound, which at last night's high took it to within 262 points or ~3% below its record 8908 high of March this year.

We don't currently hold a high conviction view of what comes next in the medium term. However, in the short term, and given the overbought nature of the rally, our view is like last week's in that the FTSE 100 is due for some consolidation.

Dip buyers will likely be operating near the 200-day moving average at 8361, and provided it holds, they will be looking for a retest and break of the 8908 record high.

FTSE 100 daily chart

DAX 40 technical analysis

In last week's update, here, we noted that given the magnitude of the rally from the April low, it seemed unlikely the DAX 40 would rally so far without making a fresh record high.

After breaking above the double top at 23,746 and hitting a fresh record high of 23,911 we aren't overly keen on chasing the DAX 40 from a buying perspective, and by the same token, we aren't interested in standing in the way of this freight train given the appeal of hitting the 25,000 milestone.

As such, we are happy on the sidelines with a preference towards buying a corrective pullback.

DAX 40 daily chart

• ^{Source: TradingView. The figures stated are as of 13 May 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}