Auto Stocks Lead DAX Recovery as Trade Tensions Ease

German equities rallied sharply Thursday morning as investors breathed easier following signs that trade war concerns are fading. U.S. President Donald Trump’s recent comments at the World Economic Forum in Davos, Switzerland signaled a more conciliatory approach, with the administration dropping planned tariffs on eight European nations and ruling out military intervention regarding Greenland. This shift in policy stance proved to be exactly the catalyst that auto stocks needed.

“We probably won’t get anything unless I decide to use excessive strength and force, where we would be, frankly, unstoppable. But I won’t do that,” Trump stated during his speech, adding that he would pursue “immediate negotiations” with Denmark rather than force. The comments immediately reduced uncertainty in markets, with NATO Secretary General Mark Rutte emphasizing productive discussions about Arctic security cooperation among allies. The relief was palpable across trading floors, particularly in sectors most vulnerable to tariff disputes.

Auto Sector Surges on Reduced Trade War Concerns

Auto stocks were the clear winners of the day, with the sector’s strength providing the primary engine for the DAX’s strong performance. The benchmark index climbed 299.34 points or 1.22% to reach 24,877.15 at midday, but the real story lay in the automotive segment’s exceptional gains.

Volkswagen, Europe’s largest carmaker, led the charge with an impressive 5.2% surge after the company reported stronger-than-expected cash flow for the 2025 financial year. Other premium auto manufacturers also benefited substantially: Porsche Automobil Holding advanced 2.7%, while both BMW and Mercedes-Benz each gained approximately 1.5%. Daimler Truck Holding climbed nearly 1%, demonstrating broad-based strength across the auto sector. For investors concerned about tariff impacts on European carmakers, these gains reflected renewed confidence that major headwinds may be receding.

Broader Market Momentum: Tech and Finance Shine

Beyond auto stocks, several other sectors contributed to the DAX’s upside. Deutsche Boerse surged more than 3% following the announcement of a landmark $5.3 billion acquisition of Amsterdam-listed fund trading platform Allfunds, a strategic move designed to strengthen its position in Europe’s investment fund market.

Technology names also impressed, with Infineon Technologies climbing 4.3%. Siemens Energy, Deutsche Bank, Heidelberg Materials, Deutsche Telekom, Continental and Zalando all advanced between 2% and 3.5%. Bayer added 2.7% to its gains after announcing that its investigational cell therapy, OpCT-001, has received Orphan Drug Designation from the FDA for treating retinitis pigmentosa. Merck, Scout24, RWE, Siemens, Qiagen, Commerzbank, Munich RE, MTU Aero Engines, Hannover Rueck, Allianz, Siemens Healthineers and E.ON also posted solid gains.

However, not all stocks participated in the rally. Rheinmetall declined 2.25% while SAP drifted lower by approximately 1.2%, suggesting some profit-taking or sector rotation concerns.

ECB Policy Shift Remains in Focus

Traders continued to monitor European Central Bank developments closely. Following the ECB’s December 17-18 governing council meeting, the central bank maintained its key deposit rate at 2%. As markets await the release of detailed monetary policy meeting minutes, investors are positioning for potential implications on growth and inflation trajectories across the eurozone.

The combination of reduced trade war uncertainty and stronger-than-expected corporate earnings, particularly from auto stocks, appears to have reset market sentiment for now. Whether this momentum persists will depend on incoming data and further policy signals from both Washington and the ECB.