(Sharecast News) - European shares rallied strongly on Wednesday as investors reacted to news that Germany's political parties had done a deal to exempt defence spending from its debt brake mechanism sending the DAX index 3% higher.
The pan-regional Stoxx 600 index was up 1.29% at 558 in early deals after recording its worst day since August 2024 on Tuesday as US. President Donald Trump's new 25% tariffs on imports from Mexico and Canada took effect.

Sentiment was also lifted on news that Ukraine was ready to sign a minerals deal with the US, signalling potential moves towards a ceasefire in the war with Russia.

Germany's CDU/CSU alliance and their likely coalition the SPD said they would try to loosen constitutional rules on increasing debt to allow for higher defence spending.

They proposed three major changes to the debt brake - which limits new borrowing to 0.35% of GDP. First, a €500bn special purpose vehicle for infrastructure investment, of which €100bn will be allocated to the federal states; a reform of the debt brake to exempt any defence spending over and above 1% of GDP and reform of the brake at state level to raise their net borrowing cap from to 0.35% of GDP from zero currently.

The news saw the yield on German 10-year bonds jump almost 18 basis points to 2.66%

Shares in German firms dominated the main risers on the Stoxx. Construction firm Hochtief was up almost 14%, with manufacturer Kion Group 13% higher and Heidelberg Materials up 10%.

Adidas fell after the sport retailer forecast sales growth slowing slightly to up to 10% in 2025.

Reporting by Frank Prenesti for Sharecast.com

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