German stocks drag Europe lower after Merz setback
By Sukriti Gupta
(Reuters) -European stocks fell on Tuesday, with German shares lagging after conservative leader Friedrich Merz failed to garner the parliamentary majority needed to become chancellor, while uncertainty about U.S. tariffs continued to weigh on the mood.
The pan-European STOXX 600 index was down 0.7% as of 0911 GMT.
Germany's DAX led losses among regional indexes with a 1.6% decline after Merz, who led his CDU/CSU conservatives to win a federal election in February, faced an unexpected setback for his new coalition with the centre-left Social Democrats.
The domestically focussed mid-cap MDAX fell 2.9% and German government bond yields dipped.
"This is unprecedented and delays the transition of power," Societe Generale analysts said in a note.
Meanwhile, a survey showed the euro zone economy continued to expand in April but at a slower pace as demand weakened and the dominant services sector nearly stagnated, suggesting the region's recovery remains fragile.
Focus is on whether Sino-U.S. trade tensions will ease after China last week said it was evaluating an offer from Washington to hold talks over tariffs.
However, the lack of concrete details on any deals between the U.S. and its partners has kept investors on edge. Trump, on Sunday, announced a 100% tariff on movies produced outside the U.S. and a day later said he intends to announce pharmaceutical tariffs over the next two weeks.
"People are just waiting because there have been all these hopes, but nothing concrete is in place," said Axel Rudolph, senior technical analyst at IG Group.
Market attention is also on the U.S. Federal Reserve's policy announcement on Wednesday. While the central bank is expected to keep rates unchanged, investors will look for comments on the impact of tariffs on economic growth.
The Bank of England's rate decision is also due this week.
Among individual stocks, Vestas rose about 4.7% after the wind turbine maker reported an unexpected operating profit for the first quarter.
Fresenius Medical Care jumped 3.8% after the German kidney dialysis company reported first-quarter results above market expectations.
Philips fell 1.7% after the Dutch healthcare technology company cut its profit margin forecast for 2025.
Castellum slumped 7.5% after the Swedish real estate group posted weaker-than-expected first-quarter results.
Coloplast tumbled 4.8% after the Danish medical equipment maker's CEO stepped down on Monday and it reported a second-quarter miss on Tuesday.
(Reporting by Sukriti Gupta; Editing by Savio D'Souza and Sonia Cheema)
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