Germany's fiscal plan sends DAX index over 3% higher, European stocks hope for Trump tariff compromise

European equities are also tracking for updates on plan to reform Germany's state borrowing limits - called 'debt brake' - which would free up funds for investment in the economy.

Germany's DAX index is sharply higher in early trade on March 5, up over 3% riding on the chancellor-in-waiting Friedrich Merz's fiscal plan as well as proposed defense investments, with other key European indices FTSE 100 and CAC 40 rising between 1-3%.

US index futures rose by almost 0.6% on hopes of a possible compromise deal on tariffs between US and its neighbouring trading partners.

US Commerce Secretary Howard Lutnick, while speaking to Fox Business on March 4, had suggested that President Trump might reduce the recently imposed tariffs on imports from Canada and Mexico through a compromise deal, possibly in a day. Though, Trump maintained his administration's commitment to implement tariff on imported goods during his address before the Congress.

Merz had said on Tuesday that there is consensus to launch a $528 billion infrastructure fund that will invest in transportation, energy grids and housing, and the constitution would be amended to to exempt defense spending from fiscal limits. Merz's party and the Social Democrats (SPD), in talks to form a coalition, are expected to place the proposals before the German parliament next week.

European equities are also tracking for updates on plan to reform Germany's state borrowing limits - called 'debt brake' - which would free up funds for investment in the economy. In anticipation of increased government spend, shares of European defence company shares Rheinmetall and Renk continue extend gains.

The euro has extended gains to near four-month highs on the anticipated funding boost, offsetting trade tensions that have unraveled after Trump's tariffs on China, Canada and Mexico. The Euro in on track for its best week since November 2022.

China maintaining its growth targets for 2025 at 5% helped sentiment in Europe, with rising expectations of fresh stimulus as a trade war with America looms large.