DAX and Stoxx 600 Hold Records as Global Selloff Bites

The Stoxx 600 and DAX held near all-time highs on August 25 as the Hang Seng slid 1.9% and the Nasdaq fell 0.76%, cementing Europe's strongest relative week against global peers in months.

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In equity markets today, Europe held its ground as a widening global selloff bypassed the continent's flagship benchmarks on August 25, 2026. The STOXX Europe 600 steadied near a record 657 points while Germany's DAX held above 26,100, even as Hong Kong's Hang Seng Index plunged 492 points, or 1.9%, to 25,517 - its sharpest single-session loss in weeks - and the Nasdaq Composite shed 0.76% to settle at 25,980 as US-Canada trade talks collapsed and fresh Iran sanctions unsettled North American and Asian risk markets. The divergence marks Europe's sharpest week of outperformance relative to both Asian and US peers in several months, extending a year-to-date rally that has lifted the STOXX 600 roughly 10% since January.

What Is Driving European Equities Higher?

The rotation story centers on tariff geography. The EU-US trade framework that entered into force on July 1, 2026 capped most European goods exports to the United States at a 15% tariff ceiling, placing European defense, luxury goods, and pharmaceutical companies largely outside the bilateral North American trade war that has upended integrated supply chains between the US and Canada. While the Trump administration imposed 50% tariffs on approximately $20 billion of Canadian goods on August 22 - covering wine, cement, and hockey sticks - and announced a further 50% levy on all Canadian automotive and steel imports effective January 1, 2027, European manufacturers face no equivalent direct exposure.

The earnings picture reinforces the trade thesis. STOXX 600 second-quarter earnings growth expectations climbed to nearly 21%, up from 12.5% in May, and major national benchmarks track the momentum: the Euro STOXX 50 touched an all-time high above 6,560 points on August 11, France's CAC 40 settled near 8,740, and Italy's FTSE MIB reached an unprecedented 53,540.

Why Did the Hang Seng Fall Nearly 2%?

The proximate trigger was Alibaba (BABA), whose HK$80 billion share placement - Hong Kong's largest-ever primary follow-on offering - was priced at an 8.4% discount to the prior close. Shares dropped up to 10.5% at Monday's open, dragging the Hang Seng TECH Index down close to 3.9% and ballooning turnover to HK$291.15 billion. Passive rebalancing flows tied to the deal were estimated at more than $7.2 billion in each direction, concentrating intraday volatility. Alibaba intends to deploy the full net proceeds into AI infrastructure and full-stack AI capabilities - a capital allocation that revived market concerns about the pace of AI buildout spending before revenue conversion is clearly established. Broader anxiety over the trajectory of US-China economic relations compounded the selling pressure on Hong Kong-listed names, with the Hang Seng's decline outpacing a roughly 0.6% drop in the Shanghai SSE Composite and a 0.7% slide in Tokyo's Nikkei 225.

What Pushed the Nasdaq and QQQ Lower on Monday?

Two macro shocks collided on August 24. US-Canada trade talks broke down definitively late Friday, with Canada's negotiators leaving Washington empty-handed. President Trump responded by announcing 50% tariffs on all Canadian automotive and steel imports from January 1, 2027, escalating an active dispute that had already seen 50% levies applied to Canadian wine and cement over the prior weekend. Canadian Prime Minister Mark Carney announced retaliatory tariffs on US products set to take effect September 8. The cascading dispute hammered memory-chip and auto-adjacent names, sending the Invesco QQQ (QQQ) down 0.8% as technology stocks bore the brunt of the session's losses. Simultaneously, Treasury Secretary Scott Bessent unveiled fresh economic sanctions against Iran, adding geopolitical premium to a market already on edge ahead of Nvidia (NVDA) earnings and Federal Reserve Chair Kevin Warsh's debut Jackson Hole keynote scheduled for August 28. Crude oil retreated 3.2% to $82.29 per barrel as investors weighed supply implications.

Monetary Policy Context

The Fed backdrop adds an additional layer of uncertainty to the US equity outlook. Chair Warsh, who assumed office in May 2026, has deliberately avoided the forward guidance markets had grown accustomed to under his predecessor. Inflation in the United States remains at 3.4% - well above the 2% target - while trade-related cost pressures threaten to lift that figure further. Markets are pricing roughly a one-in-three probability of a September rate hike, and the broad consensus among institutional allocators is that Warsh's Jackson Hole remarks will strike a neutral tone. The ECB's posture remains comparatively accommodative against a background of cooling European core inflation - a policy divergence that has added further relative attractiveness to euro-denominated assets and reduced hedging friction for global investors shifting allocations toward the continent.

Outlook

The STOXX 600 and DAX carry substantial year-to-date gains into the final week of August with no direct exposure to the US-Canada escalation that now threatens to cascade into wider retaliatory measures by early September. Three catalysts could sharpen or reverse the European relative-performance trade in the near term: Nvidia's earnings, Warsh's Jackson Hole keynote, and any breakthrough or further breakdown in US-Canada negotiations. Absent a fresh shock, Europe's insulation from the North American tariff crossfire and its accelerating earnings momentum position the continent's defense, pharma, and luxury names as the primary destination for investors rotating equity exposure away from the bilateral trade dispute's blast radius.