Here’s why the CAC 40 and DAX Index will rebound as EU considers “nuclear option”

The CAC 40 and DAX Index futures plunged by over 1% in the futures market as a conflict between the United States and Europe escalated during the weekend. 

The German DAX, which tracks the biggest companies in the country, retreated to €25,122 from its all-time high of €25,470. Similarly, the CAC 40 Index futures dropped to €8,150, down from the year-to-date high of €8,393.

Europe considers the “nuclear option”

The European Union is considering executing its “nuclear option” as tensions with Washington escalate. These tensions rose after Donald Trump announced that he would impose tariffs on a few countries, including Germany, France, and Denmark.

Trump said that he will levy a 10% tariff on goods from these countries on February 1. These tariffs will then jump to 25% in June if a deal to acquire Greenland is not reached.

The announcement came as the European Parliament was considering voting for a trade deal he negotiated last year. As a result, some European leaders, including Emmanuel Macron, have urged the bloc to consider the Anti-Coersion Instrument (ACI) that was passed in 2023 to protect member states from being coerced by other countries.

The ACI response mechanisms include measures like tariffs, limiting access to the EU single market, suspending cooperation agreements, and other trade defense measures. According to the FT, the bloc is considering measures worth over €93 billion in retaliation to Trump’s policies.