Defense Shock Overshadows Falling Oil as DAX Struggles near 24,700

The German DAX fell 0.62% as a defense sector rout, led by Rheinmetall's 18.7% crash on the F126 frigate halt, overshadowed falling oil prices. Support at 24,700 eyed.

The German stock market's fragile start to the second half of the year took a fresh blow on Wednesday as a sudden halt to a flagship naval project sent defense stocks into a tailspin, negating the tailwind from sliding crude prices. The DAX closed 0.62 percent lower at 24,740 points, barely clinging to the year's gains after a single-day rout in Rheinmetall that wiped out nearly a fifth of the company's market value.

The drama began in Berlin, where Defense Minister Boris Pistorius pulled the plug on the F126 frigate program, citing runaway costs that made the project politically untenable. Rheinmetall, a key contractor on the largest German warship project since World War II, saw its shares crash 18.7 percent to €949, after briefly falling more than 20 percent intraday. The shockwaves rippled through the sector: Hensoldt shed 3.3 percent, and Renk tumbled 8.1 percent. The selloff drove the VDAX-NEW volatility index up 4.2 percent to 18.45 points, signaling a sharp jump in market anxiety.

Yet the broader DAX story is one of stark contrasts. MTU Aero Engines managed to climb around 6 percent, buoyed by a bullish note from JPMorgan, while Infineon slipped 1.2 percent as the semiconductor sector braced for earnings from US rival Micron. After hours, RWE triggered a 2.4 percent slide in its own shares after announcing a €3.6 billion capital increase to fund the expansion of its stake in grid operator Amprion to 55 percent.

The oil market, meanwhile, offered what would normally be a powerful tailwind. Brent crude slid 1.65 percent to $72.52 a barrel, its lowest since March, as traffic resumed through the Strait of Hormuz and US-Iran negotiations showed progress. For German manufacturers grappling with elevated energy costs, cheaper oil is a pure positive — but the defense shock overwhelmed the relief. The US dollar strengthened to a 13-month high, pushing the euro down to $1.1325 as the interest-rate divergence between the Federal Reserve and European Central Bank continued to widen.

Macroeconomic headwinds persist. The Ifo Institute now expects German GDP growth of just 0.8 percent in 2026, attributing 0.4 percentage points of that drag to the lingering impact of the energy price shock. A separate Ifo business climate indicator edged higher in June but failed to spark a reversal in sentiment.

Chart technicians note the DAX is testing a crucial support zone around 24,700 points. The first line of defense is the June 23 low at 24,723 points; a break below that opens the door to the June 10 trough of 24,038. On the upside, the 25,000-point psychological barrier — still 1 percent away — has become a formidable ceiling, with a more distant resistance at 25,181. The index's relative strength index sits near the neutral 50 level, offering no clear directional signal.

Wednesday's session also sets the stage for a key test later today: US initial jobless claims, the third estimate of first-quarter GDP, and the core PCE price index — the Fed's preferred inflation gauge — will be released. The PCE reading is expected to set the tone for the remainder of the week. Micron's quarterly report, released after the close, is being watched closely for any signs of weakness that could reignite the semiconductor selloff that hit Broadcom earlier. "The fear of a sudden end to the rally is real," said Thomas Altmann of QC Partners. "But many are also afraid of leaving the party too early."

With the DAX nursing a year-to-date gain of barely 0.82 percent and sitting around 3 percent below its 52-week high, the balance between defense-driven panic and macro relief remains precarious. The 24,700 support zone will be the battleground in the sessions ahead.