The blue-chip DAX index closed Wednesday 0.62% lower, driven by Rheinmetall (RHM.F), which tumbled following news that Germany scrapped its F126 frigate program.
Citing significant delays, cost inflation, and structural risks, Germany's defense ministry revoked its contract for six F126-class Navy frigates. The sudden cancellation of the program sent Rheinmetall's shares falling 18.65%, as the defense company was said to be lined up for the deal, Reuters wrote in a same-day report.
Mwb Research warned that the cancellation puts Rheinmetall's naval business outlook at risk. "The F-126 frigate cancellation strips Rheinmetall of the crown jewel that justified the NVL acquisition and anchored 2030 Naval guidance. We're resetting Naval revenue from EUR 5bn to EUR 3bn which reflects both the loss of F-126 core revenue and the reality of a shipyard running below capacity," the research firm wrote.
To meet the country's anti-submarine warfare needs, the German defense ministry said it would pivot to purchasing eight Meko A-200-DEU frigates. According to Reuters, these Meko-class vessels are manufactured by TKMS AG & Co. (TKMS.F). The shipbuilder rose 16.07% on Xetra.
In other defense-related news, pan-European land defense group KNDS confirmed plans to launch an initial public offering, with listings on both the Frankfurt Stock Exchange and the Euronext Paris, to help scale operations and meet the growing demand from modernizing European armed forces.
On the economic front, the ifo Institute's business climate indicator rose to 85.6 points in June, as expected, from the revised 85 points in May. The expectations indicator also ticked up to 84.1 points from the revised 83.9 points earlier, while the current conditions index edged up to 87 points from 86.1 points.
"Somehow, the German - and indeed the wider European - economy remains in a kind of twilight zone. Hard data will continue to show the fallout from the war in the Middle East and soaring energy prices, while soft data such as this morning's Ifo index, points to a return of optimism," ING wrote, attributing the improved sentiment to the US-Iran peace talks and the reopening of the Strait of Hormuz.
Speaking of the Middle East conflict, the US Senate voted 50-48 to pass a war powers measure aimed at restricting President Donald Trump's ability to initiate military action against Iran without prior authorization from the US Congress. "Although its legal force is disputed, the vote signals growing bipartisan scepticism over the administration's Iran policy," Danske Bank said.