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Germany's DAX Falls Amid Latest Manufacturing Data, Escalating Middle East Conflict

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German shares declined on the first day of the month, with the blue-chip DAX index down 0.40% on Monday's close, as investors assessed the country's manufacturing data and the latest news on the Middle East war.

According to S&P Global, the final Germany manufacturing PMI slipped to a four-month low of 50.1 in May from the previous month's 51.4, but surpassed the flash estimate of 49.9. The final reading reflected the first drop in new orders for 2026 and the second straight month of softer output growth amid the conflict in the Middle East.

"The upturn in the manufacturing sector stalled in May, confirming the warning signs from recent PMI surveys that growth - being driven by the frontloading of orders - was likely to fade," S&P Global Market Intelligence economics associate director Phil Smith said. "The true underlying health of demand appears to be showing itself, with new orders falling for the first time this year amid still-elevated levels of uncertainty and soaring prices."

For the wider eurozone, the final manufacturing PMI hit a two-month low of 51.6 in May, down from the previous 52.2 and up from the preliminary reading of 51.4, reflecting a slowdown in demand amid accelerating prices.

In other local economic news, Destatis reported that German retail sales fell 0.3% on a monthly basis in April, against a revised 0.3% decline in the prior month and the expected 0.4% decrease. Annually, German retail prices were down 0.3%, compared with the revised 0.2% dip earlier.

In geopolitical news, the US Central Command said it launched "self-defense strikes" on Iranian military sites over the weekend, while Iran responded by targeting an air base used by US forces. Bloomberg News reported, citing a statement carried by the semi-official Tasnim news agency, that Iranian negotiators will also halt talks with their US counterparts in protest of Israel's expanded ground assault in Lebanon.

Back home and on the corporate side, Berenberg raised its price target for Siemens AG (SIE.F) to 320 euros from 245 euros, and kept its buy rating, noting that the German technology group is well-placed to benefit from long-term demand drivers and highlighted the upcoming Siemens Healthineers (SHL.F) separation as a key catalyst.

"Siemens benefits from powerful structural drivers across its core markets, with rapid growth in electrification and a gradual recovery in automation markets likely. ... We view Siemens' industrial software business as market leading and recent nervousness around AI disruption as overblown, with scope for AI to materially enhance key offerings. We also think that the future spin-off of Siemens Healthineers would be a positive catalyst for the shares," the research firm wrote in an electrical sector-focused note. Siemens AG gained 1.06% at closing, while Siemens Healthineers was down 1.89%.

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