(Bloomberg) — European stocks slumped after US President Donald Trump announced the steepest American tariffs in a century against its trading partners, including a 20% rate for the European Union, which said it will retaliate.
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The Stoxx Europe 600 Index (^STOXX) sank 1.7% to 527.63 at 9:13 a.m. in Paris, with basic material, consumer product and industrial shares falling the most. Germany’s DAX (^GDAXI) Index declined 2.4% and Sweden’s OMX (^OMX) Stockholm 30 Index dropped 2.6%.
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The move marks a dramatic escalation in Trump’s global trade war, and as far as Europe is concerned, threatens to wipe out much of the euro-area expansion that the European Central Bank forecasts for this year and next.
“We’re not far from a worst-case scenario, well beyond what was penciled in by investors,” said Kevin Thozet, a member of the investment committee at Carmignac in Paris. “The question is how fast this translates into hard economic data. As far as Europe is concerned, it could wipe out a good chunk of the expected growth for 2025.”
S&P 500 (^GSPC) futures fell 3.2%, and Nasdaq 100 (NQ=F) futures dropped 3.5%. In Japan, the Nikkei 225 (^N225) lost 2.8%. “There’s a shock wave but what one should note is that US equity markets are losing well more than their European counterparts,” Thozet said.
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Trade war concerns are damping the positive sentiment that had boosted European stocks this year on increased government spending in Germany, lower interest rates and cheaper valuations. Combined with souring sentiment on the US, the Stoxx Europe 600 Index outpaced the S&P 500 by a record of almost 15 percentage points in dollar terms in the first quarter.
Citigroup Inc. strategists including Beata Manthey — who called Europe’s outperformance — said this week they see plenty of room for further fund flows into European stocks. Their peers at Goldman Sachs Group Inc. are more cautious, predicting a drop in the Stoxx 600 over three months due to the expected hit from trade levies.
“Let’s not beat around the bush; the situation is really not good, not good at all,” said Nicolas Forest, CIO at Candriam, explaining that his firm was considering increasing its bets against US equities and being more prudent towards outperforming European stocks.
“There will be some room for movement upward further down the road but at the moment, we’re in a volatile situation and there will be a negative impact on 2025 earnings,” he said.
Trump’s previously announced 25% tariff on US auto imports took effect shortly after midnight in Washington in a move expected to dramatically increase costs and upend industry supply chains. The region’s car stocks have already seen an impact, with the Stoxx Auto & Parts Index down 13% from this year’s peak.
Trump’s threat of a 200% tariff on alcoholic products shipped from the EU is already a headache for the region’s producers of wines and spirits, while European miners, especially aluminum and steel producers, have been in focus amid Trump’s 25% tariffs on the metals. Pharmaceuticals are also in the spotlight, with Novo Nordisk A/S saying it isn’t “immune” to tariffs.
Wolf von Rotberg, equity strategist at Bank J. Safra Sarasin:
“The announcement was close to being the worst-case scenario for markets. The size of reciprocal tariffs and their immediacy will put substantial strains on trade globally. A global economic slowdown seems almost inevitable, which the US won’t be spared from. As European and global equity markets had not been priced for such a scenario, they will likely have to adjust further to the downside.”
“Given the goals of the tariffs are the generation of revenues and to bring back manufacturing to the US, they are unlikely to be rolled back quickly. Thus, risks for equities continue to be skewed to the downside until the full economic impact has been priced.”
Thomas Wille, chief investment officer at Copernicus Wealth Management
“Right now, this is a shock for the whole market. The best thing to do in this moment is to go to the sidelines and wait until the storm has passed. It’s more of a selection game right now than an allocation game and about identifying the companies that will be able to circumvent the tariffs or will be be able to pass on the tariffs to their customers to protect their margins.”
Alexandre Baradez, chief market analyst at IG in Paris
“There’s going to be some red spread across European stock markets today.”
“There will be further escalation ahead before compromises can be found later on. All in all, I don’t see how markets can hope for an upturn in the short term; there’s no visible positive catalyst on the horizon, and especially not from the Fed.”
“The second quarter will likely be volatile and under downward pressure. There’s also collision risks with the upcoming earnings seasons with the guidances which will be issued by big US corporates. Investors will be waiting for some kind of ‘put’ from the authorities to stabilize all this, but it’s hard to see where it could from right now.”
Florian Ielpo, head of macro research at Lombard Odier Investment Managers
“It’s crucial to note that markets had anticipated a significant rise in tariffs, and the effective tariff increase of 10% or 17% do not alter the broader economic narrative: free trade, as a concept, seems to be out of favor for an extended period.”
“This decreased uncertainty might lead to a period of market consolidation, as there are no immediate positive triggers, and much of the immediate negative impact of the policy decision is likely already reflected in prices. From a medium-term perspective, this situation strengthens the case for favoring bonds over equities.”
Nicolas Forest, CIO at Candriam
“Until the last minutes investors were living in the hope that the trade policy would end up to be reasonable and pro-business and that it would avoid the risk of a recession. We’re entering what we call the ‘Hard Trump’ scenario which implies slowing global growth even if a recession can be avoided for now.
“There will be some room for movement upward further down the road but at the moment, we’re in a volatile situation and there will be a negative impact on 2025 earnings.”
Stephan Kemper, chief investment strategist at BNP Paribas Wealth Management in Frankfurt
“The amount of tariffs caught the markets by surprise. The fact that they introduced these 10% baseline tariffs underlines that there is not much chance to negotiate tariffs away and that Trump is not only using them as a bargaining tool, but really wants to collect money from them.”
“Companies affected from tariffs will really have to consider moving production to the US, but that doesn’t happen in the blink of an eye. For investors, a bit more caution is warranted and they may want to consider companies that are more domestically oriented rather than toward the US.”
—With assistance from Sangmi Cha, Allegra Catelli and Levin Stamm.
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