By Sukriti Gupta and Medha Singh
(Reuters) – European shares slumped to a two-month low on Thursday after a fresh round of aggressive U.S. tariffs, with bank stocks bearing the brunt of fears that the escalating trade war would slam the brakes on economic growth.
The pan-European STOXX 600 has sunk 1.5% by 0753 GMT. The rout was led by a 1.8% slide in equities in Germany, whose biggest trading partner last year was the U.S., according to the statistics office.
Wall Street futures tumbled 3.1% as investors shed riskier assets in favour of safe-haven bonds and gold.
U.S. President Donald Trump’s move to slap a 10% tariff on most U.S. imports effectively raised the rate of levies on the European Union to 20% and on China to 54%, with both trading partners vowing countermeasures.
Concerns about the impending tariffs’ impact on economic growth had already knocked the benchmark STOXX 600 about 5% lower from its early March record high and overshadowed optimism over Germany’s historic stimulus boost.
Now that they have been announced, the tariffs have “tilted the mood towards recession expectations, which was not necessarily the case prior to that,” said Emmanuel Makonga, European Equity Strategy at Barclays Investment Bank.
“It opens the probability for (the European Central Bank) to cut interest rates even faster in order to provide a little bit of boost with regard to sentiment.”
Eurozone banks, sensitive to the economic outlook, retreated 3.5% as traders ramped up bets of ECB rate cuts despite the trade war threatening to stoke inflation.
The bank-heavy indexes in Italy and Spain fell 1.6% and 1.1%, respectively.
Among stocks, sporting goods makers Adidas and Puma tumbled 10.3% and 9.1% respectively as their key sourcing markets were hit with steep levies.
Among luxury goods firms, Cartier owner Richemont, jewellery maker Pandora and LVMH fell between 2% and 5%, hurt by tariffs on EU and Switzerland.
Although U.S. goods exporters are only 12% of total STOXX 600 revenue, the second-order impact from weaker GDP growth could mean a slight drop in EU earnings growth this year, Barclays strategists said in a note.
A gauge of eurozone stock market volatility spiked 1.5 points to 22.8, while only defensive sectors such as utilities, food and beverages, real estate and telecom eked out gains.
Among other movers, a report said Volkswagen would introduce an “import fee” on vehicles affected by the 25% tariffs imposed by Trump. Its shares fell 0.6%.
(Reporting by Medha Singh in Bengaluru; Editing by Savio D’Souza)
