The Stoxx Europe 600 Index fell 1.3% by 8:41 a.m. in London, the most since Dec. 20. All industry sectors declined with auto stocks, heavily exposed to import tariffs, leading the retreat. The selloff came after Trump imposed levies on Canada, Mexico and China, and promised to make similar moves against the European Union, in what looks likely to be first salvo in an escalation of trade restrictions.
“Trump is adopting a confrontational approach,” said Vincent Juvyns, global market strategist at JPMorgan Asset Management. “This will both fuel volatility and introduce downward pressure on equity markets, particularly as we wait for some tariff announcements for Europe.”
The autos sector dropped as much as 4.4%, the most since April, with Stellantis NV and Volkswagen AG among the biggest decliners. Basic resources stocks fell, while Spanish banks with exposure to Mexico — BBVA SM and Banco Santander SA — slipped. Among other individual movers, Julius Baer Group Ltd. fell 10% after it announced a major overhaul.
Trump said he will “definitely” place new tariffs on the EU, reiterating complaints about the US trade deficit with the bloc and what he sees as insufficient EU imports of American cars and agricultural products. He told reporters last week that the US will be seeking “something very substantial” from the EU. Trump has so far not specified a level or time frame for the move, and the EU has said it will “respond firmly” if the US imposes tariffs.
“Markets had largely been expecting a slower implementation,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. Investors await “counter movements by Canada, China and Mexico now. One thing is sure, volatility is here to stay,” he said.
The pan-European Stoxx 600 index had a strong January, rallying to a record high amid solid earnings and hopes that the region would be spared from immediate US levies. But investors are increasingly being forced to confront the risk that tariffs from the US are a near-term threat to corporate profits.
Tariffs of 10% on European goods would shave between 1% and 2% off earnings per share, according to estimates from Citigroup Inc. strategists. Trump has said he plans to impose more tariffs on a wide range of imports, including oil, metals, pharmaceuticals, and chips, in the coming months.
“While Europe has so far avoided US tariffs, it may not avoid volatility, as it is likely high on the ‘who’s next list,’” said Barclays Plc strategist Emmanuel Cau. “Last week was all about diversification, this week may be more about hedging.”
Here is more of what market participants are saying:
Guillermo Hernandez Sampere, head of trading at asset manager MPPM
“European companies with production in these countries will also be affected. The fear of an increase in tariffs could slow down the current upswing and cause significantly increased volatility. But experience shows that there are no winners in trade wars.”
Christopher Dembik, senior investment adviser at Pictet Asset Management
“There’s no sense of panic yet. Yes, it’s bad news, and it’s normal that we see some selling. Volatility is to be expected, but I’m not overly concerned. My take is that these tariffs are a negotiating tool for Trump to obtain economic concessions from the US trading partners. But these tariffs are not here to stay. There had been tactical flows toward European equities in January but I expect that these will leave the region for dollar assets given the new context.”
David Kruk, head of trading at La Financiere de L’Echiquier
“I rather see this as another buy-the-dip moment. Tariffs are a one-off when it comes to inflation so I don’t think this will change the trajectory for the Fed’s policy. I don’t see anything dramatic emerging out of this, as it was widely anticipated. I think the market will rebound after this first dip as the latest earnings were good, retail investors are still buyers and disinflation is on course.”
Christophe Boucher, chief investment officer at ABN Amro Investment Solutions
“I wouldn’t be surprised if today’s selloff turns out to be just a one off. We’re still overweight equities at the moment and maybe we’ll consider cutting some risks later on but not yet. Overall, we think the market is overreacting. What’s driving this morning’s volatility is the fact that we’re now getting in the thick of it, when it comes to tariffs... I don’t expect a correction or a bear market to follow.”
Susana Cruz, Panmure Liberum strategist
“Markets are down on news that EU tariffs are next, though Trump signaled UK trade issues could be resolved. If tariffs stay at 25% or below, the GDP impact should be mild. Inflation risk is also low—EU inflation may rise by 0.2%, UK by 0.3%-0.4%. UK services exporters stand strong, backed by a trade surplus with the US. These companies remain a safer bet, shielded from tariffs on both goods and services. However, as services become cheaper relative to goods, consumer spending is set to shift further toward services, boosting these companies even more.”
SECTORS IN FOCUS
Italy’s financial shares are back in focus after UniCredit unveiled a minority stake in Assicurazioni Generali, the lender’s latest move to increase its dominance in the market.
European stocks most exposed to tariffs like automakers and miners after US President Donald Trump followed through on pledges to impose levies on Canada, Mexico and China. Trump also reiterated a warning to the European Union that tariffs “will definitely happen,” citing a large trade deficit with the bloc.
US Stock Futures Slump After Trump Follows Through on Tariffs
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--With assistance from Michael Msika and Abhishek Vishnoi.
