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.
The Stoxx Europe 600 Index 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 Index declined 2.4% and Sweden’s OMX Stockholm 30 Index dropped 2.6%.
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 futures fell 3.2% and Nasdaq 100 futures dropped 3.5% In Japan, the Nikkei 225 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.
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.
