European Stocks Sink as Trump Tariffs Threaten Economic Growth

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European Stocks Sink as Trump Tariffs Threaten Economic Growth.

stock :: 2025-04-03 :: source - bloomberg

By Julien Ponthus

(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 is considering how to retaliate.

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The Stoxx Europe 600 Index fell 1.4% at 10:54 a.m. in Paris, with regional bourses all trading heavily in negative territory. Switzerland’s SMI Index underperformed, dropping 1.8%. The US imposed a 31% levy on the country. Meanwhile, Denmark’s OMXC25 Index dropped as much as 3.4% and was set to enter a bear market.

“Let’s not beat around the bush; the situation is really not good, not good at all,” said Nicolas Forest, chief investment officer at Candriam, who said his firm was considering increasing its bets against US equities and being more prudent toward outperforming European stocks.

European banks — which led the rally this year — were among the hardest hit, losing as much as 3.8%, while industrial shares, which count among them big exporters to the US, also fell.

Among notable moves elsewhere, shares in sports brand Adidas AG fell 9% while rival Puma SE lost 8%.

The European health care subindex was steady after pharmaceuticals were spared from the sweeping tariffs. Bond proxies like utilities and real estate rose as yields fell.

Tariff concerns have replaced the positive mood 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.

Stocks and bond yields are back moving in concert and their correlation is at the highest in two years. But unlike in 2023 when they were both going up, this time they’re falling, a typical sign that economic growth expectations are being downgraded.

The dramatic escalation in Trump’s global trade war also 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 2.9% and Nasdaq 100 futures dropped 3.1%. In Japan, the Nikkei 225 lost 2.8%.

UBS economists said 2025 real GDP growth in the US could be compromised by 1.5 to 2 percentage points and inflation could rise close to 5% if these tariffs are not reversed soon.

“If this a negotiation tool, then you buy for the next six months,” said Manish Kabra, head of US equity strategy at Societe Generale SA. “My assumption is the S&P 500 muddles through in the 5,000-6,000 range for the next six months. There’s no clear direction, but the hope is confidence will be back by the end of the year.”

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 about 14% from this year’s peak and now losing 4.6% yer-to-date.

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.

Here’s what market participants are saying:

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.”

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.”

Christina Carlsten, senior fund manager at Banque Piguet Galland & Cie SA

“We might see a recessionary trade in the stock markets in the very short term. We are at the peak of uncertainties, and the market needs time to digest this news.”

“For us a correction/consolidation of European stock markets due to this announcement of tariffs would be an opportunity to reinforce our exposure. The latest developments in Germany and in Europe are extremely positive for the growth outlook.”

Michael Field, European strategist at Morningstar

“A 20% tariff on all European goods is potentially devastating for many industries, if indeed these tariffs are permanent and fixed in nature. This is unlikely, given that administration officials have intimated that negotiation will be possible. Short-term disruption is inevitable however.”

Rory McPherson, chief investment officer at Magnus Financial Discretionary Management

“This is not a time to be making snap decisions. We’re not buying the dip at the moment but are looking to buy on further weakness. We still like US versus Europe. We still think equities are a good asset to own. Even if there’s a recession, it won’t be a deep one. Consumers are in a strong position, and corporates are in good health. When we do get interest rate cuts, that’ll be supportive of equities.”

Roberto Scholtes, head of strategy at Singular Bank

The clue for the economy and markets will be Fed’s and Treasury yield reactions. As interest rates are coming down, the net effect on markets would be cushioned. Given recent adjustments in valuations, expectations and investor positioning, we think US equities are becoming attractive again, and we’re seeing today’s slump as an opportunity to add positions by closing our underweight stance.”

Alexandre Baradez, chief market analyst at IG in Paris:

“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.”

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.”

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.

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.”

--With assistance from Sangmi Cha, Allegra Catelli, Levin Stamm, Macarena Muñoz and Sagarika Jaisinghani.