Stock market gains have come to an end as we head into a long weekend. President Trump has proposed a 50% tariff on all imports from the European Union starting June 1, giving the EU and the U.S. just over a week to reach an agreement to avoid this potentially devastating tax for Europe.
Is the president using tariffs as yet another negotiation tactic to pressure the EU into making concessions to his demands? Or is this a sign that negotiations, which began in mid-April, have collapsed and we should now expect threats of retaliation from the EU in the near future? We believe it’s a mix of both. The EU is one of Trump’s least favored regions, and he appears to have poor relations with its leaders—raising the likelihood of a prolonged trade war between the two.
Sharp decline in European stocks📉Automakers and luxury sector
The market’s immediate reaction was a sharp selloff in European equities. The Eurostoxx 50 fell by 2.3%, the DAX dropped nearly 2.7%, ahead of the Wall Street open. Also, the French CAC 40 was almost 2.5% lower. After the US market open we can see that stock market indices try to rebound from this decline, now losing nearly -1.5%.
- This steep drop has pushed European indices into a losing streak this week, with European markets now underperforming their U.S. counterparts. The FTSE 100 is holding up the best, falling by “only” 1%, thanks in part to the UK’s trade deal with the U.S., which serves as a buffer against American trade aggression.
- All sectors in Germany’s DAX index are in the red, led by consumer discretionary and financials. Real estate is faring slightly better. The same pattern is seen in the Eurostoxx 50, with the worst performers so far being auto companies—Ferrari, Stellantis N.V., BMW, and Mercedes-Benz—all down over 3%.
- Volkswagen is somewhat shielded due to its larger presence in the U.S. The luxury sector is also hit hard, with LVMH, Hermès, and Kering all sliding more than 3%. These tariffs have struck at the heart of some of Europe’s largest industries, which may make it difficult for the market to rebound by the end of the day.
EU firms aren’t the only ones being sold off. The tariff news has weighed on broader sentiment, and U.S. stock index futures point to a sharp drop at the open later today. Apple shares have fallen more than 3% after Trump announced a 25% tariff on all iPhones sold in the U.S. that aren’t manufactured domestically. A steep downward reaction should be expected—especially given that Apple is unlikely to shift iPhone production to the U.S. anytime soon.
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