European stock markets are a sea of red in early trading, rattled by the latest developments in the global trade war. Investors were shaken by President Donald Trump’s decision to impose tariffs on China, Canada, and Mexico last weekend. Indexes are showing widespread declines: Germany’s DAX has fallen by 2% at the open, France’s CAC 40 is down 1.9%, Spain’s IBEX 35 has dropped by 1.7%, and Italy’s FTSE MIB has lost 1.4%.
Naeem Aslam, chief investment officer at Avatrade, says investors are bracing for heightened uncertainty in global trade and economic stability. “These downturns are driven by anxiety about the broader impact of tariffs on the global economy, particularly as European economies are highly intertwined with U.S. trade policies,” he adds. Although the pound has fallen against the US dollar, it is gaining ground against the euro.
Sterling is up half a euro cent today at €1.201, its highest level in almost a month. This highlights the euro’s vulnerability amid trade war fears, even though US tariffs on European imports haven’t been officially announced yet. Deutsche Bank warns that if the recently announced tariffs materialize, trade levels will regress to those last seen in the 1940s.
This comes as Trump hints at potential tariffs on EU imports, with evident admiration for former President William McKinley’s high-tariff policies. JP Morgan analysts are concerned that the Trump administration may be tilting towards a “business-unfriendly stance”, altering the core hope that the administration would be favorable towards business. Following the shock tariffs on Canada and Mexico, a team led by the bank’s chief economist warned that the policy mix now points towards a materially different trajectory than expected for 2025 and 2026.
In the agricultural sector, prices of corn, wheat, and soybeans traded in Chicago have fallen today due to fears of a broader trade war impacting agricultural commodities. Tariffs on key trading partners are leading to market concerns of retaliatory measures that could disrupt trade flows.
Tariffs rattle european stock markets
Daniela Sabin Hathorn, a senior market analyst at Capital.com, reports that markets are bracing for another volatile week, with tariffs taking center stage. The confirmation of 25% tariffs on Mexico and Canada over the weekend unsettled investors, leading to a risk-off sentiment. Safe-haven assets like the US dollar, the Japanese yen, and gold gained momentum as equities struggled.
The initial reaction has raised fears that higher tariffs could squeeze profit margins, slow future growth, and reduce the likelihood of Federal Reserve rate cuts. Major US equity futures opened lower during the Asian session, spooking investors already concerned with equity valuations. Inflation across the eurozone has risen, adding to economic pressures.
Prices rose by 2.5% in the year to January, up from 2.4% in December, driven primarily by a jump in energy prices. Services prices rose by 3.9%, food, alcohol, and tobacco prices by 2.3%, and goods prices by 0.5%. Joshua Mahony, an analyst at Scopemarkets, emphasizes that this situation highlights the potential global damage from a trade war.
While Trump has indicated that US-UK relations will remain largely unaltered, the losses seen throughout the FTSE 100 and 250 highlight a broader perception that this trade war will negatively impact businesses globally. Volatility has returned to the markets as investors grapple with the implications of a potential full-blown trade war. Russ Mould, investment director at AJ Bell, states, “The prospect of a trade war has spooked investors as they weigh up the possibility of widespread retaliation.”
Oil prices have jumped this morning, anticipating supply disruptions due to new US tariffs on Canada and Mexico.
West Texas Intermediate (WTI) crude oil prices rose by 2% to $74 per barrel, while Brent crude increased by 1.2% to $76.57. Analysts at BNP Paribas have warned that these new tariffs will be an “inflationary shock” for the US, predicting a sharp rise in US inflation that will be passed onto consumers in the months ahead. The ramifications of Trump’s tariff policies continue to unfold, driving market uncertainty and economic instability globally.