European equities sink to 16-month lows amid escalating trade tensions
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European markets suffered heavy losses on Monday, plummeting to their lowest levels in sixteen months as growing trade-war anxieties rattled investor confidence. The sharp declines followed aggressive rhetoric from U.S. President Donald Trump, who reiterated his uncompromising stance on tariffs aimed at correcting the U.S. trade deficit, further eroding market optimism.
The pan-European STOXX 600 index fell sharply, down 5.8% during early trading hours, marking its fourth consecutive session of losses. This drop represents the steepest daily decline since the market turmoil of the COVID-19 pandemic period. The German DAX, particularly sensitive to global trade dynamics, experienced deeper losses, tumbling 6.1%. Intraday declines briefly pushed the index beyond a 20% fall from its March peak, approaching a bear market territory should the losses persist at session close.
Market participants reacted negatively to weekend statements by President Trump, who dismissed expectations of an immediate resolution with China, suggesting investors "take their medicine." Analysts highlight that Trump's willingness to absorb market volatility significantly increases the likelihood of prolonged trade tensions,exacerbating fears of a global economic downturn.
Banking stocks across Europe notably suffered, driven by growing recessionary fears. Germany's major financial institutions, Commerzbank and Deutsche Bank, were among the worst performers, declining 10.7% and 10% respectively. The European banks sector as a whole now teeters on confirming a bear market status.
Even previously resilient defense stocks gave up recent gains. Rheinmetall, benefiting earlier this year from anticipated higher defense expenditures, reversed sharply, falling around 10%. Peers including Hensoldt and Renk similarly recorded significant losses ranging between 8% and 12%.
Adding to market anxieties, the European Union indicated potential retaliatory tariffs totaling approximately $28 billion on U.S. imports, which would significantly escalate trade frictions. According to the European Central Bank (ECB), blanket U.S. tariffs could reduce eurozone growth by approximately 0.3 percentage points within the first year. Countermeasures by the EU could amplify this impact, resulting in an estimated half a percentage point reduction in growth.
Amid this deteriorating economic outlook, investors have significantly adjusted their expectations for monetary policy, increasing bets on interest rate cuts. Markets are now pricing the ECB's deposit rate to fall to 1.65% by December, down sharply from the 1.9% expected before the tariff announcements.
Reflecting the increased uncertainty, Barclays drastically revised its year-end STOXX 600 forecast downward to 490 points from 580, cautioning that traditional forecasting methods may offer limited value given the unprecedented nature of this crisis.
Overall, with major indices like the STOXX 600 now trading about 17% below their recent all-time highs, investors are advised to brace for continued volatility. Critical factors to monitor include further policy developments from the U.S. administration, the EU's response, and upcoming monetary policy decisions from central banks.
The pan-European STOXX 600 index fell sharply, down 5.8% during early trading hours, marking its fourth consecutive session of losses. This drop represents the steepest daily decline since the market turmoil of the COVID-19 pandemic period. The German DAX, particularly sensitive to global trade dynamics, experienced deeper losses, tumbling 6.1%. Intraday declines briefly pushed the index beyond a 20% fall from its March peak, approaching a bear market territory should the losses persist at session close.
Market participants reacted negatively to weekend statements by President Trump, who dismissed expectations of an immediate resolution with China, suggesting investors "take their medicine." Analysts highlight that Trump's willingness to absorb market volatility significantly increases the likelihood of prolonged trade tensions,exacerbating fears of a global economic downturn.
Banking stocks across Europe notably suffered, driven by growing recessionary fears. Germany's major financial institutions, Commerzbank and Deutsche Bank, were among the worst performers, declining 10.7% and 10% respectively. The European banks sector as a whole now teeters on confirming a bear market status.
Even previously resilient defense stocks gave up recent gains. Rheinmetall, benefiting earlier this year from anticipated higher defense expenditures, reversed sharply, falling around 10%. Peers including Hensoldt and Renk similarly recorded significant losses ranging between 8% and 12%.
Adding to market anxieties, the European Union indicated potential retaliatory tariffs totaling approximately $28 billion on U.S. imports, which would significantly escalate trade frictions. According to the European Central Bank (ECB), blanket U.S. tariffs could reduce eurozone growth by approximately 0.3 percentage points within the first year. Countermeasures by the EU could amplify this impact, resulting in an estimated half a percentage point reduction in growth.
Amid this deteriorating economic outlook, investors have significantly adjusted their expectations for monetary policy, increasing bets on interest rate cuts. Markets are now pricing the ECB's deposit rate to fall to 1.65% by December, down sharply from the 1.9% expected before the tariff announcements.
Reflecting the increased uncertainty, Barclays drastically revised its year-end STOXX 600 forecast downward to 490 points from 580, cautioning that traditional forecasting methods may offer limited value given the unprecedented nature of this crisis.
Overall, with major indices like the STOXX 600 now trading about 17% below their recent all-time highs, investors are advised to brace for continued volatility. Critical factors to monitor include further policy developments from the U.S. administration, the EU's response, and upcoming monetary policy decisions from central banks.