EU equities rebound as trade war anxiety keeps investors on edge
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European equity markets opened sharply higher on Tuesday, clawing back some of the ground lost in the previous four sessions that saw a brutal 12% selloff in the STOXX 600 index. At the open, the benchmark rose 1.5%, bouncing off a 14-month low, while the Euro Stoxx 50 gained 1.7%. Germany’s DAX added 0.8% after narrowly avoiding bear market territory on Monday, helped by bargain hunting and short-covering in high-beta sectors.
This recovery follows heightened fears over a global recession triggered by escalating trade tensions between the United States, China, and the European Union. Although risk appetite returned in early trading, sentiment remains fragile as the policy backdrop grows increasingly combative. European Commission President Ursula von der Leyen confirmed on Monday that a proposed “zero-for-zero tariffs” deal on industrial goods was rejected by Washington, reinforcing the bloc’s readiness to implement retaliatory tariffs.
The European Commission is moving forward with countermeasures, including a 25% levy on a broad range of U.S. goods, as it faces existing tariffs on metals and autos, and an incoming 20% tariff on other exports. While these developments represent a measured political response, they continue to cast a long shadow over investor sentiment, particularly for cyclical sectors exposed to trade.
Despite these macro headwinds, equity performance across sectors was broadly positive. Banks rose 1% on the session, and defense stocks—already among the best-performing sectors year-to-date—surged 3% as institutional investors rotated into politically favored industries amid ongoing geopolitical risk. On the corporate front, consumer luxury names showed strength: LVMH advanced 2.3%, Hermès gained 2%, and L’Oréal climbed 1.4%. Semiconductor leader ASML rose 2.9%, supporting the broader tech recovery.
However, not all headlines were positive. Infineon Technologies fell 2.85% after announcing it would acquire Marvell Technology’s automotive Ethernet division for $2.5 billion in cash. While the acquisition aims to strengthen Infineon’s position in the microcontroller space, the market appeared skeptical of the short-term impact, pressuring the stock.
The near-term outlook hinges on the unfolding tariff narrative. With U.S. President Trump expected to escalate duties on Chinese imports to a 120% effective rate as early as Wednesday, and Beijing signaling it will retaliate, traders remain on high alert. Market participants are also watching for any shift in central bank rhetoric, with both the ECB and Fed facing increased expectations for rate cuts as growth risks mount.
While today's bounce offers technical relief, it is not yet a signal of durable stability. Traders should be prepared for continued volatility and consider tactical positioning in defensive sectors and non-cyclical equities until there is greater clarity on the trade front and global monetary policy responses.
This recovery follows heightened fears over a global recession triggered by escalating trade tensions between the United States, China, and the European Union. Although risk appetite returned in early trading, sentiment remains fragile as the policy backdrop grows increasingly combative. European Commission President Ursula von der Leyen confirmed on Monday that a proposed “zero-for-zero tariffs” deal on industrial goods was rejected by Washington, reinforcing the bloc’s readiness to implement retaliatory tariffs.
The European Commission is moving forward with countermeasures, including a 25% levy on a broad range of U.S. goods, as it faces existing tariffs on metals and autos, and an incoming 20% tariff on other exports. While these developments represent a measured political response, they continue to cast a long shadow over investor sentiment, particularly for cyclical sectors exposed to trade.
Despite these macro headwinds, equity performance across sectors was broadly positive. Banks rose 1% on the session, and defense stocks—already among the best-performing sectors year-to-date—surged 3% as institutional investors rotated into politically favored industries amid ongoing geopolitical risk. On the corporate front, consumer luxury names showed strength: LVMH advanced 2.3%, Hermès gained 2%, and L’Oréal climbed 1.4%. Semiconductor leader ASML rose 2.9%, supporting the broader tech recovery.
However, not all headlines were positive. Infineon Technologies fell 2.85% after announcing it would acquire Marvell Technology’s automotive Ethernet division for $2.5 billion in cash. While the acquisition aims to strengthen Infineon’s position in the microcontroller space, the market appeared skeptical of the short-term impact, pressuring the stock.
The near-term outlook hinges on the unfolding tariff narrative. With U.S. President Trump expected to escalate duties on Chinese imports to a 120% effective rate as early as Wednesday, and Beijing signaling it will retaliate, traders remain on high alert. Market participants are also watching for any shift in central bank rhetoric, with both the ECB and Fed facing increased expectations for rate cuts as growth risks mount.
While today's bounce offers technical relief, it is not yet a signal of durable stability. Traders should be prepared for continued volatility and consider tactical positioning in defensive sectors and non-cyclical equities until there is greater clarity on the trade front and global monetary policy responses.