European stocks drop as Trump eyes EU tariffs

Key topics

  • Euro Stoxx 50 futures drop up to 3.4% on looming US tariffs.
  • Trump vows “substantial” tariffs on EU, sparking market volatility.
  • Automakers, energy, and mining sectors brace for potential impact.

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By Farah Elbahrawy and Macarena Muñoz

European stock futures tumbled as investors weighed the odds that the region will be next to suffer from US tariffs.

Contracts on the Euro Stoxx 50 Index fell as much as 3.4% before trimming losses to 2.5% by 6:18 a.m. in London. The selloff came after US President Donald Trump imposed tariffs on Canada, Mexico and China, and promised to make similar moves against the European Union, in what looks likely to be first salvo in an escalation of trade restrictions.

Trump said on Monday he will “definitely” place new tariffs on the European Union, reiterating complaints about the US trade deficit with the bloc and what he sees as insufficient EU imports of American cars and agricultural products. He told reporters last week that the US will be seeking “something very substantial” from the EU. Trump has so far not specified a level or time frame for the move, and the EU has said it will “respond firmly” if the US imposes tariffs. 

“Markets had largely been expecting a slower implementation,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. Investors await “counter movements by Canada, China and Mexico now. One thing is sure, volatility is here to stay,” he said.

The pan-European Stoxx 600 index had a strong January, rallying to a record high amid solid earnings and hopes that the region would be spared from immediate US levies. But investors are increasingly being forced to confront the risk that tariffs from the US are a near-term threat to corporate profits.

Tariffs of 10% on European goods would shave between 1% and 2% off earnings per share, according to estimates from Citigroup Inc. strategists. Trump has said he plans to impose more tariffs on a wide range of imports, including oil, metals, pharmaceuticals, and chips, in the coming months. 

“While Europe has so far avoided US tariffs, it may not avoid volatility, as it is likely high on the ‘who’s next list,” said Barclays Plc strategist Emmanuel Cau. “Last week was all about diversification, this week may be more about hedging.”

The shares of automakers like Stellantis NV, Volkswagen AG and alcoholic drinks companies such as Diageo Plc and Pernod Ricard SA will be in focus when cash trading starts later on Monday. Sectors like energy and miners could also be active.

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