European Shares Decline Amid Trade Tensions and Tariff Threats

European stocks fell on Monday, driven by a sharp decline in the automobile sector, as investors reacted to the latest trade tariff threats from U.S. President Donald Trump.

Market Overview:

• The pan-European STOXX 600 index was down 0.5%, at 544.74 points, as of 0830 GMT.
• Other regional indexes also posted losses, with the UK’s FTSE 100 being the only exception, rising by 0.2%.

Trump’s Tariff Threats:

• Over the weekend, Trump threatened to impose a 30% tariff on imports from the European Union and Mexico, effective August 1, following failed trade negotiations with major U.S. trading partners.
• Trump’s threat sent ripples through the markets, especially after a long period of uncertain trade negotiations.
• Michael Field, chief equity market strategist at Morningstar, noted that the market is reacting negatively, but there is still uncertainty about whether the tariffs will actually be implemented.

EU’s Response:

• In response, the European Union extended its suspension of countermeasures on U.S. tariffs until early August, while continuing to push for a negotiated settlement.
• Italy’s Foreign Minister Antonio Tajani emphasized that the EU had prepared a list of tariffs worth more than 21 billion euros ($24.5 billion) on U.S. goods, should talks break down.
• Maros Sefcovic, the EU’s trade commissioner, emphasized that while the EU seeks a favorable trade deal with the U.S., it was also ready with countermeasures in case the negotiations failed.

Automobile Sector Hit Hard:

• The European automobile sector took the hardest hit, falling by 1.5% in the wake of Trump’s tariff threats, with no special exemptions for cars.
• Major carmakers saw significant declines:
  • Porsche dropped 2.4%.
  • BMW and Mercedes-Benz both fell 2%.
  • Volkswagen decreased by 1.9%.

Other Notable Stock Movements:

• Lifco slumped 9.1% after missing second-quarter pre-tax profit expectations.
• AstraZeneca rose 1.8% after its drug Baxdrostat met all goals in a late-stage study for patients with uncontrolled or treatment-resistant hypertension.

Outlook:

• Morgan Stanley downgraded its 2025 MSCI Europe local currency earnings forecast to -1.0% from +1.3% due to the ongoing currency fluctuations and tariff uncertainties.

The market’s response highlights the continued uncertainty surrounding U.S.-EU trade relations and how it may affect European economies, particularly industries like automobile manufacturing.