Global Trade Spat Rattles European Markets

European shares plummeted to a two-month low due to fresh U.S. tariffs, particularly impacting banking stocks. The escalating trade war raises fears of stunted economic growth, with the STOXX 600 index dropping 1.5%. U.S. President Trump's tariffs increased levies on imports from the EU and China, prompting countermeasures.

European shares sharply declined to a two-month low on Thursday, driven by a new wave of aggressive U.S. tariffs. Bank stocks were especially impacted as the intensifying trade war fuels concerns around slowed economic growth.

The pan-European STOXX 600 dipped 1.5% as of 0753 GMT, led by Germany's 1.8% fall in equities. The U.S. happens to be Germany's largest trading partner, according to the statistics office. Meanwhile, Wall Street futures plunged 3.1% as investors moved towards safer assets like bonds and gold.

President Donald Trump's latest tariff announcement imposed a 10% levy on most U.S. imports, effectively elevating tariffs on the European Union to 20% and on China to 54%. Both regions have promised countermeasures. The economic uncertainty triggered by these tariffs further pushed the STOXX 600 index down about 5% from early March highs, overshadowing Germany's recent economic stimulus measures.

Emmanuel Makonga of Barclays Investment Bank noted, "Now that the tariffs have been announced, the mood has tilted towards recession expectations, which was not necessarily the case earlier." This scenario increases the likelihood of the European Central Bank cutting interest rates faster to prop up market sentiment.

Eurozone banks, sensitive to economic projections, retreated 3.5%. Italy and Spain's bank-heavy indexes saw declines of 1.6% and 1.1% respectively. Sporting goods companies like Adidas and Puma faced steep losses, tumbling 10.3% and 9.1%, respectively, hit by increased levies on key sourcing markets. Luxury goods firms, including Cartier owner Richemont, jewellery maker Pandora, and LVMH, also suffered, falling between 2% and 5% due to tariffs imposed on the EU and Switzerland.

The first-order impact on U.S. goods exporters represents only 12% of STOXX 600 revenue, yet weaker GDP growth could slightly decrease EU earnings growth for the year, Barclays strategists noted. A measure of eurozone stock market volatility rose 1.5 points to 22.8. Only defensive sectors like utilities, food and beverages, real estate, and telecom showed gains.

Additionally, Volkswagen announced plans to introduce an "import fee" on vehicles affected by the new 25% tariffs by Trump, with shares declining 0.6%.

(With inputs from agencies.)