European Markets in Turmoil Amid U.S.-China Trade War Escalation

European shares fell sharply as the STOXX 600 and Germany's DAX reached correction territory due to China's countermeasures against U.S. tariffs. The escalating trade war heightened recession fears, dropped bond yields, and increased stock volatility, with banking and luxury sectors notably affected.

European shares took a severe hit on Friday, with the STOXX 600 and Germany's DAX indices plunging into correction territory. This decline follows China's aggressive countermeasures against the sweeping U.S. tariffs, amplifying fears of a looming global recession ignited by the ongoing trade war.

The rapidly escalating tit-for-tat tariffs between the world's largest economies raised significant concerns about rising prices, disrupted supply chains, and thinning corporate profit margins. While the pan-European STOXX index recorded a massive 5.1% drop, its sharpest daily loss since the severe selloff during the COVID-19 pandemic in 2020, the week's results marked the worst in five years.

The ripple effects were profound, with all major sectors bleeding red and banks suffering a substantial loss of 8.4%. The escalating uncertainty led traders to increase bets on interest rate cuts from the European Central Bank, hoping to stabilize economic growth amid mounting volatility.

(With inputs from agencies.)