The imposition of 20% tariffs on European goods and services by President Trump made an immediate impact on Europe’s stock sectors on Thursday.
The Stoxx Europe 600 index was down more than 1%, following falls in Asia overnight and ahead of an expected slump in the S&P 500 and Dow Jones at the open.
Financial services stocks were the hardest hit, as well as companies exposed to emerging markets like luxury and apparel names. This comes amid much harsher tariffs for Asian countries like Vietnam, Thailand, and Pakistan, which are part of the global supply chain for luxury stocks.
As US sales account for 30% of the global luxury sector’s sales, there was an immediate selloff of key stocks such as LVMH, Pandora, Essilor Luxottica and Burberry. Jelena Sokolova, equity analyst at Morningstar, says that so far there is no talk of luxury companies relocating manufacturing to the US, which could potentially mitigate the impact of tariffs. “European manufacturing is part of the brand,” she said. While luxury companies have pricing power and customers are global, she is more concerned about the impact of tariffs on economic growth and consumer sentiment.
On the flipside, defensive sectors were higher as investors sought out safe havens in the equity market. Utility and real estate stocks rose across the continent, as did aerospace and defense stocks, which have already had a boost this year on higher defense spending across Europe. Amid the selloff, the UK’s BAE Systems and Germany’s Rheinmetall rallied, adding to already strong gains this year.
Worst-Performing Stock Sectors
- Luxury (LVMH, Pandora)
- Banks (HSBC)
Best-Performing Stock Sectors
- Defence (Rheinmetall)
- Utilities (RWE)
- Pharmaceuticals (Novo Nordisk)
Potentially Devastating Impact on European Stocks
Michael Field, chief equity strategist at Morningstar said:
“That Asian countries got hit much harder than Europe will be of no consolation to businesses here. A 20% tariff on all European goods is potentially devastating for many industries, if indeed these tariffs are permanent and fixed in nature. This is unlikely, given that administration officials have intimated that negotiation will be possible. Short-term disruption is inevitable however, given that the tariffs come into place on April 5, leaving governments no time to stop the process.
“Consumer goods, healthcare, and industrials sectors will be amongst the sectors worst affected by the new measures. The extent to which we have not yet reflected in our cash flow forecasts, nor our fair value estimates.
“Worse possibly, will the response by the EU, and the likely counter-response by the US government. All of which will ratchet up the damage to exporting and importing businesses. The coming weeks will be telling, whether this event has the potential to reshape global trade, or whether, as many have predicted, there is a deal to be done.”
Eurozone and UK government bonds rallied in a flight to safety, knocking down yields from recently elevated levels and the euro gained against the dollar.
“The US dollar has turned out to be one of the biggest losers of ‘Liberation Day’. The dollar index dropped to a 6-month low on Thursday shedding over 1.3% as investors asses the higher impact of these tariffs on US growth,” said Daniela Sabin Hathorn, senior market analyst at Capital.com.
The 2-year German bund, the benchmark bond for the eurozone, saw its yield drop below 2%.
UK Stocks Outperform as Britain Spared From Harshest Tariffs
In London, the UK’s main stock market indexes all fell, but less than those in Europe and Asia as the UK was hit with a 10% tariff, lower than the EU.
The UK’s FTSE 100 benchmark fell just under 1% after the open, with the biggest fallers being Asia-focused banks Standard Chartered and HSBC. They fell about 8% and 5%, respectively. Global alcohol brand Diageo bucked the trend, rising 2% as traders leaned on reliable demand for the defensive stock’s products. Burberry, whose supply chain is exposed to emerging markets, fell nearly 5%.
Financial Stocks Sold Off Across Europe
Across the continent, financial stocks led the losses: in Paris, Société Générale and BNP Paribas BNP fell sharply, as did Unicredit in Italy, ABM Amro in the Netherlands, and UBS in Switzerland.
Automotive stocks also performed better than expected: BMW BMW initially rose in trading in Germany, while Milan-listed Stellantis outperformed the wider market. These stocks had already absorbed some of the pressure from tariffs announced at the end of March.
In Scandinavia, potential disruptions on global trade dynamics from US tariffs is also sending freight companies lower, with Danish shipping giant A.P Møller Mærsk falling 8.4% in Copenhagen.
On the other hand, Europe’s largest drug manufacturer Novo Nordisk stock was up as defensive stocks performed better than the wider market.
Additional reporting by Jocelyn Jovene, Sara Silano, Robert Van Den Oever, Fernando Luque, Ollie Smith, Christopher Johnson, Johanna Englundh.
