European equities slump on worst week since Russian invasion
European equities tumbled further on Friday, rounding off their worst week since Russia's full-scale invasion of Ukraine in February 2022, amid rising investor concerns over the economic implications of sweeping tariffs announced by the United States.
By 11:00 Central European Time, the Euro STOXX 50 was down 2.2%, taking weekly losses to 5.9%. The broader Euro STOXX 600 index also fell 2.1%, extending its drop for the week to 5.4%. Major national indices followed suit, with Germany’s DAX losing 1.8%, France’s CAC 40 shedding 1.7%, and steep losses recorded in Southern Europe: Spain’s IBEX 35 dropped 4.1% and Italy’s FTSE MIB fell 3.9%.
Financial stocks led the rout. The Euro STOXX Banks index plunged 6.4% on Friday alone, bringing its weekly losses to 10%. Spain’s Banco Sabadell sank 9.4%, Societe Generale and Deutsche Bank both fell over 8%, while UniCredit, Banco BPM, and Intesa Sanpaolo all declined between 6.7% and 7.7%.
Tensions escalated on Wednesday when former U.S. President Donald Trump announced reciprocal tariffs on all countries, including a 20% levy on goods from the European Union.
“Volatility has skyrocketed and looks set to remain elevated, despite President Trump signaling a willingness to negotiate,” said BBVA analyst Alejandro Cuadrado in a note on Friday.
“We may be facing a paradigm shift in the belief that the U.S. economy is uniquely resilient and insulated from global headwinds.”
Meanwhile, French President Emmanuel Macron urged European businesses to cut spending in the United States and floated the possibility of using the EU’s anti-coercion instrument, which empowers the European Commission to respond to economic threats from third countries.
Energy and consumer stocks diverge
The selloff extended to the energy sector, with Spanish oil major Repsol, Austria’s OMV, Dutch Shell, and Italy’s Eni all down between 2.8% and 3.6%.
Brent crude dropped 3% on Friday to $67 per barrel, following a 6.6% fall the day before, marking its lowest level since August 2021.
“Investors are reacting to the estimated damage these tariffs could do to global trade, and therefore global economic growth. The size of the tariffs are such that business activity could slow sharply, leading to significantly lower demand for oil,” said David Morrison, senior market analyst at Trade Nation.
Consumer discretionary stocks also took a hit. Adidas slid 2.8% after a staggering 11.8% drop on Thursday. Luxury names were weaker too: LVMH (-0.8%), Richemont (-2.9%), and Moncler (-0.9%).
Meanwhile, defensive consumer staples attracted safe-haven flows. L'Oréal, Beiersdorf, and Danone rose between 2% and 3%, while Heineken gained 1.2%.
“We remain overweight defensives and underweight financials,” said Bank of America European equity analyst Sebastian Raedler.
He added that banks, which had outperformed year-to-date on hopes for German fiscal support and sector-specific momentum, remain vulnerable in a deteriorating macro environment.
Bond yields fall, euro slips
European bond markets rallied, with investors seeking refuge in sovereign debt. German Bund yields fell 10 basis points to 2.53%, translating to a 1% price gain. Yields in Spain, Italy, and France all declined by about 7 basis points.
Money markets now fully price in three ECB rate cuts by year-end, with a 70% chance of the first cut coming on April 17, according to overnight indexed swaps.
The euro slipped 0.6% to below 1.10 against the U.S. dollar, after hitting a seven-month high on Thursday.
“The FX market is signaling that tariffs will primarily hit domestic consumers and businesses in the U.S.,” said George Vessey, Lead FX & Macro Strategist at Convera.
“Although a global trade war would typically weigh on the euro, the vulnerabilities in the US economy are currently the driving force for EUR/USD, but for how long?,” he added.