European stocks suffer worst week since Russian invasion! Euro weakens
European shares fell further on Friday, ending their worst week since Russia's full-scale invasion of Ukraine in February 2022, amid growing investor concerns over the economic implications of sweeping tariffs announced by the United States.
By 11:00 CET, the Euro STOXX 50 fell 2.2%, taking weekly losses to 5.9%. The broader Euro STOXX 600 index also fell 2.1%, extending its weekly decline to 5.4%. Major national indexes followed suit, with Germany's DAX losing 1.8%, France's CAC 40 falling 1.7% and big losses recorded in Southern Europe: Spain's IBEX 35 fell 4.1% and Italy's FTSE MIB fell 3.9%.
Financial stocks led the rout. The Euro STOXX Banks index fell 6.4% on Friday alone, bringing weekly losses to 10%. Spain's Banco Sabadell sank 9.4%, Societe Generale and Deutsche Bank both fell more than 8%, while UniCredit, Banco BPM and Intesa Sanpaolo all fell between 6.7% and 7.7%.
Tensions escalated on Wednesday when former US President Donald Trump announced reciprocal tariffs on all countries, including a 20% tax on goods from the European Union. “Volatility has skyrocketed and looks set to remain elevated, despite President Trump signaling a willingness to negotiate, ” BBVA analyst Alejandro Cuadrado said in a note on Friday.
"We may be facing a paradigm shift in the belief that the US 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 raised the possibility of using the EU's anti-austerity instrument, which empowers the European Commission to respond to economic threats from third countries.
Energy and consumer stocks vary
The sell-off 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 fell 3% on Friday to $67 a barrel, after a 6.6% drop 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 consequently global economic growth. The magnitude of the tariffs is such that business activity could slow significantly, leading to a significant reduction in oil demand ," said David Morrison, senior market analyst at Trade Nation.
Consumer discretionary stocks also took a hit. Adidas fell 2.8% after a surprise 11.8% drop on Thursday. Luxury names were also weaker: LVMH (-0.8%), Richemont (-2.9%) and Moncler (-0.9%). Meanwhile, consumer discretionary products 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 Sebastian Raedler, European equity analyst at Bank of America.
He added that banks, which had outperformed year-on-year on hopes of German fiscal support and sector-specific momentum, remain vulnerable in a deteriorating macro environment.
Bond yields fall, euro slips
European bond markets rose, with investors seeking refuge in sovereign debt. German Bund yields fell 10 basis points to 2.53%, translating into a 1% price increase. Yields in Spain, Italy and France all fell by around 7 basis points. Money markets are now fully pricing in three ECB rate cuts by the end of the year, with a 70% chance of the first cut coming on April 17, according to overnight indexed swaps.
The euro fell 0.6% to below 1.10 against the US dollar, after hitting a seven-month high on Thursday. “ The FX market is signaling that tariffs will hit domestic consumers and businesses in the US primarily,” said George Vessey, Head of FX & Macro Strategist at Convera. “ While a global trade war would typically weigh on the euro, weaknesses in the US economy are currently the driving force for EUR/USD, but for how long?” he added.
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