European equities are facing their worst weekly decline since Russia’s invasion of Ukraine in February 2022, heavily impacted by concerns surrounding sweeping tariffs imposed by the United States. The market turmoil was exacerbated by a sell-off in bank stocks, while investors flocked to safer assets, including bonds.
By Friday morning, the Euro STOXX 50 index was down 2.2%, pushing its weekly losses to 5.9%. The broader Euro STOXX 600 index followed suit, falling 2.1%, with a 5.4% drop for the week. National indices also recorded significant losses, with Germany’s DAX dropping 1.8%, France’s CAC 40 falling 1.7%, and major declines in Southern Europe—Spain’s IBEX 35 plunged 4.1%, and Italy’s FTSE MIB sank 3.9%.
The financial sector was particularly hard-hit, with the Euro STOXX Banks index plummeting 6.4% on Friday, bringing its weekly losses to a staggering 10%. Key European banks saw steep declines, including Spain’s Banco Sabadell, which fell 9.4%, while Societe Generale and Deutsche Bank both dropped over 8%. UniCredit, Banco BPM, and Intesa Sanpaolo all recorded losses between 6.7% and 7.7%.
The sell-off was triggered by heightened tensions following former U.S. President Donald Trump’s announcement on Wednesday of reciprocal tariffs on all countries, including a 20% levy on goods from the European Union. Analysts have expressed concerns that the tariffs could have a lasting impact on global trade, potentially leading to slower economic growth. “Volatility has skyrocketed and looks set to remain elevated,” said BBVA analyst Alejandro Cuadrado, highlighting the growing uncertainty surrounding the U.S. economy’s resilience in the face of global challenges.
In response to the escalating tensions, French President Emmanuel Macron urged European businesses to cut spending in the U.S. and suggested the EU may invoke its anti-coercion instrument, which would allow the European Commission to counteract economic pressures from third countries.
The energy sector also saw significant losses. Spanish oil giant Repsol, Austria’s OMV, Dutch Shell, and Italy’s Eni all saw their shares drop between 2.8% and 3.6%. Brent crude prices fell by 3% to $67 per barrel on Friday, following a 6.6% drop the previous day, marking the lowest price since August 2021. “Investors are reacting to the potential damage these tariffs could cause to global trade and economic growth,” said David Morrison, senior market analyst at Trade Nation.
Consumer discretionary stocks were also impacted. Adidas fell 2.8% after an 11.8% drop on Thursday. Luxury brands such as LVMH (-0.8%), Richemont (-2.9%), and Moncler (-0.9%) saw weaker performance as well.
Conversely, defensive consumer staples performed better as investors sought refuge in these safer stocks. L’Oréal, Beiersdorf, and Danone rose between 2% and 3%, while Heineken gained 1.2%. “We remain overweight defensives and underweight financials,” noted Bank of America analyst Sebastian Raedler, adding that banks remain vulnerable amid deteriorating economic conditions.
In the bond markets, European sovereign debt saw a rally as investors sought safe-haven assets. German Bund yields fell 10 basis points to 2.53%, with similar declines in Spain, Italy, and France. Meanwhile, money markets have priced 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 slipped 0.6% against the U.S. dollar, falling below 1.10, after hitting a seven-month high the day before. “The FX market signals that tariffs will primarily affect domestic consumers and businesses in the U.S.,” said George Vessey, Lead FX & Macro Strategist at Convera, suggesting that the vulnerability of the U.S. economy is currently driving EUR/USD fluctuations.
