FRANKFURT: European shares logged their biggest daily drop in two months on Monday as investors were rattled by President Donald Trump’s threat of additional tariffs on eight European countries until the US is allowed to buy Greenland.
The pan-European STOXX 600 fell 1.2 percent, with benchmarks in export-heavy economies such as Germany and France down over 1.3 percent each.
Trump said he would impose an additional 10 percent tariff starting February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain, rising to 25 percent on June 1 if no deal is reached.
The threats triggered a sharp pushback in Europe, with the reaction reminiscent of the volatility seen when Trump imposed tariffs on global economies last April. His remarks also raised questions on the outlook of trade deals struck since then with Europe.
Global leaders and corporate executives are at the World Economic Forum in Davos, comments at which will be scrutinised for tariff cues and geopolitical signals.
“We doubt that (the tariffs) will be implemented as advertised,” said Andrew Kenningham, chief Europe economist at Capital Economics, adding he believed the EU would be cautious with any retaliation “to avoid further escalation.”
Trade uncertainty nearly halved German companies’ investments in the US in the first year of Trump’s second term, according to a German Economic Institute (IW) report seen by Reuters.
Luxury, automobile and technology stocks were among the biggest losers, slipping 3 percent, 2.2 percent and 2.9 percent, respectively.
A gauge for euro zone equity volatility jumped 3.75 points to its highest since November.
“Trump’s actions over the weekend have inflamed geopolitical risks while also reintroducing trade uncertainty. After a low-volatility start to the year, equities may experience some downside pressure,” said Kyle Rodda, senior financial market analyst at Capital.com.
Market reaction could also be exaggerated due to thin trading volumes because of the Martin Luther King Jr. Day holiday in the US
Bucking declines, Beazley rocketed nearly 43 percent after Zurich Insurance Group announced a 7.67 billion pound (USD10.3 billion) all-cash offer to buy the UK speciality insurer.
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