European markets head south after Trump slaps 30% tariff on EU

Deutsche Bank strategists warned that stock market investors haven’t appropriately discounted risks from tariffs, as multiple negative factors are set to be in play by the end of the month.

“Markets are clearly not pricing in these higher tariffs, and we may only know the outcome in the final hours, offering the potential for a sharp market reaction and heightened volatility,” said Henry Allen, macro strategist at Deutsche Bank.

“Second, it’s the US jobs report that same day, and last year demonstrated that even a modest downside surprise can cause a big selloff, if investors are already jittery,” added Allen. Markets had fallen nearly 3% on the week ending 2nd August 2024 after data showed that far fewer jobs were created than expected, while unemployment had risen the most in nearly three years.

“Third, long-end bond yields are going into this period at higher levels today, meaning it would take less of a jump before we move into problematic territory that re-ignites fears around fiscal policy,” Allen concluded.

The U.S. 10-year bond yields, currently trading at 4.43% are well off their recent peak of 4.6% in May. However, they have risen sharply by about 20 basis points over the past two weeks.

— Ganesh Rao

U.S. President Donald Trump’s threat to impose a 30% tariff on European Union goods has investment banks warning that the move could trigger a “prolonged and deeper economic slowdown” across the continent and potentially force the European Central Bank to cut rates.

Goldman Sachs said the letter to the EU came as a “surprise” that “reignited concerns around the Euro area outlook,” as it followed what were seen as “constructive” trade negotiations.

Economists at Barclays echoed the sentiment, forecasting a “deeper near-term contraction in economic activity.”

JPMorgan economists also appeared to be caught off guard by the latest developments.

“This 30% tariff rate comes as a surprise, as EU sources mentioned that negotiations had focused on a 10% tariff rate with some sectoral exemptions,” Raphael Brun-Aguerre, senior economist at JPMorgan, said in a Monday note.

“We are not making any changes to our forecast today. The outcome of EU-US negotiations should be known by the end of the month and there is room, in our view, for US tariffs to settle at a lower level than mentioned over the weekend,” Brun-Aguerre added.

— Ganesh Rao

European defense stocks are largely following regional stocks lower this morning, with the Stoxx Europe Aerospace and Defense index last seen trading down by 0.3%, paring a deeper loss seen at the beginning of Monday’s session.

Paris-listed defense shares, however, are bucking the trend. French maritime robotics firm Exail Technologies was last seen 4.1% higher, while jet manufacturer Dassault Aviation jumped 1.8%. French defense champion Thales gained 1.4%.

That comes after French President Emmanuel Macron announced a 6.5-billion-euro ($7.6 billion) boost in defense spending over the next two years.

— Chloe Taylor

We’re around 30 minutes into the first trading session of the week, and Europe-listed stocks are broadly edging lower as trading kicks off.

The pan-European Stoxx 600 was last seen trading close to 0.5% lower, with most sectors in negative territory. Tariff-sensitive autos stocks led losses, with the Stoxx Europe Automobiles index shedding around 1%.

Looking at major regional bourses, Germany’s DAX is leading the sell-off after moving 0.8% lower, while London’s FTSE 100 is bucking the regional trend to trade 0.2% higher.

— Chloe Taylor

EU Trade Commissioner Maros Sefcovic told reporters on Monday that U.S. President Donald Trump’s threatened 30% tariff on the European Union would practically eradicate trade between the two economic powers.

In comments cited by news agency Reuters, however, Sefcovic also expressed optimism that the U.S. and the EU could find a solution.

“The feeling on our side was that we are very close to an agreement,” he reportedly said ahead of an EU trade ministers’ meeting in Brussels.

— Chloe Taylor

Earnings estimates for companies around the world have fallen sharply in recent months as analysts attempt to predict the impact of new U.S. tariffs.

Earnings per share across Europe’s benchmark Stoxx 600 are expected to fall 0.2% on an annualized basis in the second quarter, according to LSEG I/B/E/S research. On April 1, ahead of Trump’s so-called “Liberation Day,” analysts expected 7.2% growth.

Analysts are watching three key sectors as Europe’s largest companies prepare to report on their earnings — read about them here.

— Matt Ward-Perkins

In an interview with British newspaper The Times, Bank of England Governor Andrew Bailey said the central bank would deepen its rate-cutting cycle should the U.K.’s job market slow.

His comments came as the U.K.’s most recent inflation print remained elevated at 3.4%, with economists polled by Reuters expecting the June reading to be flat when it’s released on Wednesday.

But Bailey told The Times there were “consistent” signs of British firms “adjusting employment,” and said the U.K.’s economic struggles were creating “slack” that would help cool inflation.

“I really do believe the path is downward,” he said in the interview, which was published on Sunday night. “If we saw the slack opening up much more quickly, that would lead us to a different conclusion.”

Markets are currently pricing in a 25-basis-points cut at the Bank of England’s next meeting in August, according to LSEG data.

— Chloe Taylor

Following President Trump’s decision to impose 30% tariffs on imports from the EU — we wanted to take a deep dive into the volumes of trade between the two.

Together, the EU and U.S. make up almost 30% of all global trade in goods and services and 43% of global GDP. In 2024, trade between the two totaled some 1.7 trillion euros — that’s the equivalent of 4.6 billion euros per day, EU data shows. 

But is the EU’s trade surplus as one-sided as the White House suggests?

When it comes to goods, in 2024 the EU exported around 530 billion euros’ ($618 billion) worth to the U.S. and imported 335 billion — giving it a surplus of nearly 200 billion euros. But as Brussels is quick to point out: the U.S. leads the way in services where it enjoys a surplus of 150 billion dollars.

All in all, that gives the EU a total trade surplus of just $50 billion. 

And finally – what are the European industries and countries most exposed to U.S. tariffs?
By sector, it is far and away the pharmaceutical sector, followed by autos and aircraft machinery. 

Looking at individual economies, Germany and Ireland stand out as the most exposed: Almost a quarter of all German exports are destined for the U.S., while for Ireland that figure is more than a third. 

— David Martin

Good morning from London, and welcome to CNBC’s live blog covering all the action and business news in European financial markets on Monday.

Futures data from IG suggests regional markets will start the week flat to lower, with London’s FTSE 100 expected to flat, Germany’s DAX down 0.6% and France’s CAC 0.5% lower. Italy’s FTSE MIB is seen opening 0.7% lower.

The dour mood for European markets comes after U.S. President Donald Trump announced at the weekend that he would impose a 30% tariff on goods imported from the EU, dealing a blow to the bloc after several months of negotiations to try to reach a trade deal. The duty will go into effect on Aug.1.

The EU has said it will not retaliate straight away but would look to reach a deal.

“Imposing 30 percent tariffs on EU exports would disrupt essential transatlantic supply chains, to the detriment of businesses, consumers and patients on both sides of the Atlantic,” European Commission President Ursula von der Leyen said in a statement.

She said the EU remains “ready to continue working towards an agreement by August 1.”

“At the same time, we will take all necessary steps to safeguard EU interests, including the adoption of proportionate countermeasures if required.”

— Holly Ellyatt