European stock markets started the trading week in negative territory on Monday, with major indices declining as investors reacted to a significant new tariff threat from US President Donald Trump over the weekend.
The announcement of a 30% tariff on goods imported from the European Union has dealt a fresh blow to transatlantic trade relations and soured market sentiment across the continent.
About 30 minutes into the first trading session of the week, the pan-European Stoxx 600 index was trading approximately 0.5% lower, with most sectors in the red.
The impact of the tariff news was particularly evident in trade-sensitive sectors. Autos stocks led the losses, with the Stoxx Europe Automobiles index shedding around 1%.
Looking at the major national bourses, Germany’s DAX was leading the sell-off, down 0.8%. In contrast, London’s FTSE 100 managed to buck the regional trend, trading 0.2% higher.
The dour mood for European markets comes after President Trump announced over the weekend that he would impose a 30% tariff on goods imported from the EU, a move that follows several months of intense but ultimately unsuccessful negotiations to reach a comprehensive trade deal.
The new duty is set to go into effect on August 1.
EU’s response: safeguarding interests while keeping the door open
The European Union has indicated that it will not retaliate immediately, instead choosing to keep the door open for further negotiations.
“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 affirmed that the EU remains “ready to continue working towards an agreement by August 1.”
However, she also issued a clear warning: “At the same time, we will take all necessary steps to safeguard EU interests, including the adoption of proportionate countermeasures if required.”
EU Trade Commissioner Maros Sefcovic, speaking to reporters on Monday, underscored the severity of the US move, stating that President Trump’s threatened 30% tariff on the European Union would practically eradicate trade between the two economic powers.
Despite this stark assessment, Sefcovic also expressed a degree of optimism that a solution could still be found.
In comments cited by news agency Reuters ahead of an EU trade ministers’ meeting in Brussels, he reportedly said, “The feeling on our side was that we are very close to an agreement.”
The tariff toll: earnings estimates tumble across Europe
The ongoing tariff uncertainty is already having a tangible impact on European firms.
Earnings estimates for companies across the continent have fallen sharply in recent months as analysts struggle to predict the impact of the new US trade policies.
According to LSEG I/B/E/S research, earnings per share for companies in Europe’s benchmark Stoxx 600 are now expected to fall by 0.2% on an annualized basis in the second quarter.
This represents a dramatic reversal from expectations on April 1, ahead of President Trump’s so-called ‘Liberation Day,’ when analysts were forecasting a healthy 7.2% growth.
As Europe’s largest companies prepare to report on their earnings, analysts will be watching three key sectors for signs of strain.
Bank of England’s stance: eyes on the UK job market
Adding another layer to the complex market picture, Bank of England Governor Andrew Bailey has signaled that the central bank could deepen its rate-cutting cycle if the UK’s job market shows signs of slowing.
His comments came as the UK’s most recent inflation print remained elevated at 3.4%.
Economists polled by Reuters expect the June inflation reading, due to be released on Wednesday, to be flat.
In an interview with the British newspaper The Times, published on Sunday night, Bailey stated that there were “consistent” signs of British firms “adjusting employment.”
He suggested that the UK’s economic struggles were creating “slack” in the economy that would ultimately help to cool inflation.
“I really do believe the path is downward,” he said in the interview. “If we saw the slack opening up much more quickly, that would lead us to a different conclusion,” he added, implying that a weaker job market could pave the way for more aggressive rate cuts.
Currently, markets are pricing in a 25-basis-point cut at the Bank of England’s next meeting in August, according to LSEG data.
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