European stock markets are starting the new trading week with a modest rebound, as investors look to shake off the steep losses from Friday’s session.
However, the positive start is tempered by a sharp focus on Swiss markets, which are reeling from the shock news of a hefty 39% US tariff, and broader concerns about the global economic outlook.
Futures data from IG suggests a broadly positive open for European indexes, with London’s FTSE 100 seen opening 0.4% higher, France’s CAC 40 up 0.5%, Germany’s DAX up 0.4%, and Italy’s FTSE MIB also 0.4% higher.
In early trading, the pan-European Stoxx 600 was last seen trading up 0.17%, with Germany’s DAX and France’s CAC 40 both up around 0.6%.
This comes after European bourses closed lower on Friday, with the Stoxx 600 experiencing its worst session since April. The sell-off was triggered after the White House officially hit countries around the world with a range of new tariff rates on August 1.
Although the European Union and the UK had already negotiated their own trade agreements, the news sparked widespread global growth concerns, leading to a sell-off in risk assets. Stoxx 600 travel stocks had closed 2.7% lower, while banks fell 2.9% on Friday.
Some global markets will be feeling the hangover from those tariffs into this week. Overnight, Asia-Pacific markets traded mixed as investors assessed the tariff impact as well as the latest US jobs report.
That report, released last Friday, pushed Wall Street lower and spurred bets on a potential rate cut by the US Federal Reserve next month.
Swiss markets under pressure: a ‘shock’ 39% tariff
The main story in Europe this morning is the reaction in Swiss markets, which were closed for a public holiday on Friday and are now trading for the first time since the shock news that the country faces a 39% US tariff rate, starting from August 7.
In early deals, Switzerland’s blue-chip SMI index had initially pared some losses but was still down around 1.5%, as investors assessed what lies ahead.
Gianluigi Mandruzzato, senior economist at EFG Asset Management, told CNBC’s “Squawk Box Europe” on Monday that the risk of a Swiss recession had increased after the announcement, noting that US export tariffs would affect about 10% of the country’s economy.
The tariffs would also put deflationary pressure on the economy and therefore on the Swiss National Bank, which has already cut its interest rates to zero, Mandruzzato added.
The Swiss Federal Council will reportedly meet this morning to discuss its response, after business minister Guy Parmelin said the country is open to revising its trade offer to the US.
It remains “hard to tell” whether the government will be able to negotiate a better deal than the current 39% rate before the August 7 implementation deadline, Mandruzzato said, with potential bargaining tools including higher purchases of US energy or more direct investment by Swiss companies into the US Watch firms, machinery-makers, and small export-reliant businesses are expected to be among the most impacted.
Lloyds jumps, OPEC+ boosts output
In individual stock news, UK bank Lloyds jumped to the top of the Stoxx 600 index, last seen up an impressive 6.5%. Another UK lender, Close Brothers, was up more than 23% as investors digested a UK Supreme Court ruling from Friday and a weekend regulatory update concerning missold car loans in Britain.
Analysts at Jefferies said the Financial Conduct Authority’s plans for a compensation scheme “largely de-risk Lloyds’ shares from the scandal,” for which the bank has already set aside funds. Lloyds said on Monday that the ultimate impact on the group is still to be determined, but it does not expect a material change to its provision.
Investors will also be watching oil prices after the OPEC+ oil-producing alliance agreed on Sunday to raise oil production by 547,000 barrels per day for September.
This output hike is the latest in a series of production increases. As a result, oil prices slipped in early Asian trade on Monday.
The second-quarter earnings season is starting to ease, with no major corporate reports expected on Monday. On the data front, traders will be keeping an eye on the latest monetary policy decision from the Turkish central bank and Spanish employment figures.
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