European stock markets are a sea of red in early trading, after Donald Trump rattled investors by signing off on tariffs on China, Canada and Mexico last weekend.
Germany’s DAX index has fallen by 2% at the open, while France’s CAC40 share index is down 1.9%.
Spain’s IBEX has dropped by 1.7% and Italy’s FTSEMIB has lost 1.4%.
Naeem Aslam, chief investment officer at Zaye Capital Markets, says investors are bracing for heightened uncertainty in global trade and economic stability, adding:
These downturns are driven by investor anxiety about the broader impact of tariffs on the global economy, particularly as European economies are highly intertwined with U.S. trade policies.
Key events
Britain’s short-term borrowing costs have dropped to their lowest level in over three months this morning.
The yield, or interest rate, on two-year UK bonds has dropped to 4.17%, down from 4.21% on Friday night, and the lowest since the end of October.
That could be good news for borrowers, as two-year bond yields are used to price fixed-rate mortgages.
It suggests City traders are more confident that UK interest rates will fall this year, with three quarter-point cuts fully priced in.
Shares in some of the biggest European carmakers have slumped this morning.
Volkswagen, BMW, Porsche, VolvoCars, Stellantis, and truckmaker DaimlerTruck all fell between around 5% and 6%. French car parts supplier Valeo slid by 8%.
Markets are retreating sharply today because investors had not expected a robust response from the countries hit by new US tariffs.
SusannahStreeter, head of money and markets at HargreavesLansdown, explains:
‘’Investors are rattled at the prospects of a full-blown trade war breaking out after the US slapped punishing tariffs on Canada, Mexico and China, prompting retaliation. Investors are buckling up for a rollercoaster ride for the global economy, with the European Union expected to be next in line for punitive duties. The FTSE 100 has been stopped in its tracks with the record run upwards going into reverse. It fell sharply in early trade amid worries that listed multinationals could be caught in the cross-fires of the trade wars. Japan’s Nikkei traded sharply lower, as investors assessed the repercussions for big corporates. European indices are also set for a rocky day of trading and Wall Street is set to open firmly in the red.
What was considered to be bluff and bluster from Trump has turned into cold hard reality. But President Trump is no longer the only one playing hardball. Canada’s outgoing Prime Minister Trudeau immediately imposed tit-for-tat 25% tariffs on $155bn in US imports. Mexico’s President has also ordered retaliatory action.
These new aggressive actions on what used to be neighbouring allies, are the modus operandi of the new Trump administration, and part of not just trade policy but national security strategy.
Britain’s smaller share index, the FTSE 250, is also sliding in early trading.
The FTSE250, which is more UK-focused than the FTSE100, has shed 1.7% – with only six stocks rising, one flat, and the remaining 243 shares falling.
Investment bank Jefferies believe a deal will eventually be reached that means trade wars can be avoided, or limited.
But markets could be “bumpy” over the coming days or weeks, they warn, due to uncertainty over the situation.
Jefferies analyst MohitKumar says:
Tariffs and likely counter tariffs are dominating market price action today. The fact that tariffs are coming is not new news, but market (and our expectations) had been that Trump would threaten tariffs, given some time for negotiations and then eventually a deal will be reached
“Trump tariff tantrum” hits markets
The US stock market is also heading for heavy falls when it opens later today, as Richard Hunter, Head of Markets at interactive investor, explains:
February seems likely to begin with a Trump tariff tantrum, with very early futures prices signalling declines of more than 600 points for the Dow Jones, and declines of 2% or more for the benchmark S&P500 and Nasdaq indices.
This follows the announcement on Saturday that the President would be introducing 25% tariffs on Mexico and Canada, and 10% on China. Each of the affected countries threatened retaliatory action, prompting fears of a trade war which could impact corporate earnings, supply chains and economies more generally. An unintended consequence could even be that countries look to lessen their reliance on the US, which could weaken the currency in due course.
While there is a glimmer of hope for some easing of the tariffs, with the President reportedly planning talks with Mexico and Canada today, the speed of the measures so soon after his inauguration has taken many by surprise.
European markets hit by trade war anxiety.
European stock markets are a sea of red in early trading, after Donald Trump rattled investors by signing off on tariffs on China, Canada and Mexico last weekend.
Germany’s DAX index has fallen by 2% at the open, while France’s CAC40 share index is down 1.9%.
Spain’s IBEX has dropped by 1.7% and Italy’s FTSEMIB has lost 1.4%.
Naeem Aslam, chief investment officer at Zaye Capital Markets, says investors are bracing for heightened uncertainty in global trade and economic stability, adding:
These downturns are driven by investor anxiety about the broader impact of tariffs on the global economy, particularly as European economies are highly intertwined with U.S. trade policies.
UK bank shares are also falling, with Lloyds Banking Group down 1.8%, NatWest down 1.9% and HSBC falling 1.4%.
Barclays, which was hit by an IT glitch that left thousands of customers locked out of their accounts on Friday and Saturday, are down 2.5%.
FTSE 100 index falls 1.25% at the open
Britain’s stock maket has joined the global selloff triggered by Donald Trump’s imposition of tariffs on Canada, Mexico and China last weekend.
The blue-chip FTSE100 index, which tracks the one hundred largest companies listed in London, has fallen by 1.25% at the start of trading.
The FTSE 100 share index has shed 111 points to hit 8562 points, falling back from the record high hit last Friday.
Nearly every share is down, led by asset managers Polar Capital (-4.5%) and Intermediate Capital Group (-3.75%).
Mining firm Antofagasta (-3.5%), and ScottishMortgageInvestmentTrust (-3.7%) are also among the top fallers.
City traders will be donning their virtual tin hats, as the London stock market is about to open, and shares are expected to fall….
Metal prices hit
Metal prices have fallen today, as president Trump’s 10% tariff on imports from China rattles the markets.
Benchmark copper fell by 1.05% to $8,953 a metric ton early this morning, its lowest level since 6 January.
The three-month aluminium contract fell 1.4% to $2,558, the lowest in over two weeks.
LME zinc fell 1.2% to $2,708 a ton, lead shed 0.7% to $1,936.5, tin eased 0.9% to $29,845 and nickel lost 0.4% to $15,145, Reuters reports.
The odds of the Bank of England cutting interest rates several times this year are rising, amid fears of global trade conflict.
The money markets are now pricing in 80 basis points, or 0.8 percentage points, or cuts to Bank Rate by the end of this year. That means three quarter-point cuts are fully priced in with the possibility of a fourth.
That’s up from 75 basis points of cuts expected last Friday.
UK RATE FUTURES POINT TO ABOUT 80 BASIS POINTS OF BANK OF ENGLAND RATE CUTS BY END OF 2025 VS ABOUT 75 BPS ON FRIDAY
The Bank is due to set interest rates at noon on Thursday, and a quarter-point cut – from 4.75% to 4.5% – is a 98% chance, according to this morning’s pricing.
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