European markets opened lower on Monday, January 19, after US President Donald Trump threatened to impose tariffs on eight European countries amid growing trade tensions.
The pan-European STOXX 600 index fell 1% by mid-morning, marking a dismal start to a week in which earnings declarations and the World Economic Forum in Davos are expected to boost markets.
The French market’s CAC 40 index fell 1.4 percent, the German market’s DAX index fell 1.2 percent and the FTSE 100 in London closed down 0.5 percent.
The same day, Trump announced that a 10% tariff would now be imposed on products from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and the United Kingdom, starting February 1.
However, the rate will increase to 25% on June 1 unless a deal is reached allowing the United States to purchase Greenland.
In response to the situation, European officials called the tariff threat coercive and studied countermeasures, suggesting possible tariffs on $108 billion in U.S. imports and other actions under the EU’s anti-coercion instrument.
Analysts have noted that Trump’s tariff strategy is driven more by political than economic reasons.
Stocks of luxury companies, autos and technology were among the falling sectors, falling 3.1%, 2.4% and 2.2% respectively, while indexes for the luxury and auto sectors hit their lowest levels in three months. Volatility in euro zone stocks also rose to a peak last seen in November.
Market analysts noted that the lack of trading volume in US markets on the Martin Luther King Jr. holiday could also lead to an amplification of these trends as declines were also recorded in S&P 500, Nasdaq, EURO STOXX50 and DAX futures as investors turned their attention to safe currencies such as the Japanese yen.
Market uncertainty was further fueled by global macroeconomic factors such as China’s economic slowdown and upcoming US inflation data. With earnings season already underway, investors are weighing risks based on economic indicators, making stocks very sensitive to further market swings.
