Global equity markets were roiled on Friday as the period of easing trade war rhetoric proved short-lived, with US President Donald Trump calling for a 50% tariff on goods from the EU and a 25% levy on Apple AAPL if it continues to manufacture iPhones overseas.
European stocks fell in the middle of the European trading session with the Euro Stoxx 50, a benchmark tracking large-cap stocks in the eurozone, sharply dropping 2.5% before finishing the session 1% lower. US equities also declined; the S&P 500 index dropped 1% at the open while the technology-heavy Nasdaq Composite index fell 1.2%. Among the biggest contributors to the Nasdaq’s decline at the open was Apple, down more than 2%.
Export-sensitive stocks and cyclical sectors led declines in Europe as carmaker Stellantis STLAM fell 4.6% and RayBan maker EssilorLuxottica EL closed 4.8% lower. The Stoxx 600 Banks sector index was down 1.8% at the close.
“The threatened 50% tariffs would be among the highest in the world and will clearly have a negative impact on EU companies, particularly exporters,” said Mark Preskett, senior portfolio manager at Morningstar Investment Management. “It is worth noting that the Trump administration has de-escalated threats very quickly in the past but we would expect volatility to pick up in the short term.”
The moves follow two separate announcements Trump made on the Truth Social platform, first threatening a 25% tariff against imported Apple goods if iPhone manufacturing doesn’t move to the US, then ‘recommending’ a 50% tariff against all goods from the EU starting on June 1. In the same post, Trump voiced frustration over the progress of trade talks with the bloc.
Investors Seek Safe Havens, Boosting Bunds, Treasuries
Yields on German government bonds and on US treasuries declined following the news as demand for stable assets drove those bonds’ prices higher. Yields on the 10-year bund dipped to 2.54%, the lowest since May 9, while 10-year Treasury yields slipped to 4.44%.
Defensive segments of the equity market also outperformed following the news, with utilities in the Stoxx 600 Utilities sector index turning positive. Pharmaceutical stocks, a classic example of a defensive industry, defied this pattern due to the sector’s large exposure to US trade, and the Stoxx 600 Health Care sector index slipped 0.6%.
How Will Europe Respond?
With just a week until Trump’s proposed 50% levy takes effect, the European Union is under pressure to respond quickly. According to Laura Cooper, global investment strategist at Nuveen, “Europe had already threated to retaliate after the existing 90-day reciprocal reprieve and today’s developments set up for more bouts of back-and-forth rhetoric. Should the 50% rate remain, the hit to US growth could equate to a nearly 0.5% drag and boost core inflation well above 3% this year.”
Christopher Johnson and Sunniva Kolostyak contributed to this story.
