European stock indices on Friday dived by as much as 2 percent as US President Donald Trump’s warning of new tariffs on China sank stock markets worldwide and sent trade-sensitive sectors like mining and automakers into a tailspin.
Abruptly ending a temporary trade truce between the two countries, Trump said that he would impose a 10 percent tariffs on US$300 billion of Chinese exports to the US from Sept. 1.
That on Friday sent the pan-European STOXX 600 down 9.53 points, or 2.5 percent, to 378.15, a six-week low and a plunge of 3.2 percent from a close of 390.73 on July 26, with the basic material sector plunging 3.9 percent, and the auto and tech sectors sliding 2.7 percent.
“The announcement will only serve to create additional downward pressure on business confidence,” UBS Global Wealth Management chief investment officer Mark Haefele wrote in a note. “If businesses stop hiring, this would greatly increase the risk of a recession.”
Chipmakers Siltronic AG, Infineon Technologies AG, STMicroelectronics NV and ASML Holding NV each dropped between 4 percent and 6 percent.
Paris’ CAC 40 on Friday dropped 198.41 points, or 3.6 percent, to 5,359.00, plummeting 4.5 percent from 5,610.05 a week earlier.
Germany’s DAX on Friday fell 380.71 points, or 3.1 percent, to 11,872.44, a plunge of 4.4 percent from a close of 12,419.9 on July 26.
Most of Europe’s main markets were set for their worst week since a slide in May, when a sudden breakdown in trade talks between the US and China hammered markets.
A rally since then had been fueled by hopes that major central banks would adopt looser monetary policy to offset the trade war’s effects on growth, but the European Central Bank and the US Federal Reserve last month disappointed investors with stances that were more cautious than expected.
Adding to the auto sector’s woes, Italian tire maker Pirelli & C SpA slipped 4.6 percent after cutting revenue guidance for the second time this year, joining a string of suppliers hit by a broader auto industry downturn.
“We now see a higher risk that tariffs could also be placed on auto imports,” Haefele wrote. “Back in May, Trump announced that a decision on auto tariffs would be delayed by six months to allow time for negotiations, and it appears that little progress has been made since then.”
Corporate earnings for the second quarter continued to pour in.
French lender Credit Agricole Group slipped 5.3 percent after it said that a weak performance at its corporate and investment unit had weighed on its profits.
German insurer Allianz SE fell 2.7 percent and was among the biggest drags on STOXX 600, despite posting a better-than-expected quarterly net profit and confirming its full-year profit target.
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