European Stocks Plunge 1.7% Amid Trump Tariff Fears

European stocks continued their downward trajectory on Friday, with the pan-European STOXX 600 index falling by 1.7%, following a 5.53% plunge on Thursday. This decline marks the largest single-week drop since 2022, driven by concerns over the economic impact of extensive tariffs announced by U.S. President Donald Trump. The banking and mining sectors were particularly hard hit, while utility stocks, often seen as bond substitutes, outperformed the broader market. Analysts suggest that further rotation into defensive stocks is likely, given the heightened risk of an economic slowdown.

Italy's stock index has declined by 10% from its March peak, reaching a technical correction threshold, with banking stocks leading the decline. This downturn reflects broader market concerns about the potential economic fallout from the tariffs, which have raised fears of a global trade war. President Trump indicated on Thursday that he is open to reducing tariffs if other nations offer "amazing" concessions, but the market remains cautious.

The tariffs, which include a 25% levy on imported cars into the U.S., are expected to have a significant impact on export-dependent economies, particularly in Asia. The retail sector was among the hardest hit, with the STOXX Europe 600 Retail index dropping by 5.2%, its worst performance in nearly four years. Shipping giants Maersk and Hapag-Lloyd saw their stock prices fall by more than 9%, serving as indicators of the global economic health.

The euro initially strengthened against the U.S. dollar following the announcement, reaching a six-month high, but it fell by 0.2% on Friday morning. Economists are still assessing the full impact of these tariffs, which will depend on how long they remain in effect and how other countries respond. The European Union has indicated that it is prepared to take retaliatory measures if negotiations fail, with French President Emmanuel Macron urging French companies to halt planned investments in the U.S., while Germany's acting economy minister, Robert Habeck, suggested that a united European response could pressure Trump to back down.