Markets react to renewed trade tensions
European equities fell sharply on Monday as investors responded to fresh trade uncertainty triggered by US President Donald Trump. Over the weekend, Trump said he would impose new tariffs on several European countries as part of an effort to pressure Denmark over Greenland.
In a post on Truth Social, Trump said exports from eight European nations would face a 10% tariff starting February 1, with the rate rising to 25% in June. The countries named were Germany, France, the United Kingdom, the Netherlands, Sweden, Denmark, Finland, and Norway. The announcement revived concerns about trade disruption and its impact on European exporters.
Luxury, auto and pharma stocks lead losses
The Europe-wide Stoxx 600 index fell about 1.15% in early afternoon trading, with losses concentrated in sectors most exposed to US tariffs. Luxury goods, automakers, and pharmaceutical companies were among the hardest hit.
LVMH shares dropped nearly 4%, while BMW fell more than 3%, reflecting investor concerns about the effect of higher tariffs on demand and profit margins. Analysts said exposure to the proposed measures is uneven, with some industries and countries far more vulnerable than others.
Denmark seen as most exposed economy
According to Morgan Stanley, Greenland-related tariffs would affect roughly 2.2% of revenues across the MSCI Europe index. However, the impact would be heavily concentrated in Denmark, which is seen as the most exposed European country if tariffs are fully implemented.
The Danish OMXC 20 index fell about 3%, with pharmaceutical companies leading the decline. Novo Nordisk shares dropped more than 3% as investors weighed the potential risks to healthcare exports.
Defense stocks rise as tensions escalate
While most sectors declined, defense companies moved higher. Investors viewed rising geopolitical tension around Greenland as potentially supportive of increased defense spending across Europe.
Swedish defense group Saab rose more than 4%, while Leonardo and Rheinmetall both gained over 2%, standing out as rare bright spots in an otherwise weak trading session.
Analysts divided on tariff outlook
Some economists urged caution, noting that the proposed tariffs may not be implemented or could be short-lived. Berenberg chief economist Holger Schmieding pointed to a possible US Supreme Court ruling that could challenge the legal basis of the tariff plan.
Deutsche Bank analysts also suggested that renewed pressure on US Treasurys could prompt a policy rethink. However, analysts at JPMorgan warned that even the threat of tariffs tied to Greenland could trigger a broader shift in market sentiment as uncertainty around US trade policy grows.
