European shares slumped in a volatile session on Monday, with the STOXX 600 closing at its lowest since January 2024, as U.S. President Donald Trump showed no signs of letting up in his aggressive trade war.
The pan-European STOXX 600 dropped 4.5%, down for the fourth straight session. Major bourses closed down between 4% to over 5%.
Trade-sensitive Germany’s benchmark index dove as much as 6.4%, at one point down more than 20% from its March all-time closing high and on track to confirm a bear market, though it pared some losses to close down 4.3%.
The volatility index leapt to an over three year high of 46.72.
A barrage of headlines kept investors on edge throughout the session. Stocks sharply pared losses after a report that Trump was considering a 90-day pause in tariffs for all countries but China. However, they retraced those gains after the White House called the report “fake news.”
Stocks dive in Asia, markets hunger for rapid US rate cuts
All sectors were in the red, with European banks confirming a bear market, down over 20.9% from its March record high.
Investors also booked gains in shares of arms makers, which had surged earlier this year on prospect of higher defence spending, with defense stocks down over 5%.
“If the US catches a cold, the rest of the world catches the flu,” said Barry Knapp, managing partner, Ironsides Macroeconomics.
“It was foolish to think that you can hide out in foreign markets because (the U.S.) is the biggest source of final global demands.”
Fears that the escalating trade war could sharply hit economic growth and increase inflation have slammed global equity markets in the past weeks as investors rushed for safe havens, while bets on interest rate reductions from the ECB and the U.S. Federal Reserve have risen.
The ECB has estimated that a blanket U.S. tariff would lower euro zone growth by 0.3 percentage points in the first year, and EU counter-tariffs on the U.S. would raise the damage to half a percentage point.
Markets now see almost two rate cuts in the ECB’s next two meetings.
Meanwhile, the European Union prepared to respond. The bloc said it would start collecting retaliatory duties on some imported U.S. goods next week even as trade ministers agreed they preferred negotiations with the U.S. over retaliation.
The countermeasures on U.S. goods will target less than 26 billion euros’ worth of imports.
Barclays cut its year-end forecast for the STOXX 600 to 490 points from 580, it forecast last month, but acknowledged that “setting a point forecast has little value at this stage – there is no precedent, nor fundamental framework to rely on for this crisis.”
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