European shares fell on Friday after US President Donald Trump furiously reacted to China's latest imposition of tariffs on certain US goods, while a lack of direction in the US central bank's rate outlook somewhat frustrated investors. In a surprise move Beijing imposed additional tariffs on thousands of US products effective Sept. 1, infuriating Trump who hit back asking US companies to start looking for alternatives to their China operations.
"Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing ... your companies HOME and making your products in the USA," Trump said as part of a series of tweets. Markets reacted sharply to those developments, with Wall Street indexes shedding over 1% and the pan-European STOXX 600 ending 0.7% lower after a volatile session. Germany's trade-sensitive DAX fell 1.2%.
Trade-sensitive autos, mining and tech stocks were the biggest losers across Europe, while defensive real estate stocks were the only ones in positive territory. The benchmark index still managed to record its first weekly gain in four weeks. European equities have seen wild swings in August amid fears that the economic effects of the US-China trade war could tip major economies into recession.
"The trade war will only get uglier and cause both sides more economic pain before we see a final resolution," said Edward Moya, senior market analyst at OANDA. "Trump is going to try to gather as many chips as he can to try and punish China before settling on a deal that appeases a majority ahead of the 2020 US Presidential elections." US Federal Reserve Chairman Jerome Powell's latest comments also came under Trump's attack as the President asked whether his appointee to the central bank was a greater "enemy" than China's leader Xi Jinping to the country.
Powell, in a much anticipated speech at an economic symposium at Jackson Hole said the US central bank would "act as appropriate" to keep the current economic expansion on track, but did not offer a clear indication on future interest rate-cuts. "His statement wasn't as clear as we hoped it would be, but it was enough to show that he was at least leaning towards a rate cut in September," said Philip Marey, senior US strategist at Rabobank.
London's FTSE 100 had its fourth straight week of losses, the longest streak since February. Oil majors Shell and BP had the biggest negative impact on the day. Among individual stocks, Kloeckner & Co shares jumped 7% after a newspaper said Thyssenkrupp was in talks to buy the metals distributor. Peppa Pig owner Entertainment One hit a life high after agreeing to be acquired by Hasbro.