(Bloomberg) -- European stocks plunged to the lowest in more than a year on Monday, as President Donald Trump issued a fresh tariff threat to China and foreign leaders raced to the negotiating table to persuade him to lower his steep tariff charges.
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The Stoxx Europe 600 Index was 4.5% lower at the close in London, the lowest since end-January 2024, having earlier shed as much as 6.5%. The DAX slid 4.2%, recouping some of its earlier 10% plunge.
Shortly before the closing bell in Europe, Trump threatened to impose an additional 50% tariff on China unless Beijing withdraws a 34% retaliatory duty on US goods. He also vowed to abandon talks with China, indicating he is in no mood to back down in his trade conflict despite the huge selloff in stock markets.
Trump said, however, that negotiations with other countries would start immediately. He held a call with Japan’s Prime Minister Shigeru Ishiba on the issue, while European Commission President Ursula von der Leyen said the bloc is ready to negotiate with the US on tariffs. Israeli Prime Minister Benjamin Netanyahu is also due to meet with Trump on Monday.
“Even though negotiations between the US and some trading partners have reportedly been launched, a major reversal of the US administration before the implementation date on Wednesday is unlikely,” said Wolf von Rotberg, equity strategist at Bank J. Safra Sarasin.
The full extent of economic fallout from tariffs is not yet visible and risks around it remain skewed to the downside, von Rotberg added.
Sweden’s OMX Stockholm 30 Index was down 4.7%, effectively entering a bear market. That’s after indexes in Italy, France, Switzerland and Germany slid into correction territory last week.
Markets are highly attuned to the possibility of tariff compromises, with the Stoxx benchmark earlier following Wall Street in attempting a recovery as speculation swirled that a 90-day tariff delay was under consideration. But stock markets fell back as the White House denied the report as “fake news.”
All 20 sectors in the Stoxx 600 fell, with utilities, insurance and chemicals shares among the biggest decliners. Private equity companies including Partners Group AG, EQT AB and Bridgepoint Group Plc dropped on concern the volatility could create a tougher environment to exit investments. Defense stocks, one of the best-performing industry groups this year, also took a hit before paring some losses.
Monday’s action extended losses from Friday, when the Stoxx 600 slumped to cap the biggest weekly decline since the start of the pandemic. The gauge crossed into correction territory on concerns that the escalating trade war will hurt economic growth and curb consumer demand.
April has brought an abrupt reversal for European equities after a first-quarter rally sparked by optimism that fiscal reforms in Germany would boost economic growth. Light positioning, cheaper valuations and lower interest rates also helped the region outperform the S&P 500 by the most on record on a quarterly basis. But Trump’s tariff announcements on April 2 were more severe than expected, sending investors fleeing equities globally.
A team at Morgan Stanley last week said the uncertainty from tariffs will pressure earnings even if the initial announcements are watered down, due to delays in investment decisions, hiring and M&A, as well as a consumer demand slowdown.
Investors are monitoring the European Union’s response to Trump’s tariff announcements as the week kicks off. Finance ministers from Italy and Spain cautioned against too aggressive a response, while their counterpart in France said the bloc’s response could include regulating the use of data by American big tech groups.
Here is what market participants are saying:
Laurent Lamagnere, Head of Development at Alphavalue:
“It’s absolutely crazy, clients don’t know what to do, everyone kind of lost. It really shows how everything depends on the decision of a single man.”
Christopher Dembik, senior investment manager at Pictet Asset Management:
“What’s precipitating the selloff are the margin calls that hedge funds need to cover. That explains the fall of gold last week, with hedge funds taking profits to cover their losses. The same thing is at play today with hedge funds selling European equities, where they had made some profits, to cover margins calls. We’re in that phase of the selloff which follows capitulation: where hedge funds need to sell assets to cover margin calls. This can last a few days, it’s going to be a rough week. That said, technically, I think that we’re getting closer to the bottom where historically, the selling starts fading.”
Stephan Ekolo, equity strategist at TFS Derivatives:
“What we’re witnessing is a Black Monday: it’s tough for clients, there’s blood on the streets and there’s no respite in sight unless Trump backs down on tariffs or there’s a massive China stimulus.”
Fares Hendi, fund manager at Prevoir AM:
“What can you do? It’s a trade war! For us stock pickers the best is to do nothing, just don’t touch at anything. There’s just nothing fundamental about these moves. We just stay invested in the companies we own as believe in their business case. I’ve got calls from clients asking us if this is a good time to reinvest in the US. I tell them it’s a very good question and that such a time will surely come indeed but it’s just impossible to time it with so many unknowns.”
Alfonso Benito, chief investment officer at asset manager Dunas Capital:
“We are maintaining the calm and analysing the situation as we remain equally invested in fair value. Since we are a long term investors there is no need to panic.”
Stephan Kemper, chief investment strategist at BNP Paribas Wealth Management:
“People’s hopes for getting some positive signs on the tariff front during the weekend have been clearly disappointed. Thus, it starts to feel as if the market is getting into a ‘sell now, ask questions later’ kind of mood. Based on early indications, we’re looking for the worst three-day rolling S&P return since Black Monday 1987. The market is looking for the point of max pain at which the Trump administration and/or the Fed start to blink because – at least for now – this economic slowdown is a voluntarily constructed one.”
Karen Georges, an equity fund manager at Ecofi:
“There were clear signs of capitulation on Friday with a number of long-only investors starting to sell: that’s a key indication. When you look at the VIX, yes it smells like capitulation too. It may feel lke Covid again, but this selloff is man made.”
“We’re getting close to a moment when for long-only equity funds there is nowhere to hide. We’re looking at quality companies like infrastructure operators which are not subject to tariffs. For long-only investors, it’s really important not to capitulate because Trump could make a pivot. The risk is that he makes that pivot, say in 2 months, and by then, the damage extends to a stage when it’s feeding on itself.”
Peter Kiss, Head of Portfolio Management at Amundi Hungary:
“The situation is very fluid and things can change very rapidly, for now we’re assessing the damage and revising our positions, the goal now is to remain calm and try to avoid the falling knives.”
“We were lightly positioned before the crash, but not buying anything for the time being, rather evaluating the economic implications and what sectors or assets could be worth over- or under-weighting later on. We see recession fears strengthening, but at this stage it is still premature to call for an economic recession.”
--With assistance from Macarena Muñoz, Khuleko Siwele, Levin Stamm and Veronika Gulyas.
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