European Shares Pare Drop as Mexican Tariffs Delayed for a Month

(Bloomberg) — European stocks trimmed earlier declines after Mexican President Claudia Sheinbaum said tariffs imposed by the US would be delayed for one month after a conversation with Donald Trump.

The Stoxx Europe 600 Index fell 0.9% by the close in London, paring an earlier drop of as much as 1.6%. Auto stocks, which are heavily exposed to import tariffs, led the retreat, while telecoms outperformed. Trump announced levies on Canada, Mexico and China at the weekend, and promised to make similar moves against the European Union. He confirmed the delay to Mexico’s tariffs in a post on Truth Social.

“Trump is adopting a confrontational approach,” said Vincent Juvyns, global market strategist at JPMorgan Asset Management. “This will both fuel volatility and introduce downward pressure on equity markets, particularly as we wait for some tariff announcements for Europe.” Juvyns was speaking before the latest development with the Mexico tariffs.

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Automakers dropped as much as 4.5%, the most since Sept. 2022, with Stellantis NV and Volkswagen AG among the biggest laggards. The Stoxx 600 autos and parts subindex closed down 2.2%. Spanish banks with exposure to Mexico — BBVA SA and Banco Santander SA — pared earlier declines after news of the tariff delay. 

Trump said he will “definitely” place new tariffs on the EU, reiterating complaints about the US trade deficit with the bloc. The US president hasn’t shared more details about the move yet, with the EU saying it will “respond firmly” if levies materialize. 

“Markets had largely been expecting a slower implementation,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “One thing is sure, volatility is here to stay,” he said in comments before the latest Mexico developments.

Among other individual stock movers, Julius Baer Group Ltd. fell as much as 13% after Swiss financial watchdog Finma said it had opened an enforcement procedure against the lender. Raiffeisen Bank International AG declined after Bloomberg News reported the lender has been making money from firms supplying Vladimir Putin’s military.

Traders are now assessing whether the European Central Bank will continue cutting rates to support the economy. Governing Council member Peter Kazimir said the central bank will probably lower borrowing costs further, but must remain flexible and cautious as it’s too early to declare victory over inflation, which accelerated unexpectedly in the euro-zone in January. 

Euro parity with the dollar is looking more likely as Trump’s warnings on possible tariffs on the EU sent the euro down more than 2% to $1.0141, the lowest level since November 2022.

The pan-European Stoxx 600 index had a strong January, rallying to a record high amid solid earnings and hopes that the region would be spared from immediate US levies. But investors are increasingly being forced to confront the risk that tariffs from the US are a near-term threat to corporate profits.

Tariffs of 10% on European goods would shave between 1% and 2% off earnings per share, according to estimates from Citigroup Inc. strategists. Trump has said he plans to impose more tariffs on a wide range of imports, including oil, metals, pharmaceuticals, and chips, in the coming months. 

“While Europe has so far avoided US tariffs, it may not avoid volatility, as it is likely high on the ‘who’s next list,’” said Barclays Plc strategist Emmanuel Cau. “Last week was all about diversification, this week may be more about hedging.”

Here is more of what market participants are saying:

Julien Lafargue, Chief Market Strategist, Barclays Private Bank

“Defensives seems like an obvious play here but investors should remember that these sectors tend to be closely correlated to bond yields. A trade war between the US and most of its key trading partners could lead to inflationary pressures in the short-term which could push bond yields higher if markets think that growth won’t be negatively impacted. In this environment, sectors and styles may not be granular enough. Instead we believe investors should adopt a stock-by-stock approach. We would favour services over manufacturing companies and, within that, those that have limited US exposure.” 

Nori Chiou, investment director at White Oak Capital Partners

“The EU’s trade surplus with the US stands at ~€158bn, indicating that Trump’s tariff threats could have substantial effects, I expect ~5% profit will be impacted in 2025. Currently, Europe’s primary challenge is not inflation but rather sluggish economic growth. The implementation of tariff policies may further weaken Europe’s economic momentum, especially in the manufacturing sector. While increased tariffs could lead to higher import prices and subsequently elevate inflation levels, the European Central Bank must carefully balance the risks of inflation against the potential for economic slowdown, so revised down interest rate is possible if needed.”

James Athey, a portfolio manager at Marlborough Investment Management

“The market will continue to take a dim view of tariffs. The most likely effects will continue to be flatter yield curves and weaker currencies for those with trade surpluses vs the USA who are targeted. President Trump has suggested in the past that the EU is in his crosshairs and those comments seem to have been repeated overnight. This all comes at a time when the Eurozone already faces significant cyclical, structural and political challenges and a long-standing deficit of domestic demand.”

Guillermo Hernandez Sampere, head of trading at asset manager MPPM

“European companies with production in these countries will also be affected. The fear of an increase in tariffs could slow down the current upswing and cause significantly increased volatility. But experience shows that there are no winners in trade wars.”

Christopher Dembik, senior investment adviser at Pictet Asset Management

“There’s no sense of panic yet. Yes, it’s bad news, and it’s normal that we see some selling. Volatility is to be expected, but I’m not overly concerned. My take is that these tariffs are a negotiating tool for Trump to obtain economic concessions from the US trading partners. But these tariffs are not here to stay. There had been tactical flows toward European equities in January but I expect that these will leave the region for dollar assets given the new context.”

David Kruk, head of trading at La Financiere de L’Echiquier

“I rather see this as another buy-the-dip moment. Tariffs are a one-off when it comes to inflation so I don’t think this will change the trajectory for the Fed’s policy. I don’t see anything dramatic emerging out of this, as it was widely anticipated. I think the market will rebound after this first dip as the latest earnings were good, retail investors are still buyers and disinflation is on course.”

Christophe Boucher, chief investment officer at ABN Amro Investment Solutions

“I wouldn’t be surprised if today’s selloff turns out to be just a one off. We’re still overweight equities at the moment and maybe we’ll consider cutting some risks later on but not yet. Overall, we think the market is overreacting. What’s driving this morning’s volatility is the fact that we’re now getting in the thick of it, when it comes to tariffs… I don’t expect a correction or a bear market to follow.”

Susana Cruz, Panmure Liberum strategist 

“Markets are down on news that EU tariffs are next, though Trump signaled UK trade issues could be resolved. If tariffs stay at 25% or below, the GDP impact should be mild. Inflation risk is also low—EU inflation may rise by 0.2%, UK by 0.3%-0.4%. UK services exporters stand strong, backed by a trade surplus with the US. These companies remain a safer bet, shielded from tariffs on both goods and services. However, as services become cheaper relative to goods, consumer spending is set to shift further toward services, boosting these companies even more.”

For more on equity markets:

• Bullish Equity Market Sentiment Meets Tariff Chaos: Taking Stock
• M&A Watch Europe: Unilever, OMV, Generali, L’Oreal, Sanofi
• US Stock Futures Slump After Trump Follows Through on Tariffs

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–With assistance from Michael Msika, Abhishek Vishnoi, Joshua Gaunt-Warner, Omar El Chmouri and Henry Ren.

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