By Sruthi Shankar and Medha Singh
(Reuters) -European shares dropped sharply on Friday after U.S. President Donald Trump cranked up threats of tariffs on the European Union and smartphone giant Apple, reigniting fears of the economic damages caused by trade wars.
Trump said he is recommending a straight 50% tariff on goods from the EU starting on June 1, which would result in stiff levies on luxury items, pharmaceuticals and other goods. He also threatened Apple with a 25% tariff on any iPhones sold, but not manufactured, in the United States.
“This latest threat is worse than the worst case scenario,” said Fiona Cincotta, senior market analyst at City Index.
The pan-European STOXX 600 index fell 1.9% by 1340 GMT, on course to record a weekly fall after five straight weeks of gains. A gauge of euro zone stocks took a sharper 2.2% hit.
The Euro STOXX Volatility index spiked to its highest in more than four weeks.
The STOXX 600 has recovered from the early April slump as U.S. clinched trade deals with the UK and a temporary truce with China this month, easing fears that an all-out trade war would cause a global economic downturn. Despite Friday’s fall, the index is currently up 26.7% from the April trough.
Friday’s losses were broad based, with economically-sensitive banks shedding 3.9%, while luxury goods fell 3.6%.
Trade-sensitive German DAX fell 2.1%, after coming within spitting distance of an all-time high earlier in the day, on data that showed the country’s economy grew significantly more in the first quarter than previously estimated.
Stock indexes in France, Spain and Italy were down between 2.3% and 2.8%, while losses in UK’s blue-chip FTSE 100 were contained at 1%.
Traders bet on more interest rate cuts from the European Central Bank, expecting the deposit rate to reach 1.60% by December from 1.72% before Trump’s comments.
The benchmark 10-year European government bond yields dropped on Friday after surging earlier this week as the Republican-controlled U.S. House of Representatives passed a sweeping tax and spending bill that caused fears over mounting U.S. debt. [GVD/EUR]
Bond proxies utilities and real estate sectors were the only ones to eke out gains among European sectors.
Easing bond yields and better-than-expected economic data helped European stocks rise earlier in the day after coming under pressure this week, as surging U.S. Treasury yields stoked concerns about mounting U.S. debt, while business surveys signalled weakness in the euro zone economy.
Among single stocks, British investment platform AJ Bell jumped 6.1% after it posted a 12% year-over-year rise in half-yearly profit before tax, benefitting from increased client activity.
(Reporting by Sruthi Shankar and Purvi Agarwal in Bengaluru; Editing by Nivedita Bhattacharjee, Mrigank Dhaniwala and Leroy Leo)
