By Sara Sjolin, MarketWatch
European stocks dropped for a third straight day on Friday, suffering their lowest close in more than a year as trade war fears returned to the fore after tensions between the U.S. and China escalated.
What are markets doing?
The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP +1.00% dropped 0.9% to 365.82, marking its lowest close since Feb. 8 last year, according to FactSet data. For the week, the pan-European benchmark fell 3.2%.
Germany’s DAX 30 index /zigman2/quotes/210597999/delayed DX:DAX +1.43% gave up 1.8% to 11,886.31, closing with a 4.1% weekly loss. France’s CAC 40 index /zigman2/quotes/210597958/delayed FR:PX1 +1.50% lost 1.4% to 5,095.22, while the U.K.’s FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +1.12% fell 0.4% to 6,921.94.
The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.0256% rose to $1.2366, up from $1.2304 on Thursday. The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.0220% fetched $1.4151, compared with $1.4096 on Thursday.
What is driving the markets?
Investors dumped assets perceived as more risky after U.S. President Donald Trump announced import tariffs on at least $50 billion of Chinese products. The plan has already triggered a threat of retaliatory actions from China, which rolled out plans to impose tariffs on up to $3 billion of U.S imports, such as fruit, pork and recycled aluminum.
China’s tariff list didn’t include big-ticket U.S. exports such as soybeans and Boeing airplanes, interpreted as Beijing leaving room to escalate or negotiate.
Also on Thursday night, Trump formally approved temporary exclusions from steel and aluminum tariffs until May 1 for European Union nations and six other countries. The move, however, didn’t calm traders in European steel companies, with shares of Thyssenkrupp AG /zigman2/quotes/207409543/delayed DE:TKA -1.56% /zigman2/quotes/207274029/composite TKAMY -0.20% down 3% and ArcelorMittal FR:MT 0.00% ending 3.4% lower.
Closer to home, traders were also waiting to see whether EU leaders at a summit in Brussels will approve the U.K.’s Brexit transition deal. The agreement was reached on Monday between the EU’s and the U.K.’s Brexit negotiators, Michel Barnier and David Davis, in what is seen as a significant step in avoiding a cliff-edge divorce next year. The EU leaders are widely expected to endorse the agreement.
What are strategists saying?
“Equity indices were a sea of red in every region, as the new U.S. tariffs aimed at China reignited concerns that the situation could escalate into a full-blown trade war between the world’s two largest economies,” said Marios Hadjikyriacos, investment analyst a foreign-exchange broker XM, in a note.
“Any new comments today from the Trump administration, and especially from [U.S. Trade Representative Robert] Lighthizer, will be particularly important for markets. Overall, risk aversion may continue to be the dominant theme in this environment and if so, one would expect to see similar market moves to yesterday. Namely, safe havens like the yen could continue to thrive, while riskier assets such as stocks may extend losses.”
Which stocks are on focus?
Shares of Smiths Group PLC /zigman2/quotes/208640940/delayed UK:SMIN -0.25% tumbled 4.4% after the engineering company’ said profit fell in the fiscal first half of the year, hit by higher research costs and lower margin.
Deutsche Bank AG /zigman2/quotes/205584254/delayed DE:DBK -1.10% /zigman2/quotes/203042512/composite DB -0.84% fell 2.9% as it floated its asset management unit DWS Group /zigman2/quotes/206269720/delayed DE:DWS +0.22% . Deutsche Bank raised €6.5 billion in the sale, below ambitions of €8 billion. DWS shares closed 1.7% higher.
Telecom Italia SpA /zigman2/quotes/203233528/delayed IT:TIT -1.46% dropped 1%. The company said late Thursday its chairman and other board members will resign as a power struggle between the company and activist investor Elliott Management has escalated.
GlaxoSmithKline PLC /zigman2/quotes/200381158/delayed UK:GSK +1.07% /zigman2/quotes/209463850/composite GSK +0.59% added 3.3% after the drug maker said its shingles vaccine, Shingrix, has been approved for adults aged 50 and older in Europe and Japan. The U.K. pharma giant also said it has ended talks to buy Pfizer Inc.’s /zigman2/quotes/202877789/composite PFE -0.63% consumer-healthcare business.