Europe close: Stocks slip as Trump threatens tariffs

(Sharecast News) - Stocks fell at the start of the week after the new US President threatened the European Union with new import levies after he outlined the tariffs that he would impose on China, Canada and Mexico at the weekend. Stocks nonetheless managed to end the day off their worst levels, as investors tried to anticipate who permanent or not the tariffs would prove.

Analysts at Bank of America expected those on China to stick - due to geopolitical considerations - but not those on Canada and Mexico., although the analysts were loathe to stick their necks out too far.

The pan-regional Stoxx 600 index was down 0.92% at 534.54, ending a bullish run last week that saw the benchmark index hit record highs, along with indices in Germany and the UK.

Germany's DAX index was down 1.49%, while France's CAC 40 slumped 1.24%, Spain's IBEX 1.26% and Italy's FTSE MIB 0.94%.

The VStoxx gauge of volatility for the Eurostoxx 50 meanwhile jumped 13.75% to 17.421.

America's Greenback, gold and oil futures all gained ground.

Automakers, expected to bear the brunt of tariffs, were all hit hard, with the Stoxx 600 sector gauge dropping 3.86%.

Over the weekend, Trump said he would hit the EU with tariffs, reheating old grievances about the bloc not importing enough US vehicles and agricultural products. He also called the trade deficit between the two economies "an atrocity". The 27-member EU has said it would retaliate if Trump follows through on his threats.

"Stocks slipped as investors reacted to Donald Trump's tariffs. It's less of a negotiating tactic than a sledgehammer," said TipRanks analyst Neil Wilson.

"The euro also skidded lower as markets don't think this is the end of things. The question is whether this is the beginning of a damaging trade war or something less sinister. It seems from the selling pressure that the market underestimated Trump - not for the first time."

"But whether this is resolved in short order or drags out and spirals is unknown. If the tariffs stay in place it would mean a significant redrawing of trade terms and currencies will need to adjust to reflect that."

In economic news, eurozone inflation was expected to hit 2.4% in January, up 0.1%, driven by a spike in energy prices, according to a flash estimate from the European Union.

Meanwhile, pressures on the single currency bloc's manufacturing sector eased last month but were still some way from recovery, the results of a widely-read survey showed.

The eurozone manufacturing purchasing managers index (PMI) came in at 46.6 in January rising from 45.1 in December - an eight-month high, S&P Global and Hamburg Commercial Bank (HCOB) said.

It also revealed that the sector's output index also hit an eight-month high, jumping to 47.1 in January from December's 44.3. Both readings are still well below the 50 mark that separates contraction from expansion.