EUROPE MARKETS: European Stocks Fall As Trump Threatens China With Tariffs On All $500 Billion In Goods To U.S.

By Carla Mozee, MarketWatch

European autos index marks worst session in three weeks

European stocks fell Friday, with auto shares among those that lost ground as U.S. President Donald Trump threatened a significant expansion in tariffs on Chinese imports, underscoring concerns that a global trade war will crimp global economic growth and corporate profits.

How markets moved

On national indexes, Germany's DAX 30 index slumped 1% to end at 12,561.42, hurt in part by auto makers. France's CAC 40 fell 0.4% to 5,398.32. The U.K.'s FTSE 100 index turned lower, finishing down by 0.1% at 7,678.79.

Italy's FTSE MIB lost 0.4% to 21,794.60, shaken in part as Italian newspaper Corriere della Sera reported that Claudio Borghi, the budget-committee chief in the country's parliament, said Italy would exit the euro sooner or later.

In Madrid, the IBEX 35 reversed course and ended up by 3.70 points at 9,724.80.

Overall, the Stoxx Europe 600 index fell 0.2% to end at 385.62 as the basic materials group put in the worst performance. But health care and consumer goods stocks led advancers. The index on Thursday fell 0.2% (http://www.marketwatch.com/story/european-stocks-drop-from-1-month-high-as-miners-slide-2018-07-19). For the week, the index rose by 0.2%, enough for a third consecutive weekly gain.

The euro traded at $1.1707, up from $1.1644 late Thursday in New York.

What drove the market

European stocks extended losses after Trump, in an interview with CNBC (https://www.cnbc.com/2018/07/19/trump-says-hes-ready-to-put-tariffs-on-all-505-billion-of-chinese-.html), said he's "ready" to put tariffs on all Chinese goods imported to the U.S., which would amount to more than $500 billion. Trump had previously said he's looking at targeting $200 billion in Chinese imports, and that would be on top of tariffs already in effect against the world's second-largest economy, to which China has responded in kind.

Trump continued to hammer China and the EU in a tweet on Friday:

(https://twitter.com/realDonaldTrump/status/1020287981020729344)

Trump on Friday accused China of manipulating its currency, as a weaker yuan makes Chinese products cheaper for customers to purchase. The yuan fell by the most in two years after the People's Bank of China on Thursday guided the Chinese currency 0.9% lower by setting the dollar's reference rate at 6.7671 yuan.

Trump's latest comments come after Thursday's threat of "tremendous retribution (http://www.marketwatch.com/story/trump-threatens-eu-with-tremendous-retribution-via-auto-tariffs-2018-07-19)" against the European Union as he stood by a pledge to levy tariffs on automobile imports. On Friday, the Stoxx Europe 600 Autos & Parts Index slid 2.1%, its worst session since June 28, FactSet data showed.

The EU has prepared measures to counter the proposed tariffs. European Commission President Jean-Claude Juncker will be in Washington on July 25 to discuss trade with Trump. Auto industry representatives at a U.S. Commerce Department hearing Thursday warned of the harm that auto tariffs will inflict on the industry.

See: Trade tariffs mean companies will spend less on growing their business in 2019, says Fitch (http://www.marketwatch.com/story/trade-tariffs-mean-companies-will-spend-less-on-growing-their-business-in-2019-says-fitch-2018-07-19)

What are strategists saying?

Trump's "bellicose comment" about more tariffs on Chinese goods "turned a previously somnolent session into another red-soaked mess, with the markets taking a dive almost immediately after the interview went out," said Connor Campbell, financial analyst at Spreadex, in a note.

"Interestingly the forex markets were completely placid. Normally one would expect the dollar to act as something of a safe haven following a trade war flare-up. Yet Trump undermined the currency's recent super strength by attacking the Federal Reserve and its interest-rate plans, meaning investors might not feel quite as comfortable cosying up to the greenback this Friday," he said.

Stocks in focus

In the auto group, shares of Volkswagen AG (VOW.XE) fell 2.3%, Daimler AG (DAI.XE) slumped 2.4%, Peugeot SA (UG.FR) declined 2.4%, and Fiat Chrysler Automobiles NV (FCA.MI) gave up 2.3%.

Stora Enso Oyj shares (STERV.HE) tumbled 13.5% as the Finnish paper and cardboard maker's second-quarter operational earnings before interest and tax jumped 49% to EUR327 million, which fell short of a EUR349 million FactSet consensus estimate.

Saab AB (SAAB-B.SK) jumped 7.5% after the Swedish aerospace and defense company backed its guidance and said demand has remained strong (http://www.marketwatch.com/story/saab-profit-slides-on-fx-hit-still-backs-guidance-2018-07-20). Saab did post a 28% drop in second-quarter net profit, hurt by currency losses.

Beazley PLC (BEZ.LN) dropped 1.5%, but ended off session lows, after the specialist insurer said its first-half profit was hit by lower investment returns (http://www.marketwatch.com/story/beazley-shares-fall-after-lower-returns-hit-profit-2018-07-20) and rising insurance claims after series of natural disasters in 2017.

Remy Cointreau SA (RCO.FR) rose 2.8% as the French maker of Remy Martin cognac, Mount Gay rum and other spirits said fiscal first-quarter sales rose 5.9% (http://www.marketwatch.com/story/remy-cointreau-sales-rise-backs-outlook-2018-07-20) despite unfavorable currency effects.

(END) Dow Jones Newswires

July 20, 2018 13:09 ET (17:09 GMT)

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