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European shares slipped on Monday in response to the threat of US President Donald Trump of 30 percent rates on the EU, the last escalation of his trade war.
The Dax index of Germany fell by 0.9 percent in the early afternoon, while the CAC 40 from France fell by 0.5 percent. The broad Stoxx Europe 600, which includes non-EU markets as the UK, fell by 0.4 percent.
The movements came after Trump announced the planned taxes on Saturday and pushed the block to postpone the planned retribution rates for the US in the hope of becoming an agreement with Washington before the deadline of August 1.
Trump’s announcement marked the last one in a series of trading threats from the US government in the past week.
The new rate proposal of 30 percent is considerably higher than the level of 20 percent announced on “Liberation Day” in April. But the market reaction is limited, where some investors said they expect him to take a step back from his steepest threats before August 1.
“After a period of relief that rates would be manageable in the midst of many empty threats, some worries build that the market performance itself encourages Trump to push further,” said Guy Miller, main market strategist in Zurich.
“I think that is legitimate, with a high risk of disruption in the summer, albeit more modest and delivery than April.”
A Stoxx 600 Sub-Index-Tracking car manufacturers and other car companies fell 1.1 percent. Mercedes-Benz and BMW fell 1.7 percent and 2.2 percent respectively.
Luxury companies that sell in the US, as well. Hermes shares fell by 1.9 percent and barrier fell by 1.5 percent. Pandora fell 2.7 percent.
The euro fell 0.1 percent lower against the dollar.
US shares also fell when the market opened on Monday, but the decreases were more damped.
Wall Street’s Blue-Chip S&P 500 dropped 0.1 percent at the opening bell and the Nasdaq 100 opened flat.
Peter Schaffrik, Chief European Macro Strategist at RBC Capital Markets, said that the relatively muted market reaction was partly a bet that the threat of 30 percent is a negotiating tactics by Trump.
However, he added: “Personally, I am a bit more worried. We have been here earlier. If there is no negotiated scheme, I cannot see how the EU just takes it – so they will probably take revenge.”
Analysts say that a much larger sale is likely if the rates of 30 percent-Die Trump also threatened against Mexico on Saturday.
Barclays wrote that “if the US did indeed increase the rates on EU goods to 30 percent, the risk of retribution and a deeper recession would probably send shares with double digits”.
The Barclays remarks added that “we are skeptical rates that will settle at the high level that is threatened by Trump”. Goldman Sachs analysts also said that “skepticism about the opportunities and sustainability of potential implementation” is “well supported”.
