On February 3, 2025, global stock markets took a steep nosedive following the announcement of new tariffs by President Donald Trump affecting key trade partners. The U.S. government imposed tariffs of 25% on imports from Canada and Mexico, alongside a 10% tariff on goods from China, prompting immediate concerns about retaliatory actions and the potential for trade wars.
According to reports from Teleborsa, the immediate fallout was felt strongly across major European indices, with the FTSE MIB losing over 1%. Financial analysts highlighted the uncertainty surrounding these new trade policies as likely to fuel market volatility. Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, stated, "These tariffs are expected to present considerable obstacles for the markets, contributing to volatility until investors gain clearer insights on the U.S. trade policy direction."
European stocks opened the week with significant losses, as indicated by the Eurostoxx index, which fell by approximately 1.7%. The DAX index from Frankfurt declined by 1.6%, and the FTSE index from London opened down by 1.28%. These declines were not isolated to Europe; the Asian markets also reflected distress, with Tokyo’s Nikkei index down by 2.66%, reporting over 1000 points lost.
The ripple effects extended to Bitcoin and other cryptocurrencies, with Bitcoin dropping 6% to $94,160 after briefly surpassing the $100,000 mark just the previous week. Teleborsa also noted substantial losses for Ethereum, which plummeted by 26% during Asian trading hours.
Back on the European front, Piazza Affari, the Italian stock market, was hit hard, with many stocks suffering poor performance. Stellantis, the automotive giant, saw one of the most dramatic drops, losing 5.99%, alongside Pirelli, which dropped 5.60%. Conversely, only Generali and Enel managed minor gains, with increases of 0.59% and 0.26% respectively, indicating the overall negative climate.
Market experts are wary about the upcoming earnings reports from major companies, which include Alphabet and Amazon, as well as various European banks. Investors are particularly focused on how the financial sector will respond to these new tariffs. The focus is also on Eni, the Italian oil and gas company, with its earnings report set for February 26.
The notable spread between Italian BTPs and German Bunds is another sign of market sentiment, with the spread reaching 113 basis points. Investors are reacting to the economic climate with caution, especially with the euro depreciated to $1.025, its lowest level since November 2022.
Businesses worldwide are bracing for the impact these tariffs may have, especially as Canada and Mexico have pledged to respond with counter-measures, and China has indicated plans to challenge the tariffs through the World Trade Organization. This uncertainty looms large, as Trump asserts the need for these tariffs to combat immigration and the drug trade.
Despite these challenging market conditions, some stocks, such as Generali, reported positive movements, gaining nearly 1%, reflecting selective investor optimism amid widespread losses. Meanwhile, the financial sector remains under scrutiny, with major banks like Unicredit announcing substantial equity holdings, which they describe as financial investments rather than strategic maneuvers.
Overall, February 3 has become indicative of growing tensions not only between the U.S. and its trading partners but also within the market itself, as investors react to potential escalation scenarios. On the day's trading floor, analysts are urging caution and vigilance as the economic and political landscapes continue to shift rapidly.
The turmoil reflects larger economic undercurrents struggling against the backdrop of inflation concerns and market volatility, setting the stage for Monday's trading to potentially reshape expectations moving forward. The response from investor sentiment remains to be seen as companies navigate these turbulent waters.
With the current state of affairs, it remains unclear how long the ripple effects of Trump's tariffs will last, and what new developments may arise from forthcoming cabinet meetings to discuss trade policies with leaders from Canada and Mexico. Until clarity returns to the U.S. trade agenda, global markets will likely remain jittery.