European stock markets record first monthly drop as US tariffs loom

European stock markets ended March in negative territory, marking their first monthly decline this year, as investors braced for the unveiling of Trump’s reciprocal tariffs alongside 25% import levies on automobiles. On the final trading day of March, the pan-European Stoxx 600 index dropped 1.51%, the DAX declined 1.33%, and the CAC 40 slid 1.58%. Over the month, the three major benchmarks lost 3.8%, 2.38%, and 4.09%, respectively.

Despite the setback, European equities have outperformed their US counterparts this year. Wall Street recorded its sharpest monthly decline since December 2022, as concerns mounted over the potential economic fallout from the widening scope of tariffs.

Trump to announce reciprocal tariffs on “Liberation Day”

Trump is set to announce reciprocal tariffs on Wednesday, branding it as America’s “Liberation Day.” The new tariffs will target “all countries,” he told reporters aboard Air Force One on Sunday. White House Press Secretary Karoline Leavitt confirmed on Monday that the tariffs would be “country-based” with “no exemptions.” She said Trump’s tariff plan would “roll back the unfair trade practices that have been ripping off out country for decades,” and hinted that the European Union, Japan, India, and Canada were likely to be among the targets, citing their higher import tariffs on US goods. The 25% tariffs on automobiles will also take effect the same day.

The US president has also suggested imposing tariffs on medical products, lumber, and semiconductors, with duties on copper expected to follow in the coming weeks. In February, Trump signed an executive order launching an investigation into copper imports, citing national security and economic stability concerns. In mid-March, he imposed 25% tariffs on steel and aluminium, following sweeping duties on imports from Mexico, Canada, and China.

European consumer stocks lead broad losses

The expansion of Trump’s tariffs is expected to hit several key European sectors, particularly luxury goods, automobiles, and healthcare. In March, consumer cyclical stocks were the biggest laggards in the Stoxx 600 index, falling 12%. The sector’s decline was largely driven by luxury stocks and automaker shares. LVMH and Hermès plunged 18% and 12%, respectively, last month. The automotive sector also suffered heavy losses in anticipation of the tariffs, with Mercedes-Benz down 9.3%, Volkswagen dropping 10%, BMW declining 12%, and Stellantis tumbling 17%.

Healthcare and technology stocks were among the biggest losers, partly due to Trump’s threats to impose tariffs on medical products and semiconductor chips. Novo Nordisk shares slumped 27% in March—their worst performance since 2022—following disappointing trial results for its next-generation weight-loss drugs and concerns over potential US tariffs. Additionally, the two largest European tech stocks, SAP and ASML, slumped 7.9% and 10.7% last month.

The euro posts its strongest monthly gain since 2022

In contrast, the euro recorded its strongest monthly performance against the US dollar since November 2022. The EUR/USD pair surged 4.25% in March, climbing from 1.04 to 1.08. Optimism over the European Union’s fiscal plans, including increased defence spending and Germany’s debt reform, contributed to the rally.

Meanwhile, the US dollar weakened amid growing concerns that Trump’s tariffs could dampen economic growth. Diverging government bond yields also reflected shifting market sentiment. Germany’s 10-year bund yield rose 29 basis points to 2.73%, while the US 10-year Treasury yield remained flat at a three-month low of 4.21%. Investors sought safety in US government bonds amid rising recession fears, while European government bonds were sold off, driving yields higher due to higher premium requirements in anticipation of increasing debt issuance.