Europe close: Auto stocks drag markets lower on trade war fears

European stocks fell across the board on Tuesday as ongoing concerns surrounding potential US trade tariffs clouded prospects for international companies, particularly those in the auto sector.

"Donald Trump's tariff threats as an early Thanksgiving present to his base have put a dampener on global stock markets", says Axel Rudolph, senior technical analyst at trading platform IG.

The pan-European Stoxx 600 index finished 0.6% lower at 505.90 after three days of gains, with all major markets across the continent finishing firmly in the red.

With very little on the economic data calendar for Tuesday, market participants were focusing on comments by US president-elect Donald Trump, who promised to institute new tariffs on China, Mexico and Canada from the first day of his presidency which he claims is part of an effort to stop illegal immigration and drug smuggling.

While European nations were not mentioned in Trump's initial list, there are still fears that he could take aim at the continent – and in particular its auto makers – in a bid to improve America's manufacturing competitiveness.

European Central Bank’s vice president Luis de Guindos warned that a trade war "would be a lose-lose situation for everyone" because of the inflationary impact of tariffs on worldwide trade.

“When you impose tariffs, you need to be prepared for the other side to retaliate, which can start a vicious circle. Eventually, this could turn into a trade war, which would be extremely detrimental to the world economy,” he said in an interview with Finland's Helsingin Sanomat newspaper.

Market movers

Shares in European car manufacturers Stellantis, Volvo, Volkswagen, BMW and Daimler Truck were all down on the back of trade war concerns, along with car parts makers Valeo and Continental. Beverages giant Diageo, which makes its tequila in Mexico, was also out of favour.

Melrose Industries surged as JPMorgan Cazenove hiked its price target on the shares to 850p from 650p and placed them on "positive catalyst watch" ahead of full-year results in March.

Shares in Swiss duty-free retailer Avolta fell after Barclays downgraded the stock to 'underweight' from 'overweight', while Swedish energy-efficiency solutions group Nibe Industrier was lowered from 'underweight' from 'equal weight' by Morgan Stanley.