Europe close: Markets finish red after unexpected Trump tariff move

Stocks in Europe were in the red as they closed on Friday, after investors spent much of the session digesting the latest surprise tariff announcement, issued overnight at the hands of US president Donald Trump.

The pan-European Stoxx 600 finished down 2.38% at 378.46, while Frankfurt’s DAX was off 2.92% at 11,895.79, and the CAC 40 in Paris lost 3.34% to 5,372.05.

In Madrid, the IBEX 35 was 1.38% weaker at 8,904.30,a Italy’s FTSE MIB was 2.41% below the waterline at 21,046.86, while closer to home, the FTSE 100 was down 2.34% at 7,407.06.

On the currency front, the euro was last XXXXX 0.3% stronger on sterling at €1.0912, while on the dollar it moved 0.2% weaker to €0.9003.

Donald Trump surprised markets overnight, by announcing that his administration was slapping a 10% tariff on another $300bn of Chinese goods, starting 1 September.

In response to the shock punitive move, the foreign ministry in Beijing said that the country was not looking for a trade war, but added it was not afraid to fight one.

The move was unexpected, given the two countries ended their latest round of trade talks earlier in the week, with another round planned in Washington in early September.

It also went against the ceasefire agreed between Trump and his Chinese counterpart Xi Jinping at the G20 summit in Japan in June.

“Talks between the US and China will continue in September, but there is no apparent willpower to resolve the yearlong trade dispute,” said London Capital Group senior market analyst Ipek Ozkardeskaya.

“Trump threatens to ‘tax the hell out of China’ and to raise the tariffs to 25% if there is no progress in talks.”

Ozkardeskaya said those attacks could make it gradually harder to find a common ground between the two countries.

“China’s Wang Yi said that this is not a way to resolve frictions.

“The risk is that the US’ rising pressure on China could backlash and compromise the future of negotiations.”

On a more positive note, according to the Department of Labor, US non-farm payrolls increased by 164,000 in July, which was in-line with the 160,000 gain that analysts had pencilled in.

Back in Europe, eurozone retail sales came in better than expected as well, growing by 2.6% year-on-year in June, compared to the 1.3% expected by analysts.

It was also a significant jump from the 1% year-on-year growth reported in May.

In corporate news, RBS was down 6.54% by the close, after it announced a second special dividend, but warned of tough times ahead as the interest rate curve shifts lower and due to Brexit.

The majority state-owned lender said it would pay a special dividend of 12.0p, on top of the ordinary interim payout 2.0p.

However, in remarks to Bloomberg TV, the lender's finance chief, Katie Murray, said the less favourable environment would make it harder for the lender to hit its profitability targets, adding that management was focussed on what it could control, namely on continuing to lend and keeping a lid on costs.

Interim operating profits at British Airways, Iberia and Aer Lingus owner IAG fell to €1bn from €1.1bn as passenger revenue rose to €10.6bn from €9.9bn a year earlier.

Fuel unit costs for the second quarter rose 12.4% or 6.3% on a constant currency basis.

The company said it expected 2019 operating profit before exceptional items to be in line with 2018 proforma at current fuel prices and exchange rates.

Its shares were ahead 8.39% by the end of trading.

On the continent, automotive parts suppliers were among the hardest hit by the China tariffs announcement, with Faurecia - which builds seats for China’s largest electric car producer BYD - finishing down 6.04%.

Its peer Valeo, meanwhile, was 6.79% weaker.