3rd Feb 2025 16:55
(Alliance News) - European stocks closed down sharply on Monday, although above early lows, as a delay to tariffs with Mexico sparked hopes that a global trade war could be averted.
The FTSE 100 index closed down 90.40 points, 1.0%, at 8,583.56. It had traded as low as 8520.20.
The FTSE 250 ended down 238.72 points, 1.1%, at 20,711.76, and the AIM All-Share closed down 6.00 points, 0.8%, at 712.13.
The Cboe UK 100 ended down 1.3% at 858.93, the Cboe UK 250 closed down 1.3% at 18,086.50, and the Cboe Small Companies ended down 2.7% at 15,503.16.
On Saturday, Donald Trump's administration signed executive orders to impose an additional 25% tariff on most imports from Canada and Mexico, as well as an additional 10% duty on all imports from China, citing a national emergency over "the extraordinary threat posed by illegal aliens and drugs."
Trump reiterated he will "definitely" hike tariffs on European Union goods "very soon", citing the "tremendous deficit" with the EU.
His approach to the UK was less certain with Trump stating: "I think that one can be worked out," noting Prime Minister Keir Starmer has been "very nice".
Kallum Pickering at Peel Hunt said the sudden unveiling of huge tariffs seems to contradict the hope in markets that the US may adopt a gradual approach.
"This weekend’s news could thus seriously jar risk markets in the days ahead," he suggested.
"Trump is a wildcard. His decision to ‘go big’ early with Mexico and Canada may be part of a strategy to try to frighten his neighbours’ leaders into coming to terms quickly to end the pain."
Pickering thinks the decision to impose tariffs is "misguided" and "risks serious harm" to the US and global economy.
"Tariffs are anti-growth and challenge the hope that the US could lead other advanced economies down the path of pro-growth regulatory reform and a more competitive tax environment," he added.
But on Monday afternoon London time, Trump backtracked on the plans for Mexico, at least for now.
The US President confirmed that Washington has agreed to halt plans for tariffs on Mexico for a month, following talks with its President, Claudia Sheinbaum.
He said the discussion was "very friendly," adding in a social media post that "we further agreed to immediately pause the anticipated tariffs for a one month period during which we will have negotiations."
The news saw equity markets in London, Europe and New York pull away from early worst levels.
On London's FTSE 100, losses were broad-based.
Scottish Mortgage Investment Trust, which invests in the top US tech names, fell 4.1%, Diageo which makes tequila in Mexico eased 3.1%, although well above early lows, and JD Sports, which expanded into the US last year with the acquisition of Hibbett shed 4.7%.
Miners Antofagasta and Anglo American fell 2.6% and 1.9% respectively on concerns of slower economic growth.
In European equities on Monday, the CAC 40 in Paris ended down 1.2%, while the DAX 40 in Frankfurt ended 1.4% lower.
Car makers were especially hit in Europe. In Frankfurt, BMW fell 2.4%, VW slid 4.1%. In Paris, Stellantis was down 4.5%.
Stocks in New York were lower at the London equities close, with the DJIA down 0.1%, the S&P 500 index 0.6% lower, and the Nasdaq Composite 1.0% worse off.
Goldman Sachs thinks US equity markets could prove more vulnerable to the tariff imposition.
US growth expectations are already high and the market appears to have priced little risk of downside from tariffs, the investment bank said.
"While the direct impact on US growth from the announced tariffs is still quite modest, the risk is that these policy shifts amplify concerns about future trade policy risks and potential retaliation. The actions may also challenge the market’s confidence that the administration will avoid policies that push growth lower or inflation higher," Goldman commented.
In tariff free January, confidence among US manufacturers surged as the sector expanded on the belief that business conditions would improve under the new administration.
The seasonally adjusted S&P Global US manufacturing purchasing managers' index rose to 51.2, beating the FXStreet consensus for a reading of 50.1. It moved back above the 50.0 no-change mark for the first time in seven months, up from 49.4 in December.
Output and new orders returned to growth in January, and optimism for the year-ahead outlook for production hit a 34-month high.
Forex markets were volatile with sterling recouping early losses to trade little changed against the greenback.
Separate data from the Institute for Supply Management showed the manufacturing sector expanded after 26 consecutive months of contraction.
The ISM's manufacturing PMI hit 50.9 in January, from 49.2 in December.
The New Orders Index expanded for the third month after seven months of contraction, reaching 55.1, from 52.1 in December. The Production Index rose to 52.5 from 49.9 and the Prices Index continued to rise to 54.9 from 52.5. The Employment Index climbed to 50.3 from 45.4.
The pound was quoted lower at USD1.2414 at the London equities close Monday, compared to USD1.2429 at the close on Friday. It had earlier traded as low as USD1.2246.
The euro stood at USD1.0307 at the European equities close Monday, lower against USD1.0393 at the same time on Friday.
Against the yen, the dollar was trading lower at JPY154.61 compared to JPY154.85 late on Friday.
Stephen Innes at SPI Asset Management said: "Volatility is cranking higher, and with markets now headline-driven, every whisper out of Washington will have traders on edge," he added.
In London, the manufacturing economy remained in decline in January, numbers showed, while post-budget worries hurt new business.
It was the fourth successive fall for the sector, though the pace of decline eased in January.
The S&P Global manufacturing purchasing managers' index rose to 48.3 in January, from 47.0 in December. Moving closer to the 50 point mark, the figure suggested the speed of decline abated. The figure was a hair above the 48.2 flash reading.
Speedy Hire shed 28%. It said annual profit will be lower than expected, as its final quarter has got off to a slow start. In a trading update for the 10 months to January 31, the tools and equipment hire services provider said positive momentum ahead of its fourth-quarter was sapped by "the widely reported economic downturn".
Ultimate Products declined 16%. It warned full-year earnings would be lower than expected.
The Manchester, England-based owner of homeware brands including Salter and Beldray now expects adjusted earnings before interest, tax, depreciation and amortisation for the financial year ending July 31 to be between GBP14 million to GBP16 million, below the company compiled market consensus of GBP20.6 million.
It blamed a drop in sales of air fryers and higher freight charges, plus the looming extra national insurance costs for insurers.
Brent oil was quoted at USD75.65 a barrel at the London equities close Monday, down from USD75.92 late Friday.
Gold was quoted higher at USD2,819.29 an ounce at the London equities close Friday against USD2,793.57 at the close on Thursday.
Tuesday's UK corporate calendar sees half-year results from Guinness owner Diageo, a trading statement from telecommunications firm Vodafone and full-year results from housebuilder Crest Nicholson.
The economic calendar for Tuesday has US factory order data at 1500 GMT.
By Jeremy Cutler, Alliance News reporter
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