European markets plunge amid Trump's trade war concerns

The pan-European STOXX 600 index fell by 5.8% on April 7, showing a drop for the fourth consecutive session and approaching the sharpest one-day decline since the start of the COVID-19 pandemic.

Germany's trade-sensitive index posted a 6.1% drop, and it is among the hardest-hit markets in the eurozone.

Over the weekend, Trump told reporters that investors would have to take their medicine and that he would not make a deal with China until the US trade deficit was resolved, triggering a new wave of selling in Asian markets.

“There was some hope over the weekend that maybe we would see the start of a negotiation, but the messages that we've so far seen suggest that President Trump is comfortable with the market reaction and that he's going to continue on this course,” said Richard Flax, chief investment officer at Moneyfarm.

EU countermeasures

European Union countries are weighing approval of the first set of targeted countermeasures on US imports worth up to $28 billion in the coming days. The 27-nation bloc is facing 25% import duties on steel, aluminum, and automobiles, and “reciprocal” duties of 20% on almost all other goods starting April 9.

The European Central Bank estimates that the comprehensive US tariff will reduce eurozone growth by 0.3 percentage points in the first year. EU counter-tariffs on the US would increase the damage to 0.5 percentage points.

As the economic outlook has deteriorated, investors have increased their bets on interest rate cuts by the ECB and the US Federal Reserve.

The pan-European STOXX 600 index is about 17% lower than its all-time high reached in March, before concerns about the economic impact of Trump's trade policy derailed the global market rally.

On April 2, US President Donald Trump announced the introduction of new duties of 10% on imports from all countries and separate high tariffs for the EU and China. This led to a collapse in financial markets.