Europe close: Stocks take huge dive as tariff fears resurface

(Sharecast News) - European stocks dropped sharply in late-afternoon trade on Friday as geopolitical tensions between the US and China escalated dramatically, with all markets across the continent registering steep losses by the close. In a post on Truth Social, president Donald Trump once again threatened to hike tariffs and impose export restrictions on China, calling off a scheduled meeting with counterpart Xi Jinping following China's newly announced export controls on rare-earth materials.

"Dependent on what China says about the hostile 'order' that they have just put out, I will be forced, as President of the United States of America, to financially counter their move," Trump said.

After treading water for most of the session, the pan-European Stoxx 600 benchmark finished down 1.3% at 564.16, with losses of 1.5% or more seen in Frankfurt, Paris and Milan.

Sentiment had already been cautious across global financial markets given rising concerns about sky-high valuations following the recent rally, which sent indices such as the FTSE 100, DAX, S&P 500 and Nasdaq to record highs this week.

In economic data, Italian industrial output slumped by 2.4% in August, the country's National Institute of Statistics reported, following a 0.4% gain in July. This was the biggest monthly decline since December and much worse than the 0.4% decline expected by analysts.

Market movers

Stellantis and Volkswagen, which were both trading higher after the auto manufacturers reported increases in vehicle shipments in the third quarter, dropped into the red by the close on the back of heightened concerns about tariffs. Mercedes, Daimler Truck and Volvo also finished lower.

Jyske Bank was performing well, extending gains the previous session after the Danish lender upgraded its profit forecast for 2025 due to favourable market conditions and a strong performance in asset management.

Defence names like Hensoldt, Renk, Leonardo, Babcock, QinetiQ, Rolls-Royce, Thales and Rheinmetall were all weaker as geopolitical risk premiums eased following the Israel-Hamas peace deal.

"While Israeli airstrikes continued in the hours before the vote, the announcement marked the most concrete step yet toward ending the two-year conflict. The prospect of reduced tensions has already weighed on oil and defence shares, though for traders it is worthwhile remaining cautious given the fragility of previous peace efforts," said Joshua Mahony, chief market analyst at Scope Markets.