European Markets to Rebound Despite Intensifying Global Trade War

European equities were set for a positive open on Tuesday, recovering from a bruising four-day losing streak driven by mounting tariff tensions between the U.S., China, and the EU. Markets across the continent are attempting to stabilize after a widespread sell-off, even as geopolitical and trade uncertainties continue to dominate investor sentiment.

Monday Meltdown: Stoxx 600 Hits 15-Month Low

On Monday, the pan-European Stoxx 600 index plunged 4.5%, its lowest close since January 2024. The rout was part of a broader global equity decline, with steep drops recorded in:

• FTSE 100 (UK)

• DAX (Germany)

• CAC 40 (France)

The sharp fall reflected growing investor alarm over the rapid escalation in tariff threats, particularly those involving the U.S. and its trading partners.

Trump Escalates, China Strikes Back

The White House added fuel to the fire on Monday after denying rumors of a potential 90-day tariff pause, which had briefly lifted investor hopes.

Instead, President Donald Trump doubled down, warning he would impose an additional 50% tariff on Chinese goods unless Beijing removed its current retaliatory tariffs on U.S. imports.

In a direct response, China’s Commerce Ministry denounced Trump’s comments as “blackmail”, promising to “fight to the end” and threatening countermeasures to defend its economic interests.

This follows China’s imposition of a 34% tariff on U.S. goods last week, a retaliatory step against Trump’s reciprocal tariff strategy, which continues to roil international markets.

Asia Shows Resilience Despite Trade Fears

Interestingly, Asia-Pacific markets rebounded on Tuesday morning despite the gloomy outlook. Investors in the region shrugged off the trade saber-rattling, recovering some of the losses from the previous session.

Gains in China’s Shanghai Composite and Hong Kong’s Hang Seng pointed to tentative optimism, possibly buoyed by expectations of domestic stimulus or central bank support to cushion trade war effects.

EU Offers Zero-Tariff Deal — Rejected by Trump

In a key diplomatic development, European Commission President Ursula von der Leyen said on Monday that the European Union had offered the U.S. a 'zero-for-zero' tariffs deal on industrial goods, a gesture aimed at defusing transatlantic trade tensions.

However, President Trump rejected the offer outright, a move that further strained U.S.-EU relations and raised fears of retaliatory action from Brussels.

Von der Leyen reaffirmed that while the EU is ready to negotiate, it also stands fully prepared to impose countermeasures if the U.S. moves forward with tariffs on European exports.

Global Sentiment: Volatile, but Watchful

As it stands, market sentiment remains volatile and heavily reactive to headlines. Investors are trying to balance short-term trading opportunities with long-term risks, especially those stemming from:

• Trade policy uncertainty

• Monetary policy implications from inflation data

• Global growth concerns

U.S. futures were trading higher early Tuesday, as tech stocks led a minor rebound overnight, helping partially reverse three days of losses on Wall Street.

What to Watch Next:

1. Will the U.S. reconsider its tariff trajectory?

   • The global backlash is intensifying.

   • Will diplomacy prevail, or is escalation inevitable?

2. How will China retaliate?

   • Beijing’s tone has hardened.

   • Counter-tariffs could hit American multinationals hard.

3. What role will the EU play?

   • Europe is walking a fine line between negotiation and retaliation.

   • Brussels may soon announce its own response if talks collapse.

4. What will inflation data reveal?

   • If inflation remains elevated, central banks may delay easing.

   • That could further pressure markets already hit by trade risks.

Bottom Line: Volatility Is the New Normal

Despite the bounce expected at Tuesday’s open, European markets remain deeply fragile, caught in the crossfire of a global trade war. Any gains may be short-lived unless there’s a clear resolution or breakthrough in negotiations.

For now, traders will likely remain nimble, watching every statement from Washington, Beijing, and Brussels, with one eye on the data and another on the diplomacy.

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