Donald Trump's threat of a 50 per cent tariff on European goods caused European stocks to plunge by two per cent last week, although they have still delivered high returns this year, according to PFA chief strategist, Tina Choi Danielsen.

She noted that while European stocks have so far "come through" the market turmoil since Trump announced a raft of potential tariffs on 2 April, that picture was “challenged” last week when he threatened a possible 50 per cent tariff on all goods from the EU.

Consequently, the European Stoxx600 stock index briefly fell by 2 per cent.

Although the tariff rate was initially supposed to apply from 1 June, it has now been postponed to 9 July.

Choi Danielsen warned that the possibility of a tariff war was “bad news” for European stock prices and small and large exporters."

However, the European Stoxx600 stock index is still positive and has increased 9.5 per cent for the year.

By comparison, the American S&P 500 stock index has fallen by 1.3 per cent.
Danielson claimed that, having learned from experience, the 50 per cent tariff rate should primarily be seen as a threat to boost the negotiations and that the negotiated result will probably be more lenient.

She also pointed out that Trump's tariff weapons have limited power towards Europe, as many large European companies have production in the USA.

Therefore, she said she would not be surprised if Trump began using other, more tactically refined methods at some point.

Danielson confirmed that, due to the current unrest, the PFA had reduced its equity risk and increased its protection against dollar declines.

She added that this has so far been an advantage for PFA's customers, as it has reduced the loss of returns caused by the dollar's weakening by 8.7 per cent against the krone this year.

---