European shares down for third week after tariff whiplash

By Medha Singh, Sukriti Gupta and Lisa Pauline Mattackal

(Reuters) -European stocks lost ground on Friday, with the STOXX 600 down for a third week, after a surge in volatility in response to abrupt U.S. tariff shifts that deepened fears over the economic impact of a trade war.

The pan-European STOXX 600 edged 0.1% lower, after China raised tariffs on U.S. goods to 125% from 84% in an escalation of the trade tensions between the world’s two largest economies.

The week has been one of the most volatile for financial markets in years as U.S. President Donald Trump first imposed, then paused some steep reciprocal tariffs on its trading partners, while hiking them on Chinese imports to 145%.

The STOXX 600 briefly hit a near 1-1/2-year low earlier this week, then surged on Thursday after the tariff pause, with both the benchmark and several regional indexes having their strongest session since 2022.

The STOXX 600 fell 1.8% on a weekly basis, its third straight week in the red.

"Markets don't really know what to expect right now and that's why they're playing it a little bit close to the vest, both in Europe and the U.S.," said Steve Sosnick, chief strategist, Interactive Brokers.

Regional indexes were mixed on the day, with trade-exposed Germany falling 1% and the UK's FTSE 100 up 0.6%.

The 90-day tariff pause shifts the focus to whether the U.S. will strike trade deals with individual countries. The EU held off on retaliatory levies, and trade commissioner Maros Sefcovic will hold talks with U.S. officials on Monday.

"The change in Trump's plans limits the hit especially in Europe and increases the chances of tariffs being used as a negotiation tool rather than a permanent source of income," analysts at Danske Bank said.

Despite global volatility, euro zone financial markets are functioning well amid global turbulence and the European Central Bank is attentive to the impact of the U.S. dollar's depreciation, ECB President Christine Lagarde said.

The ECB's policy meeting next Thursday, where money markets have fully priced in a quarter-point rate cut, will be closely watched for policymakers' views on how tariffs are impacting the economic outlook.

First-quarter results are also a big focus, with investors looking to see how tariff uncertainty will hit company earnings and forecasts.

The rate-sensitive real estate sector rose 2.1%, while the industrial goods and services index was the biggest sectoral decliner, down 1.3%.

Among individual stocks, Stellantis shares dropped 3.8% after the carmaker's first-quarter shipments were down 9% compared with last year.

Shares of BNP Paribas lost 2.4% after a report the ECB was opposed to it using a favourable capital treatment for its deal to buy French insurer AXA's asset management business.

(Reporting by Lisa Mattackal, Medha Singh and Sukriti Gupta in Bengaluru; Editing by Nivedita Bhattacharjee and Mrigank Dhaniwala)