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U.S. tariffs are impacting Europe and China more severely than expected, with Barclays warning that the heightened duties could elevate recession risks. The average tariff on EU goods has reached 20%, double initial estimates, while cumulative tariffs on Chinese exports may hit 54%. This trade environment threatens corporate earnings, with Barclays projecting flat or slightly negative earnings growth for Europe in 2025, and sectors reliant on global trade, like autos and luxury, have already seen significant underperformance.
European stocks have experienced a surge in inflows, totaling $24 billion in early 2025, the highest since 2017, driven by attractive valuations and calls for increased military spending. However, analysts warn that potential tariff plans from the U.S. could trigger an economic slowdown, prompting recent investors to reconsider their positions. The euro's rise reflects growing optimism in Europe, despite concerns that tariffs could lead to inflation and stagnation.
U.S. President Donald Trump's upcoming tariff announcements are raising concerns about the global growth outlook, although analysts at Barclays believe the risks are largely priced into the market. The tariffs, targeting 15-25 countries, are set to take effect immediately, with negotiations expected to follow, prolonging uncertainty regarding their final scope and timing. Trump plans to impose duties on all automotive imports not made in the U.S., potentially excluding Mexico and Canada, which are integral to North American car manufacturing.
Trade anxiety surrounding President Trump's tariff plans is expected to limit stock market gains ahead of the April 2 deadline for new duties. Analysts at Barclays noted that while equities have shown signs of recovery, concerns over inflation and growth, exacerbated by the tariff situation, continue to weigh heavily on investor sentiment. The Federal Reserve's recent decision to maintain interest rates, coupled with a revised inflation forecast, adds to the uncertainty as markets brace for potential escalations in tariffs.
Barclays has raised its year-end target for the STOXX 600 index from 545 to 580 points, driven by Germany's approval of a €500 billion spending plan aimed at boosting long-term growth in Europe. Despite potential challenges from U.S. trade tariffs, the firm maintains an optimistic outlook for European equities, particularly in the Financials and Industrials sectors. Barclays also increased its earnings forecasts, reflecting confidence in the region's economic resilience amid evolving global trade dynamics.
Barclays has raised its earnings per share (EPS) forecast for Europe to 8% for 2026, up from 4%, and increased its Stoxx 600 price target to 580 from 545, citing positive long-term growth from German fiscal reforms. Despite risks from tariffs and U.S. growth, the bank maintains a below-consensus EPS forecast of 4% for 2025 and an unchanged P/E forecast of 14.5x for year-end 2025. Barclays remains optimistic about European equities, suggesting they may perform better than U.S. stocks amid potential downturns, while highlighting the impact of trade barriers and policy uncertainties.
Barclays strategists highlight a pivotal moment for the global economy, noting that U.S. growth is hindered by policy uncertainty, while European equities lead year-to-date performance. They caution that European market expectations may already be priced in, with potential risks from tariffs and recession fears. Despite this, a supportive earnings environment and favorable conditions for European equities compared to U.S. stocks and bonds are emphasized, alongside strategic adjustments in U.S. consumer exposure.
Barclays identifies three key factors shaping the stock market in 2025: Trump's economic policies, interest rates, and AI advancements. Trump's potential return to power may introduce volatility, while rising interest rates could impact equity valuations, particularly for rate-sensitive stocks. Additionally, AI investments, especially in the US, raise concerns about a valuation bubble amid strong performance driven by Big Tech, which remains crucial for market stability.
Barclays strategists indicate that the potential for trade tariffs linked to a Donald Trump election victory has already been factored into the stock prices of major European exporters. They warn that a full-scale trade war could lead to a significant decline in earnings per share growth for these companies.
Emmanuel Cau
People
The information provided herein is generated by experimental artificial intelligence and is for informational purposes only.
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