European markets were broadly lower Friday, rounding off a volatile week marked by whipsawing policy on U.S. tariffs, the latest rate cut from the European Central Bank, German fiscal reforms and a regional defense spending boost.
The regional Stoxx 600 index was down 0.65% at 10:20 a.m. U.K. time, with retail and household goods stocks tumbling.
Luxury stocks were among the worst performers, with Richemont and Burberry both down by around 5% as the Stoxx Europe Luxury 10 index dropped 2.3%. The sector is expected to face challenges from U.S. import tariff hikes if the impact dampens U.S. consumer demand and leads to a rise in prices.
The Stoxx 600 has jumped between losses and gains this week amid unfolding geopolitical developments and corporate earnings. The benchmark is currently on course for a weekly loss, which would be its first of the year.
U.S. President Donald Trump on Thursday granted temporary tariff exemptions for around 50% of Mexican imports and 38% of Canadian imports until April 2. The move came a day after Trump granted a one-month tariff exemption for automakers, expected to be one of the most affected sectors; and just two days after sweeping new duties came into effect.
In Europe, market watchers are continuing to unpack the ECB’s latest quarter-point rate cut, inflation and growth projections, and messaging.
The euro area’s central bank said monetary policy was becoming “meaningfully less restrictive,” suggesting it may exercise more caution across its next meetings after enacting six cuts since last June. ECB staff macroeconomic projections raised their headline inflation forecast for 2025 to 2.3% from 2.1%, while downgrading their growth forecast to 0.9% from 1.1%.
“While forecasts still show clear direction, [ECB] communication doesn’t,” analysts at Bank of America Global Research said Thursday.
Also continuing to sway markets this week has been expectations of higher defense spending across Europe, with the Stoxx Aerospace and Defence Index up another 9% this week, its best performance for nearly five years.
The U.K. held multilateral talks last week focused on defense spending and allied Ukraine support, while European Union leaders on Thursday met in Brussels to agree to higher defense spending across the bloc, despite the opposition of Hungary.
German stocks have meanwhile broadly rallied on hopes of stronger economic growth and more spending on both defense and infrastructure after leading politicians stuck a “historic” deal on fiscal reform.