European markets slipped into the red on Tuesday as investors weighed a new round of U.S.-China trade tensions, weak corporate guidance from major European companies, and mounting signs of slowing global growth.
The pan-European Stoxx 600 index fell 0.8%, extending losses across nearly all major sectors. The downturn came just a day after optimism around Chinese stimulus had lifted sentiment, underscoring how fragile the current risk environment remains.
The sell-off was triggered after U.S. President Donald Trump threatened to impose new tariffs on Chinese goods in response to Beijing’s export curbs on rare earth minerals — elements essential for the production of high-tech equipment, electric vehicles, and defense systems.
Though Trump later softened his stance, saying trade ties “will all be fine,” investors were quick to recall the economic shockwaves from the 2018–2019 trade war that rattled global supply chains and slowed manufacturing output worldwide.
“Markets are reacting less to the rhetoric and more to the underlying risks,” said Anna Kline, chief global strategist at Horizon Asset Management. “China’s control of 70% of rare earth supplies gives it significant leverage at a time when global demand for high-tech materials is surging.”
Sectoral Impact: Tariff Fears Hammer Resources, Defense
The Stoxx Basic Resources index led sectoral declines, dropping 2.2%, as renewed fears of supply disruption hit miners and commodity exporters.
Michelin shares plunged nearly 10% after the French tire giant cut its full-year outlook, blaming deteriorating global business conditions, weaker North American sales, and currency headwinds from a softening U.S. dollar. Deutsche Bank responded by trimming its target price for the company by 16%, saying the downgrade was “more severe than anticipated.”
Meanwhile, defense manufacturers also came under pressure. The Stoxx Europe Aerospace and Defense index dropped 1.5%, with Germany’s Renk, Italy’s Leonardo, and Sweden’s Saab all down over 1.7%. Analysts cited the growing risk of supply chain bottlenecks tied to the rare earth minerals used in advanced defense systems, including missiles, fighter jets, and radar components.
Corporate Divergence: Ericsson Surges, BP Warns
Amid the broader downturn, Ericsson provided a rare bright spot. Shares of the Swedish telecom giant surged 13.4% after reporting Q3 net income up 191% year-on-year to 11.3 billion Swedish kronor ($1.2 billion). The company credited “strong operational execution” and solid growth in its Cloud Software and Services division.
In contrast, BP declined 1.5% after announcing it expects up to $500 million in impairment charges tied to asset writedowns in the third quarter, reflecting ongoing weakness in refining margins.
Policy Outlook: IMF and Global Institutions on Watch
Investors are turning their attention to IMF and World Bank annual meetings in Washington, where policymakers are expected to address global trade imbalances, inflation risks, and slowing industrial activity.
The IMF’s World Economic Outlook, set for release Tuesday, is anticipated to warn of persistent structural weaknesses across advanced economies, sluggish productivity, and renewed fragmentation of global trade systems.
The British pound also came under pressure, dropping 0.5% against both the U.S. dollar and the euro after U.K. data showed unemployment rising to 4.8%, above expectations.
“Europe is facing a double bind,” said Marc Delaney, senior economist at CapitalBridge Research. “On one hand, monetary policy is constrained by inflation; on the other, fiscal policy is tightening. Renewed trade disputes could erode the fragile recovery that began in early 2024.”
Outlook: Fragile Stability Ahead
While recent optimism over China’s domestic stimulus offered short-term relief, the reemergence of geopolitical risk threatens to overshadow gains in global equities. Analysts say further escalation between Washington and Beijing could pressure commodities, industrials, and export-heavy economies across Europe.
With corporate earnings season underway and policy risks mounting, markets may remain volatile into the final quarter of 2025.
