LIVE MARKETS-European rally faces tariff reckoning

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EUROPEAN RALLY FACES TARIFF RECKONING

Fast money investors have been a key force behind this year's strong rally in Europe, and now that real money flows are starting to pour in, tariff risks are back to the fore.

This could keep volatility high and curb gains near term, say Barclays, pointing to the April 2 deadline by which reciprocal tariff rates in the U.S. are intended to take effect.

"A 'worst case' 25% blanket tariff, should it materialise, would indeed take away most of the growth expected this year in Europe," says strategist Emmanuel Cau at the UK bank.

"However, US goods exports are only c.12% of revenues for (the STOXX 600)... And, with tariff losers underperforming notably ytd, some of the risks are arguably priced in."

Despite the short-term risks, Cau is upbeat about the long-term as a landmark fiscal reform in Germany will likely boost the broader European growth for 2026 and beyond.

This could drive "more inflows/rotation", Cau notes.

As a result, Barclays has doubled its 2026 EPS growth forecast for the STOXX .STOXX to 8%, lifting the year-end target to 580 from 545 - a 4.7% upside to Tuesday's close.

(Danilo Masoni)

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