LIVE MARKETS-Europe's new tariff fight

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

EUROPE'S NEW TARIFF FIGHT

Trump's renewed tariff threats have triggered a sharp pushback in Europe, with the reaction reminiscent of the volatility after so-called "Liberation Day" last April, albeit less severe.

Strategists believe this tariff threat is fundamentally different in nature to those from 2025, as they are explicitly not intended to rebalance trading relations between the U.S. and European countries, but at supporting territorial ambitions of the United States.

The latest developments dent the near-term investment case for European equities and cast doubt on a broad-based EPS inflection by end‑2026, Citigroup said, while downgrading the asset class to "neutral".

Goldman Sachs and Citi said the tariff threats increase the likelihood of EU retaliation and strengthen the case for higher European defence spending.

EU leaders are set to discuss options, including a package of counter-tariffs on U.S. imports and the so-far-never-used "Anti-Coercion Instrument" (ACI).

That could limit access to public tenders, investments or banking activity or restrict trade in services, in which the U.S. has a surplus with the bloc, including in digital services.

On currencies, Barclays said the tariff threats are a marginal negative for the dollar in the near term given stretched long positions and historically low hedge ratios.

However, they added that a major escalation with NATO would pose a far larger problem for the euro than the previous “Liberation Day” tariffs.

Euro two-week implied options volatility - a measure of demand for hedges against big price swings in that time - shot to almost 6% EUR2WO=, the most since early December on Tuesday, according to LSEG data.

(Joel Jose)

EARLIER ON LIVE MARKETS:

TARIFF RISKS TEST EUROPE'S RALLY, BUT MS SEES RICH PICKINGS CLICK HERE

DON'T FORGET ABOUT FRANCE CLICK HERE

STOXX HITS 2-WEEK LOW AS VOLATILITY JUMPS CLICK HERE

BEFORE THE BELL: EU FUTURES DIP, FRENCH DRINK MAKERS EYED CLICK HERE

SELL AMERICA, SELL JAPAN CLICK HERE