Stoxx 600 at its lowest in a month, US futures fall: markets react to duties

European markets end the week down: the Stoxx 600 composite index fell to a one-month low amid new U.S. duties. U.S. index futures are also falling: global investors fear a prolonged trade confrontation that could slow global growth;

The Stoxx 600 index fell 1.4% in trading on Friday, hitting its lowest level since July 1. The index is now trading 4.4% below its March peak. Germany's DAX index slipped 1.7%, while Denmark's OMXC index fell 3% to a two-year low;

The pharmaceutical sector came under particularly strong pressure in the European market. Shares of major companies, including Novo Nordisk and Sanofi, fell after U.S. President Donald Trump sent them letters demanding lower prices for drugs for the U.S. market. Novo Nordisk, maker of popular drugs Wegovy and Ozempic, plummeted 4.9%, hitting a nearly four-year low. Over the week, the securities showed the worst dynamics in the company's history, written by Reuters. 

"Trump is putting direct pressure on foreign manufacturers to lower US drug prices as part of a sweeping fiscal reform," commented Nataxis Investment Managers strategist Mabruk Shetuan.

He said pharma is at risk of facing severe profit cuts, especially in the U.S., a key high margin market.

"For Europe, this is a major blow. The costs for companies will be huge - the U.S. remains the biggest export market," agrees Ludovic Subran of Allianz SE (quoted by Bloomberg). 

Analysts at Jefferies Bank have warned that Richemont, which owns the Cartier brand, and watchmakers Swatch Group and Watches of Switzerland could be hit by the duty hike. "News that the U.S. will impose a 39% duty hike on imports from Switzerland could hit Richemont shares, but especially Swatch Group and Watches of Switzerland," said analyst James Grzinich (quote via CNBC).

The euro may end the week with its strongest decline against the dollar in nearly three years. The single European currency has weakened about 2.8 percent since the start of the week, trading around $1.1420, its biggest weekly drop since September 2022, writes Bloomberg. 

On the background of general decrease some securities were in the plus. Shares of Italian manufacturer of alcoholic beverages Campari added 6.7% after the publication of strong reporting for the second quarter. Shares of British aerospace company Melrose Industries grew by 6.4% due to exceeding forecasts for operating profit amid strong demand in the defense sector. Shares of IAG (owner of British Airways) initially rose on positive reporting, but then declined by 1.8% due to the forecast for cost growth amid disruptions in air traffic control.

A moderate positive factor for investors was the statistics on the industrial sector of the euro zone: the index of business activity in July approached the level of stabilization, which confirmed the moderately optimistic mood of the ECB. At the same time, inflation in the euro zone remained at the level of 2%, coinciding with the regulator's target benchmark. The probability of ECB rate cut this year, according to the markets' assessment, fell to 44%.

U.S. stock futures also showed declines on August 1, following the fall in European markets. Futures on the Dow Jones index fell about 0.9 percent, the S&P 500 also fell 0.9 percent, and the tech-heavy Nasdaq 100 slipped 1.1 percent, continuing a correction after declines the day before, noted Yahoo Finance.

"We are on the cusp of a new era of trade barriers. At current levels, stock markets, especially U.S. stock markets, look overvalued," said Camarco analyst Kim Heaker (quoted by Bloomberg). 

World gold prices remained almost unchanged on August 1, but at the end of the week may record a third consecutive decline. Spot gold was down 0.1% to $3346 an ounce, while COMEX futures rose 0.1% to $3294 an ounce. Both instruments are headed for weekly declines of more than 1%, points Investing.com. 

The VIX volatility index reached a level of about 18 points, which is below the psychologically significant level of 20, but already reflects increased uncertainty and expectation of possible sharp movements. A level above 20 usually indicates increased fear and potential instability.

US President Donald Trump signed an executive order raising duties on dozens of countries, from Brazil and Canada to the EU and Japan. Goods from Canada not covered by the USMCA (a trade agreement between the US, Canada and Mexico) will now be subject to a 35% duty, exports from the EU, Japan and South Korea will be subject to a 15% duty, and the prime rate for countries with a trade surplus with the US will be 10%.

The new duties take effect Aug. 7, except for Mexico, which was given a 90-day extension to finalize the agreement.

The market is reacting negatively, with investors fearing a prolonged round of trade confrontation that could slow global growth, writes Investing.com. The duties imposed by Trump are "slightly higher than expected and therefore pose moderate downside risks to the outlook for global GDP growth and small upside risks to the outlook for U.S. inflation," noted economist Capital Economics Stephen Brown. However, he didn't rule out that the duty story isn't over: it "still seems likely" that some countries will strike deals with the U.S. or that U.S. courts will eventually overturn the duties. 

This article was AI-translated and verified by a human editor