Eurozone inflation heads higher on energy resurgence

• European markets follow Asia lower on tariff fears.

• UK stocks tumble, while energy and gold turn upwards.

• Eurozone inflation heads higher on energy resurgence.

European markets are following their Asian counterparts lower this morning, with Trump’s tariff war looking to set markets on a new unpredictable course that could see higher inflation and lower growth until we see a resolution. While Trump indicated that US-UK relations would remain largely unaltered, the losses seen throughout both the FTSE 100 and 250 highlight the perception that this trade war will hurt businesses across the globe irrespective of whether they are directly impacted by tariffs. The consequences for global markets will come down to whether nations respond with a tit for tat levy on US goods rather than striking a deal that would seek to bring an end to this crisis. Nonetheless, today is a brutal reminder for investors that Trump’s pro-business approach may not necessarily always translate into market friendly announcements. Volatility is back and it’s here to stay.

In the UK, the prospective impact on global trade and economic activity helped drive the miners and banks lower. While we have seen some weakness for energy names, the gains seen for natural gas and oil highlight the potential for investors to seek shelter from inflation fears within this sector. As is often the case, precious metals took a hit in early trade, with gold typically joining the crowd within the inception of any widespread selloff. Nonetheless, the gains we are subsequently seeing does highlight the prospective benefit if global demand continues to favour gold over US treasuries. On mainland Europe, the automotive sector appears to be the hardest-hit, with Volkswagen, BMW, Stellantis, and Mercedes Benz all tumbling on the prospect of Transatlantic sales collapsing.

The euro is on the rise after an inflation report that saw headline CPI rise to 2.5%. The -0.3% monthly metric will undoubtedly provide a great degree of respite, and we are likely to see significant disinflation next month when base effects kick-in. Nonetheless, with the energy component rising at a shocking 2.9%, the prospect of higher energy prices on supply chains disruptions do provide cause for concern going forward. Elsewhere, the better-than-expected German manufacturing PMI (45.0) serves to highlight the new norm where markets cannot take economic announcements at face value as they instead seek to gauge how this could further deteriorate under the weight of US tariffs.