US President Donald Trump announced new tariffs on European countries supporting Greenland, causing risk sentiment to drop. Major currencies weakened against the dollar, with the euro and pound leading the decline. European leaders, including Macron, plan to retaliate with tariffs and blocking trade deals with the US.

The impact on equities is expected to be short-term, with bonds and currencies less affected. European growth could be negatively impacted, but the fallout may ultimately lead to Europe forming new alliances and accelerating its strategic autonomy agenda. The European equities rally may be interrupted by Trump’s tariff threat.

Since the start of 2025, the Stoxx Europe 600 has climbed 36% in dollar terms, outperforming the S&P 500. A 10% tariff on Europe could result in a 2-3 percentage-point drag on European earnings-per-share growth. Sectors like luxury goods, carmakers, and miners could be most affected by the tariffs.

Defense stocks could rally in response, limiting the overall selloff impact. The euro may not sustain negative fallout against the dollar due to US reliance on European capital. If the EU activates anti-coercion measures impacting capital markets, it could be the most disruptive outcome for markets.

Read more at Yahoo Finance: Trump Tariff Threat to Weigh Risk Sentiment, European Stocks