European Markets Juggle Trade Tensions and Economic Uncertainty

European shares rose on Friday, yet faced their largest weekly decline in three months due to global trade tensions inciting economic slowdown fears. The STOXX 600 index recovered slightly but experienced volatility from Trump's tariff threats. Investors remained observant of geopolitical developments, particularly in Ukraine and Germany.

European shares experienced an uptick on Friday but still confronted their most significant weekly decline in three months as global trade tensions heightened fears of an economic slowdown. The pan-continental STOXX 600 gained 0.4% by 0950 GMT, yet it was down nearly 2% for the week overall. Notably, the index slumped on Thursday as U.S. President Donald Trump threatened to impose a 200% tariff on European alcohol in retaliation against the EU's levies on American whiskey.

The erratic nature of Trump's tariff policies has created chaos across global markets, unsettling both investors and consumers. His escalation of tariffs came swiftly as key U.S. trading partners responded to Washington's trade barriers. This ongoing uncertainty is prompting concerns about future growth prospects, particularly affecting risky assets, according to Richard Flax, Chief Investment Officer at Moneyfarm. The aerospace and defense sector emerged as a leader with a 1.8% rise on Friday, buoyed by anticipation of increased military spending in Europe.

Notwithstanding trade war uncertainties, some investors remained hopeful, bolstered by ceasefire progress in Ukraine and Germany's strategy to establish a 500 billion euro fund for growth revival and military enhancement. Russian President Vladimir Putin voiced his approval for the ceasefire proposal, though critical stipulations need elucidation. Technology and basic resources marked gains while the media sector declined, particularly impacted by Universal Music Group's stock drop following Pershing Square's stake reduction. The retail index recorded the week's largest loss, and BMW's profits plummeted. Meanwhile, German inflation dropped unexpectedly, creating potential for ECB policy adjustments. Political developments in Portugal are also under scrutiny after calls for an early election followed a parliamentary setback for the centre-right government.

(With inputs from agencies.)