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Investing.com -- Citi analysts warned in a note Tuesday that European equities could face significant downside if President Trump’s tariff threats materialize.
The bank outlined the potential implications of a 50% tariff on European goods, a scenario the firm is treating as hypothetical for now but one that has already rattled markets.
While Trump said on Sunday that he has agreed to delay the 50% tariff on the European Union until July 9, Citi noted that the “surprise announcement on a possible 50% tariff on European goods” had triggered broad selling in European equities.
The Stoxx 600 Index could drop “c7-8% from here” if the tariff threats are enacted and priced in, according to Citi’s projections.
Earnings estimates for European companies have already started to reflect increased geopolitical risks.
“Analyst consensus forecasts for 2025E European EPS growth have fallen from +7% pre-Liberation day to c2% now,” Citi noted. That decline is said to be consistent with their prior modeling of the earnings impact from a 20% tariff.
However, should tariffs rise to 50%, Citi’s top-down models suggest EPS growth could deteriorate further.
“EPS growth could fall another 5-6% to c-4%, if 50% broad tariffs are implemented,” they warned. “This comes against the backdrop of the market pricing in c4% EPS growth over the next 12m.”
Citi emphasized that the uncertainty surrounding trade policy is already dragging down sentiment and could translate into more pronounced equity declines if the threats are realized.