European markets head lower as we await Trump’s tariff announcement

• European markets head lower as we await Trump’s tariff announcement.

• Will ADP raise stagflation fears?

• Oil markets in focus as WTI hits 6-week high.

European equities are falling in anticipation of today's liberation day tariffs with Donald Trump expected to announce his sweeping tax on imports at 4 pm Eastern time. Rather predictably it is the DAX which leads the losses as the German market surge seen in the wake of the agreement to increase the government deficit and ramp up fiscal expenditure fades. For traders and investors, today represents a day of huge uncertainty as we weigh up the potential for retaliatory tariffs and a tit-for-tat trade war. Scott Bessent has stated that today’s tariffs are likely to be the worst it will get, and his historical comments over the potential to “escalate to deescalate” means that we will hopefully soon move into a phase where we hear more about potential trade deals and tariff reduction rather than the bad news that currently dominates markets. Nonetheless, with the likes of Canada and the EU standing ready to implement retaliatory measures, things might get worse before they get better.

Today brings the latest ADP payrolls report out of the US, bringing a fresh insight into the behaviour of US businesses in the face of recent tariff uncertainty. A collapse in the employment metric of the manufacturing PMI released from the ISM yesterday does highlight the struggles faced by manufacturers that could be hurt by both foreign tariffs and the rising costs of imported parts. It stands to reason that businesses will hold off hiring in the face of such uncertainty, and thus markets are faced with the possibility that we see signs of economic deterioration in the form of weak ADP and NFP figures at the back end of this week. With US CPI inflation due next week, stagflation fears once again provide a negative backdrop for market sentiment as things stand.

Markets are expecting to see another drawdown in US crude inventories today, which would mark the first consecutive weekly decline since mid-January. While Trump has been keen to drive down energy costs in a bid to keep a lid on inflation, markets will be watching carefully over how the trade relationship with Canada develops given the US reliance on energy imports from their neighbour. The huge Russian military conscription seen this week highlights the perception that Putin sees this period as an opportunity to grab as much Ukrainian land as possible before any deal is struck. That doesn’t exactly fill markets with confidence over the potential for a near-term agreement, although it could be a ploy to ensure they get the best deal possible given the implications over their perceived ability to take more land if the negotiations fail. Either way, traders will be keeping a close eye out for any escalation that might bring a raft of fresh tariffs on buyers of Russian oil.