European Stocks Caught in Tariff Crosshairs

Despite the stock market cautiously rising, European companies grapple with uncertainty as looming tariffs cast a shadow over the region's economic prospects, with certain industries and businesses more vulnerable to a potential fallout.

Recovery, and Then What?

Major global stock indices have returned to levels seen before the tariff-induced crash in early April. While the 90-day moratorium helped soothe some of the market nervousness, into place if a deal is not reached by early July. Even if an agreement is reached, considerable uncertainty remains, particularly for and other markets affected by tariffs, such as Novo Nordisk, which generates a significant portion of its revenue from Ozempic sales in the US. On the flip side, companies focused on domestic markets, such as utilities and local real estate firms, are viewed as more insulated.

Analysts argue that European stocks are generally well-positioned to weather the tariff environment due to perceived mitigating factors that could reduce the impact. Nevertheless, some sectors are significantly more exposed than others. Notably, to offset the cost of tariffs, but this can result in second-level effects. This phenomenon would work in reverse to the practice observed in the pharmaceutical industry, where American consumers bear higher prices to offset lower global rates. For example, footwear company Birkenstock's CFO suggested a small global price increase could offset the impact of US tariffs on the company's bottom line.

The Most Affected

Given the on-again-off-again application of tariffs, the factor likely to have. European stocks that saw a significant increase in their uncertainty ratings by analysts following the announcement and pause of tariffs include Mercedes-Benz, Stellantis, STMicroelectronics, and Volkswagen. Unsurprisingly, automakers top the list, as they heavily rely on imports to the US and have cross-border manufacturing operations with Mexico and Canada. Automakers are also subjected to additional tariffs on car imports and distortions in raw materials markets, as cars require substantial amounts of steel and aluminium, both of which are tariffed.

, which might be more surprising. These companies typically operate with tight margins and are still recovering from the pandemic, leaving little room to absorb cost increases from tariffs. European airlines have noticed a substantial drop in demand for cross-Atlantic routes as European travellers forgo vacationing in the US. Moreover, if tariffs are applied to their suppliers. Airlines that use Boeing aircraft could face additional costs if the EU imposes reciprocal tariffs in the event of a no-trade deal. Major airlines like British Airways operate significant fleets of Boeing aircraft, while the B737 is particularly popular among smaller carriers. Ryanair exclusively uses that aircraft, potentially putting it at a disadvantage compared to low-cost competitors like Wizz and EasyJet, which operate Airbus fleets, which may benefit from smaller carriers.

Airbus in H&S or Double Bottom

Airbus has found support at €125, forming a potential neckline support, which could set the stock up for a short-term upside to €170 if a head-and-shoulders pattern emerges. A move past the peak of €180 would imply a double bottom at €125, opening the door to record highs at €190 and €200. However, a rejection at the top could signal a potential continuation of the large range or even form a triangle or pennant chart pattern. If prices reverse prematurely, support levels lie at €150 and €140 before reaching the bottom again.

Source: SpreadEX / Airbus

The uncertainty surrounding tariffs has cast a long shadow over European companies, with automakers and airlines among the most troubled due to their reliance on imports and tight operating margins. Although some sectors in Europe may be better insulated than others, the potential for second-level effects and price adjustments looms large, with the far-reaching implications of the trade dispute harming some carriers more than others.