Europe close: Stocks retreat on trade tensions, economic concerns
By Josh White
Date: Tuesday 14 Oct 2025
(Sharecast News) - European stocks fell on Tuesday as renewed trade tensions between the United States and China deepened investor unease, with the defence sector leading declines across the continent.
The pan-European Stoxx 600 slipped 0.37% to 564.54, while Germany's DAX dropped 0.62% to 24,236.94 and France's CAC 40 eased 0.18% to 7,919.62.
London's FTSE 100 bucked the trend, edging 0.1% higher to 9,452.77.
Sentiment remained fragile after US president Donald Trump's renewed threats to impose higher tariffs on Chinese imports last week triggered the steepest one-day sell-off on Wall Street in six months.
Although Trump later sought to calm markets, saying "all will be fine" and that the United States "wants to help China, not hurt it," Beijing's retaliatory measures appeared to reignite the dispute.
Patrick Munnelly at TickMill noted that "US equity futures took a hit, while Asian stocks extended their slide amidst fresh trade-war tensions," adding that the sell-off followed China's latest retaliatory move "by slapping tariffs on American subsidiaries of Hanwha Ocean."
He said the sharp declines across asset classes "highlight the rapid unwinding of risk in a market still dominated by automatic margin calls and fragmented liquidity."
China announced restrictions on five US subsidiaries of South Korea's Hanwha Ocean in response to Washington's investigations into the Chinese shipping industry, further fuelling concerns about a prolonged trade confrontation and its potential to derail global growth.
Munnelly added that "amidst the back-and-forth, China and the US have been engaging in discussions through their economic and trade consultation framework," and that Treasury Secretary Scott Bessent "expressed optimism that Trump and Xi Jinping could still meet, though he cautioned that the US is keeping all options open."
Russ Mould of AJ Bell said that "a weak showing from European markets would suggest investors are still easily rattled by the slightest thing," pointing to comments from Bessent accusing China of wanting to "pull everybody else down."
He noted that even after a sharp rebound in US markets, "alarm bells [are] ringing over valuations, exuberance in the tech space and an uncertain economic outlook."
Inflation persists in Germany, UK unemployment rises
European economic data on Tuesday painted a mixed picture, with inflation pressures persisting in Germany and labour market conditions softening in the UK.
In Germany, final figures confirmed that inflation rose to a nine-month high in September.
The harmonised consumer price index increased 2.4% year-on-year, matching the flash estimate and up from 2.2% in August.
The data reinforced concerns that underlying price pressures remain sticky despite weaker industrial activity.
Separately, the ZEW Indicator of Economic Sentiment climbed to 39.3 in October from 37.3 in September, though it fell short of expectations, suggesting confidence among analysts and institutional investors has improved but remains cautious.
In the UK, grocery price inflation accelerated again, with Worldpanel data showing like-for-like prices up 5.2% in the four weeks to 5 October, compared with 4.9% in September.
Labour market figures showed the unemployment rate rising to 4.8% in the three months to August, slightly above expectations, while private-sector wage growth slowed to its weakest pace in nearly four years.
Munnelly observed that "navigating the maze of UK labour market statistics often reveals conflicting signals among similar data series," with the latest pay growth data showing a "slight uptick" in the headline figure but "a less optimistic picture" in the private sector.
He said that to meet the Bank of England's forecast, "September would need to deliver an ambitious 1.2% month-on-month increase - far above the three-year average of 0.5%," implying that "the broader narrative appears more reassuring for MPC doves."
Mould, meanwhile, warned that "the UK has an inflation problem which could constrain the Bank of England's ability to steadily cut interest rates."
He pointed to the IMF's forecast that the UK could record the highest rate of inflation in the G7 this year and next, adding that "an inflation figure starting with '3' is arguably outside of the Bank of England's comfort zone, so it might be forced to keep interest rates steady."
He said the combination of high inflation and a "fragile jobs market" suggested "the Bank of England is stuck between a rock and a hard place."
Liz McKeown, director of economic statistics at the ONS, said there were early signs of stabilisation following months of weakness.
"After a long period of weak hiring activity, there are signs that the falls we have seen in both payroll numbers and vacancies are now levelling off," she said.
"We see different patterns across the age ranges, with record numbers of over 65s in work, while the increase in unemployment was driven mostly by younger people."
Defence and industrial stocks weigh, Ericsson jumps after strong quarter
Defence and industrial stocks weighed on European markets on Tuesday, with sharp losses seen across several major sectors.
Defence companies were broadly lower, with Rheinmetall down 2.18%, Renk Group off 4%, Babcock International easing 0.17%, Rolls-Royce Holdings slipping 0.4% and Saab declining 1.24%.
The pullback followed a recent rally in the sector, as investors booked profits amid rising geopolitical uncertainty.
French tyre manufacturer Michelin slumped 8.93%, extending Monday's losses after cutting its full-year operating income forecast to between €2.6bn and €3bn, well below its previous target of more than €3.4 billion.
The company blamed weaker demand in North America and the impact of US tariffs, prompting Deutsche Bank to call the downgrade "far bigger than expected."
The guidance cut also hit peers, with Pirelli down 0.77% and Continental tumbling 4.3%.
Mould remarked that "a weak showing from European markets" underscored how "investors are still easily rattled," adding that after recent exuberance, the latest moves might reflect "a dead cat bounce after last week's wobble."
Mining stocks were also under pressure in London, with Anglo American falling 2.8%, Antofagasta losing 2.44% and Glencore dropping 1.08% as commodity prices weakened.
In contrast, Ericsson surged 18.02% after the Swedish telecoms group signalled it may raise shareholder returns following a strong third quarter.
The company reported robust recurring cash flow and a solid cash position boosted by the sale of its Iconectiv unit.
Reporting by Josh White for Sharecast.com.
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