Exchange traded funds tracking European stocks suffered outflows last week, amid fears of trade wars between the US and Europe and renewed concerns about the rise of populism in the Eurozone on the back of the Italian election results.
Since the beginning of March, European stocks ETFs saw outflows of €906.2 million, according to TrackInsight, despite a slight pickup in performance. The sector is up 1.1% over a month, although year-to-date it remains down nearly 4%.
Fears of trade wars between Europe and US
Concerns about US President Donald Trump initiating a trade war with Europe have been escalating since the beginning of the month, after he vowed to impose steep tariffs of 25% on imports of steel and 10% for aluminium imports. According to Reuters, this could hit the European steel industry hard, mainly because it is likely to lead to a huge increase in steel imports into the EU from other countries as the obvious alternative market.
The European Union produces 177 million tonnes of steel each year, and although only 5 million of this is exported to the US, an increase in imported steel onto the continent could put prices under unprecedented pressure and cost ten of thousands of local jobs, experts fear.
It is not yet clear whether the tariffs will include the 28-country bloc, but the EU said it is prepared to retaliate with “re-balancing measures”, imposing taxes on bourbon, peanut butter, cranberries and orange juice, as well as steel and aluminium products.
The spate continued last week, as the US President posted on Twitter threatening in return to impose a tax on car exports from the European Union. In his tweet, the US President said: “If the EU want to further increase their already massive tariffs and barriers on US companies doing business here, we will simply apply a tax on their cars which freely pour into the US.”
If Trump acts on this latest threat, large European car manufacturers such as Volkswagen and BMW could suffer. In 2016, the EU shipped some 6 million cars abroad, with more than 1 million of those going to its largest market, the US, according to the European Automobile Manufacturers Association.
Italian election and the populist revolution
Meanwhile, the results of the Italian election have reignited fears over the rise of populism in the European Union, with the anti-establishment Five Star Movement and the anti-illegal immigrant party Lega gaining strong support from voters.
The Five Star Movement, led by Luigi di Maio, has won the highest percentage of votes with 32.2%, while the Lega party has seen an unexpected leap in support by 13.6 percentage points to 17.7%, making it a senior partner in a right-wing coalition with Silvio Berlusconi’s Forza Italia (13.9% of the vote) and the Fratelli d’Italia party (4.35%). Meanwhile, the Democratic Party, led by Matteo Renzi, has suffered a crushing defeat, receiving just 18.9% of the votes, down 6.5 percentage points from its previous result.
The results now leave Italian politics in a stalemate until two or more parties agree on a coalition to form a majority government. If such an agreement is not reached, Italian President Sergio Mattarella could decide to leave the current centre-left government of Paolo Gentiloni in place, allowing time to set up a temporary government and organise another election. However, this process could only start after 23 March, when Parliament meets for the first time since the vote.
Italian stock ETFs have continued to suffer outflows as uncertainty persists, with outflows for the month to 8 February reaching €108.9 million, according to TrackInsight.