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Investors Pull Back as European Stocks Rally Faces Trade War Risks

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Investors are scaling back on European stocks and the euro after a strong first quarter, fearing that optimism over economic stimulus may have been overstated. Major asset managers, including Amundi and Legal & General Investment Management, are reducing bullish bets amid concerns over U.S. President Donald Trump’s impending trade tariffs set to be announced on April 2. Market strategists warn that a full-blown trade war could stall Europe’s sluggish recovery, with German stocks and the broader STOXX 600 already seeing declines following Trump’s recent 25% levy on car imports.

While European equities have outperformed U.S. stocks this year—STOXX 600 is up 7% compared to the S&P 500’s 3% drop—analysts suggest that the easy gains are over. The euro, which had fluctuated between $1.01 in February and a five-month high of $1.095 in March, remains vulnerable to shifts in market sentiment. Amundi’s head of global FX, Andreas Koenig, indicated that they would refrain from betting on further euro gains, wary of market reversals should tariffs strengthen the dollar. Meanwhile, asset managers like Russell Investments and Royal London Asset Management maintain a slight preference for European stocks but are hesitant to increase their positions further.

Despite cautious optimism, concerns persist over Europe’s long-term economic trajectory. Former European Central Bank chief Mario Draghi previously warned of Europe’s “slow agony,” calling for industrial policy reforms and investment boosts. While some investors believe fiscal stimulus could provide limited support, analysts argue that European markets need fresh catalysts, such as the implementation of Draghi’s recommendations, to sustain further growth. However, the looming trade tariff decision on April 2 remains a critical factor that could shift market dynamics and determine whether Europe can weather the global economic uncertainty.

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Pro-Russian Gagauz Leader Detained at Moldova Airport Amid Lawmaker Disappearances

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Moldovan authorities detained Eugenia Gutul, the leader of the pro-Russian Gagauz ethnic minority, at Chisinau’s international airport on Tuesday evening. Officials from Moldova’s Anti-Corruption Centre stated she would be held for 72 hours as part of an ongoing criminal investigation. Her arrest comes amid tensions between the central government and the autonomous Gagauzia region, which has historically maintained close ties with Russia.

Gutul, who was elected bashkan of Gagauzia in 2023 with backing from exiled business magnate Ilan Shor, has been a vocal critic of President Maia Sandu’s pro-European administration. She faces charges related to corruption and allegedly financing Shor’s political bloc, which Moldovan authorities accuse of receiving illicit funds to sway elections. The Moldovan government, which aims to join the European Union by 2030, has repeatedly accused Russia of attempting to destabilize the country.

Her detention follows the unexplained disappearances of pro-Russian lawmakers Alexandr Nesterovschi and Irina Lozovan, both facing corruption charges linked to Shor. Nesterovschi vanished the day he was sentenced to 12 years in prison, while Lozovan disappeared before her verdict. Shor, sentenced in absentia for a $1 billion bank fraud, is accused of attempting to use his “Victory” bloc to install pro-Russian lawmakers in Moldova’s upcoming parliamentary elections.

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Far-Right Bloc Enters German Parliament in Historic Election Result

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The largest far-right contingent in Germany’s Bundestag since World War II is set to take office as the new parliament convenes, following the February 23 election. The Alternative for Germany (AfD) secured 152 seats, doubling its previous representation and achieving the strongest performance by a far-right party in decades. Economic struggles, ongoing recession, and concerns over Russia’s war in Ukraine contributed to the AfD’s surge, narrowing the gap between them and the election-winning conservatives.

The new AfD lawmakers include controversial figures such as Maximilian Krah, who was previously excluded from the European Parliament over pro-SS remarks, and Mathias Helferich, who once referred to himself as “the friendly face of the Nazis.” The party, originally founded as an anti-euro movement, has shifted further to the nationalist right, advocating anti-immigration policies, support for Russia, and the dissolution of the European Union. Despite falling short of the 25% needed to set up parliamentary inquiries, its strong presence will influence political discourse and challenge the mainstream parties.

As the political landscape shifts, conservative leader Friedrich Merz faces challenges in forming a coalition with the Social Democrats and the Greens, with recent compromises weakening his standing. Meanwhile, the traditional political firewall against cooperation with the AfD is showing cracks, with court rulings ensuring their participation in parliamentary activities. While many lawmakers continue to shun AfD members, others argue that engagement, rather than isolation, is necessary in Germany’s evolving political climate.

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Parisians Vote to Pedestrianise 500 More Streets in Latest Referendum

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Paris residents have voted in favor of pedestrianising 500 additional streets, marking another step in the city’s efforts to curb car usage and improve air quality. In a referendum held on Sunday, 65.96% supported the measure, while 34.04% opposed it. However, voter turnout was low, with only 4.06% participating in the consultation organized by the municipality. The move aligns with the city’s broader push to reduce traffic congestion and promote greener urban spaces.

This referendum follows previous measures, including a 2023 ban on e-scooters and a recent decision to triple parking charges for large SUVs. The initiative will lead to the removal of 10,000 more parking spots, doubling the number removed since 2020. Paris’ two million residents will have a say in selecting the streets that will be transformed into pedestrian-friendly zones.

With these changes, Paris will have nearly 700 pedestrianised streets, accounting for just over one-tenth of the city’s total. Despite the progress, Paris still trails other European capitals in green infrastructure, covering only 26% of the city compared to the European average of 41%, according to the European Environment Agency. However, the city’s efforts under the Socialist-led administration have already contributed to a significant reduction in car traffic.

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Heathrow Closure Sparks Global Aviation Disruption, Costing Millions

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London’s Heathrow Airport faced an unprecedented shutdown after a fire at a nearby electrical substation caused a total power outage, affecting backup systems and grounding all 1,332 scheduled flights on Friday. Experts estimate the disruption could cost the aviation sector around £20 million ($26 million) per day, with ripple effects expected to last for days. The incident, described as the worst since the 2010 Icelandic ash cloud crisis, forced planes to divert across Europe and left thousands of passengers stranded.

Aviation and risk management experts criticized Heathrow’s contingency planning, questioning why better backup power measures were not in place at one of the world’s busiest airports. Heathrow had previously declared itself a leader in airfield resilience, but the failure to prevent a full shutdown has sparked concerns over vulnerabilities in critical infrastructure. British authorities are investigating the incident, though initial reports suggest no foul play.

The disruption has also drawn attention to contingency planning at other major airports worldwide. Aviation analysts warn that repositioning aircraft and crew will extend the impact for several days, with British Airways highlighting Heathrow’s chronic overcapacity issues. Similar outages in Britain’s air traffic control system in 2023 resulted in losses exceeding £100 million, further underscoring the need for improved resilience in global aviation hubs.

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Germany’s Bundesrat Set to Vote on €500 Billion Spending Package

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Germany’s Bundesrat, the upper house of parliament, is set to vote on Friday on a massive €500 billion ($546 billion) spending package aimed at revitalizing Europe’s largest economy and strengthening its military for a new era of European collective defense. The vote represents the final major hurdle before the package becomes law, unlocking billions in investments for infrastructure and defense amid concerns over economic stagnation and shifting global security dynamics.

The legislation, which passed the Bundestag earlier this week with support from the conservatives, Social Democrats (SPD), and Greens, is widely expected to clear the Bundesrat. It proposes easing Germany’s constitutionally enshrined debt brake to allow higher government spending, a move seen as crucial for boosting economic growth after two consecutive years of contraction. The conservatives and SPD are pushing to finalize the bill before the next Bundestag convenes on March 25, fearing opposition from far-left and far-right lawmakers.

For Chancellor-in-waiting Friedrich Merz, securing this legislation before taking office would mark a significant early victory. Merz, who led the conservatives to victory in last month’s election, has stressed the urgency of the package amid shifting U.S. policies under President Donald Trump, which have raised concerns about Europe’s security posture against Russia and China. He aims to finalize coalition talks with the SPD by Easter, setting the stage for his leadership in a rapidly evolving geopolitical landscape.

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EU Leaders to Boost Defence, Competitiveness Amid U.S. Trade Tensions

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European Union leaders are set to strengthen the bloc’s military and economic competitiveness in response to U.S. tariffs and concerns over Washington’s future defence commitments. At a summit on Thursday, all leaders except Hungary’s Viktor Orban are expected to reaffirm their support for Ukraine and call on Russia to demonstrate political will to end the war. Ukrainian President Volodymyr Zelenskiy will address the summit via video link, as EU leaders pledge continued financial and military backing for Kyiv.

The leaders will discuss proposals to enhance military spending, promote joint defence projects, and increase the purchase of European-made arms. France strongly supports a buy-European approach, though some officials warn against excluding non-EU suppliers from the interconnected global defence industry. The summit will also focus on ensuring the EU remains competitive in the global tech race, tackling regulatory burdens, and advancing financial market integration.

While not officially on the agenda, recent U.S. tariffs on steel and aluminium are expected to feature in discussions, given the escalating trade tensions. The EU retaliated against the tariffs, prompting former U.S. President Donald Trump to threaten heavy duties on European wine and spirits, with additional measures possibly coming in April. Leaders remain divided on certain economic policies, including financial market supervision, but are committed to progress despite ongoing challenges.

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Putin and Trump Discuss Ceasefire, Agree to Halt Attacks on Energy Sites

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Russian President Vladimir Putin has agreed to temporarily halt attacks on Ukrainian energy infrastructure following a lengthy call with U.S. President Donald Trump. However, Putin declined to endorse a full 30-day ceasefire that Ukraine had already accepted. The Kremlin stated that the pause in strikes was ordered after discussions with Trump, though Putin expressed concerns that Ukraine could use the time to rearm.

The White House announced that further negotiations, including talks on a maritime ceasefire in the Black Sea and a broader peace deal, would begin in Jeddah, Saudi Arabia. Trump’s envoy, Steve Witkoff, suggested that reaching a complete ceasefire was within reach, though experts noted that Russia had made minimal concessions. Ukrainian President Volodymyr Zelenskiy criticized Putin’s refusal to agree to a full ceasefire, warning against attempts to prolong the war.

The discussion between Trump and Putin comes as Russian forces continue their advance in eastern Ukraine. The limited ceasefire has raised concerns among European allies, who worry that Trump’s approach signals a shift in U.S. policy toward normalizing relations with Moscow. Meanwhile, Ukraine insists that any peace talks must include European leaders and maintain Ukraine’s sovereignty without territorial concessions.

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UK Labour Government Plans Welfare Cuts to Curb Spending

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Britain’s Labour government is set to announce significant cuts to disability and long-term health support on Tuesday, aiming to reduce the country’s rising welfare bill. The move comes ahead of the March 26 fiscal statement, where the government will outline its strategy to balance public spending with tax revenues amid lower-than-expected economic growth. With the welfare budget projected to exceed £100 billion ($129 billion) by 2030, ministers are focusing on reducing costs while encouraging more people back into work.

Finance Minister Rachel Reeves defended the decision, stating that the current benefits system is failing both recipients and taxpayers. “People are often trapped on benefits rather than getting the support they need to return to work,” she told Reuters. However, the proposed £6 billion ($7.79 billion) in cuts has sparked concerns among some Labour lawmakers, given the party’s sweeping election victory on promises of economic renewal. The government maintains that these measures are necessary to ensure fiscal responsibility without resorting to past austerity policies.

The announcement follows controversy over previous cost-cutting measures, including last year’s decision to reduce winter fuel payments for some pensioners, which led to internal party disputes. Prime Minister Keir Starmer’s administration has rejected comparisons to the Conservative-led austerity drive after the global financial crisis, which Labour blames for the country’s long-term economic challenges. The details of the welfare changes are expected to be presented in Parliament later on Tuesday.

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Rachel Reeves Faces £4.4 Billion Deficit, Tough Budget Choices Ahead

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British Finance Minister Rachel Reeves is set to face a £4.4 billion ($5.7 billion) deficit in her budget, reversing a previous surplus projection, according to the Resolution Foundation. The think tank warned that weaker economic growth and higher interest rate expectations have worsened the UK’s financial outlook, with the Office for Budget Responsibility expected to cut its 2025 growth forecast significantly. The Bank of England has already slashed its projection to 0.75%, mirroring the Resolution Foundation’s prediction.

With Reeves’ budget update scheduled for March 26, she is under pressure to meet fiscal rules that require balancing public spending with tax revenues by 2030. However, experts caution against deep welfare cuts and suggest tax increases instead. The rising cost of government borrowing, largely influenced by U.S. economic policies under President Donald Trump, has added to Britain’s fiscal strain. The Resolution Foundation urged Reeves to act decisively while ensuring that lower-income households are not disproportionately affected.

Prime Minister Keir Starmer and Reeves had pledged during last year’s election not to raise income tax, value-added tax, or corporate tax rates. One potential revenue-boosting measure could be extending the current freeze on income tax thresholds until 2030, which would generate billions. However, with fiscal pressures expected to intensify, experts warn that ruling out tax increases entirely could make future budgets even harder to balance.

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