On Thursday, Eurozone stock markets were battered. That downturn was largely driven by fears over the imposition of new tariffs, first announced by U.S. President Donald Trump. As stocks fell, UBS provided insights into the growing appeal of U.S. artificial intelligence firms compared to their Chinese counterparts, enhancing investor interest in the sector.
The broad Stoxx 600 index closed down as well, shedding –0.44% on the day. Today Germany’s DAX fell by 0.7%, France’s CAC 40 index lost 0.5%, and the U.K.’s FTSE 100 was down by 0.27%. Shares of Stellantis, the maker of Jeep and other brands, as well as Mercedes-Benz both dropped 5.6%. At the other end of the spectrum, Porsche lost 5.4%, BMW fell 4.3% and Volkswagen dropped 3.5%.
UBS just boosted its first-half-2025 sales outlook. They didn’t just increase the estimate – they upped it from 3.5% to a remarkable 6.5%. The financial institution outlined three compelling reasons for favoring U.S. AI firms over those in China, highlighting their increased research and development spending. This investment has placed them on the cutting edge poised to find “the next big thing” in technology.
The report emphasizes that the U.S. needs to invest significantly more in AI. By 2025, the U.S. capital expenditure intensity will be at 20%, exceeding China’s 11.7% by a wide margin. I know U.S. firms are committed to staying ahead of the technology. This commitment shines a spotlight on their readiness to invest, even if that necessitates taking short-term depreciation-related hits.
Industry analysts quickly expressed their alarm at Trump’s latest tariffs on the American car industry. This was bad enough, until out of nowhere he announced a 25% tariff on all foreign-made cars and light trucks, going into effect on April 2. This ruling was described as a “quagmire” case for auto makers.
Trump stated, > “If the European Union works with Canada in order to do economic harm to the USA, large scale Tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had!”
The approaching tariff catastrophe has sent titanic shockwaves through European automaker quarters—frontline troops facing a market price-battle. Michael McLean, an economist with a deep understanding of international trade dynamics, was alarmed by the rise in average tariff rates. He remarked, “We think the direction of travel is clear: average tariff rates are increasing, likely to levels not seen since before World War II.”
McLean elaborated further on the impact of existing tariffs, stating, > “At the end of 2024, the US weighted average tariff rate was 2.5%. After the tariffs that Trump has implemented so far, the average tariff rate has increased more than three times to over 8%. We assume once Trump is finished, it could be as high as 15%.”
The economic impacts of these specific tariffs may be felt globally, forcing investors to rethink their investment approach. Brian Evans, an analyst focusing on bond markets, reflected on the shifting market sentiment affecting government bond yields: “When there is a change in market sentiment you see those big moves in gilt yields. That’s a risk, given the large pool of international investors that could move into other asset classes.”
The automotive sector may be going through one of the more pronounced downturns, but retail sales are doing great. Next recently reported a £1 billion ($1.3 billion) pretax profit for 2024, up 10.1% on last year. The company’s overall group sales increased by 8.2%, hitting £6.3 billion.
We see positive figures in some sectors, but Europe remains on the edge of a deep economic trough. Geopolitical tensions and tariff uncertainties further compound the situation. Ursula von der Leyen, President of the European Commission, affirmed the EU’s commitment to protecting its economic interests in response to U.S. trade policies: “As a major trading power and a strong community of 27 Member States, we will jointly protect our workers, businesses and consumers across our European Union.”
Given the existing or potential realities investors are contending with these days, the waters are choppy. At the same time, they express skepticism about the possible effects of the U.S.-China competition on AI. Mark Haefele from UBS acknowledged this concern: “A lingering sense of nervousness remains among AI investors, primarily centered on the concern that Chinese AI developers and their low-cost models threaten to usurp US competitors with higher sunk investment costs.”
UBS’s report underscores that American AI companies are poised to lead the world’s future technological and economic growth. With their powerful investment strategies and technological capabilities, they have a pretty big edge. The promise of future traffic-based revenue—which we expect to be more than $100 billion per year and counting—would massively increase their market cap.
Chris Beauchamp, an analyst observing retail trends, noted a shift in consumer sentiment: “There’s sort of the view that retail is turning a corner and maybe some of the negativity we’ve heard around Europe is beginning to dissipate, and that’s certainly helping matters.”
Leave a Reply