London’s FTSE 100 Index tumbled more than 1% on opening after US President Donald Trump announced a wave of tariffs and warned the European Union would be next.
The blue-chip share index fell 105.8 points to 8568.2 – a 1.2% fall - soon after the London market began trading at 8 a.m.
Mr Trump said tariffs on imports from Europe were coming and did not rule out imposing tariffs on UK goods, but reportedly said the situation with Britain “can be worked out”.
It follows moves over the weekend to slap harsh 25% tariffs on Mexico and Canada and another 10% on China. Canada was quick to retaliate, and the others also pledged to hit back with their own tariffs.
Asian markets suffered heavy falls overnight as they were the first to react, with Japan's Nikkei slumping 2.7% and the Hang Seng in Hong Kong 1% lower. However, mainland Chinese markets remain shut for the Chinese Lunar New Year holiday until Wednesday.
Analysts said Asian markets were bracing for volatility by a possible trade war escalation.
Yeap Jun Rong, market strategist at IG, said: “The implications for trade restrictions could result in reduced global trade flows, supply chain shifts, which could mean higher costs for businesses, and higher inflation."
Wall Street ended last week lower, with the S&P 500 falling 0.5% and the Nasdaq composite dropping 0.3%. The indexes posted their first weekly loss in three weeks, and the Dow Jones Industrial Average fell 0.8%.
CEO of global financial giant deVere Group, Nigel Green said: “The writing was on the wall. This was entirely foreseeable. Yet, too many market participants buried their heads in the sand, convinced that the worst wouldn’t materialise. Now, the consequences are here, and investors need to act - fast.
"Trump’s tariffs are having an impact across asset classes, from equities to bonds to commodities. The bet is that tariffs will stoke inflation and force central banks to maintain or even hike rates. This is a dangerous game.
“Stock markets, particularly in Europe and Asia, suffered significant declines, with investors scrambling to reposition their portfolios. Asian markets bore the brunt, as Hong Kong, Japan, South Korea, and Taiwan posted steep losses. Meanwhile, oil prices surged amid concerns that tariffs on Canada and Mexico could disrupt North America’s energy supply chain, pushing up fuel costs for American consumers.”
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Adding to the turbulence, cryptocurrencies have not been spared. Bitcoin and Ether saw sharp declines, with the latter experiencing its steepest loss in nearly four years before partially recovering.
With investors now bracing for a prolonged period of volatility, Mr Green urged those who have not yet adjusted their portfolios should consider doing so.
He said: “The markets will remain highly reactive in the coming days and weeks. Investors must position themselves strategically to mitigate risks and seize opportunities as assets reprice.”
He warned that trade-sensitive sectors—including manufacturing, technology, and consumer goods—must face sharp adjustments as companies reassess supply chains and costs. Mr Green added: “Investors mustn't repeat the mistake of inaction. This is the wake-up call."
Neil Wilson, an analyst at TipRanks, said Mr Trump's moves are "less of a negotiating tactic than a sledgehammer".
He added: "It seems from the selling pressure that the market underestimated Trump - not for the first time. But whether this is resolved in short order or drags out and spirals is unknown.
"If the tariffs stay in place, it would mean a significant redrawing of trade terms, and currencies will need to adjust to reflect that."
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