(Sharecast News) - European shares fell on Tuesday as investor sentiment remained under pressure from escalating geopolitical and trade tensions linked to US president Donald Trump's renewed threats over Greenland and tariffs.
The pan-European Stoxx 600 slid 0.72% to 602.68, with Germany's DAX down 1.08% at 24,689.67, France's CAC 40 off 0.61% at 8,062.58 and the UK's FTSE 100 falling 0.67% to 10,126.78.
Russ Mould, investment director at AJ Bell, said that "despite a difficult start to the week it feels like the market is still in wait-and-see mode over whether there will be a full-blown trade war between the US and Europe," adding that recent losses in major European indices amounted to "little more than a mild tremor - for now."
Markets were unsettled after Trump, ahead of the World Economic Forum in Davos, repeated his assertion that the US "had to have" Greenland and outlined plans to impose an additional 10% tariff from 1 February on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain, rising to 25% on 1 June if no agreement was reached.
The European Union was reportedly considering economic countermeasures, including potential limits on US access to the single market.
Kathleen Brooks, research director at XTB, said investor focus remained firmly on Trump's next steps, adding that his insistence there was "no going back" on the Greenland pledge made talks in Davos later this week "critical".
Patrick Munnelly, market strategy partner at TickMill, said global markets had faced "further turbulence" as renewed trade tensions tested sentiment that had recently been buoyed by enthusiasm for artificial intelligence.
He added that concerns over the Trump administration's confrontational stance "could potentially dampen appetite for US assets," while futures were pointing to "a rough start for US markets when Wall Street reopened."
Eurozone construction output falls, German investor sentiment improves
In economic news, figures from Eurostat showed eurozone construction output fell 1.1% month-on-month in November, the steepest drop in six months, driven by declines across building, civil engineering and specialised activities.
Compared with a year earlier, construction output was 0.8% lower, the sharpest annual fall in eight months.
In contrast, German investor sentiment improved sharply.
A survey from the ZEW Center for European Economic Research showed its economic sentiment index rose to 59.6 in January from 45.8, well above expectations, while the current conditions index also improved.
ZEW president Achim Wambach said 2026 could mark a turning point, though he cautioned that further efforts were needed to support sustainable growth.
On the strategy front, Citigroup downgraded continental European equities to neutral from overweight, citing heightened transatlantic tensions and tariff uncertainty that cloud the near-term earnings outlook.
While the bank still saw around 5% upside for the Stoxx 600 by year-end, it said better risk-reward was now evident in emerging markets and Japan, and trimmed exposure to internationally exposed sectors such as autos and chemicals.
UK data meanwhile showed a steady but cooling labour market.
The Office for National Statistics reported an unchanged unemployment rate of 5.1% in the three months to November, while regular wage growth slowed to 4.5%, the lowest since April 2022.
Munnelly noted that private-sector pay growth of 3.6% aligned with the Bank of England's forecasts but said the divergence with faster public-sector pay highlighted "fragile private sector conditions," adding that the central bank was expected to cut rates in the coming months.
Wise jumps on income growth, LVMH in the red again
In equities, Wise surged 13.91% after reporting a 21% rise in third-quarter underlying income.
Luxury group LVMH fell 2.2% after Trump threatened 200% tariffs on French wine and champagne, a move Mould said had weighed on luxury shares given their "substantial exposure to the American market."
Swiss utility BKW slumped 12.88% after warning of a 110 million Swiss franc operating profit hit from a write-down on its stake in a German coal-fired power plant.
Mould said the stakes remained high as world leaders prepared to meet in Davos, adding that investors would be hoping for "some sort of de-escalation deal on Greenland which removes the risk of a break-up or at least serious rupture in the Nato alliance," warning that a deepening crisis was "unlikely to spell good news for global equities."
Reporting by Josh White for Sharecast.com.
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