European shares rose sharply on Monday, poised to recoup the previous session's losses on relief after U.S. President Donald Trump delayed his threat to impose a 50% tariff on the region.
The pan-European STOXX 600 index (.STOXX) rose 0.9%, as of 0822 GMT. The benchmark lost 0.9% on Friday after Trump unexpectedly called for sharp tariffs on goods from the European Union, saying that negotiations with the region were not moving fast enough.
On Sunday, Trump extended the deadline for tariffs to July 9 from June 1, after European Commission President Ursula von der Leyen said the 27-nation bloc needed more time to produce a deal.
The automobiles and parts index (.SXAP), sensitive to tariff-related pressures, rebounded by 1.1%. Stellantis (STLAM.MI) gained 2.5%, Mercedes (MBGn.DE) rose 1.9% and Valeo jumped 4.9%.
Luxury stocks, highly exposed to the U.S. market, gained. Shares of Kering (PRTP.PA), LVMH (LVMH.PA) and Richemont (CFR.S) rose between 0.9% and 1.4%.
Economically-sensitive banks (.SX7E) surged 1.2%, while technology stocks (.SX8P) rose 1.7%. The European aerospace and defence index (.SXPARO) led the sector gains, advancing 1.8%.
"One thing is for sure, whatever is said has to be taken with a pinch of salt because the narrative changes so fast. So whatever is true right now may not be true in about 10 minutes," said Ipek Ozkardeskaya, a senior market analyst at Swissquote Bank.
The euro jumped along with other risk-sensitive currencies, as Trump backtracked from his tariff threats, while the dollar extended its fall against a basket of currencies.
Rising concerns about the U.S. economic slowdown and fiscal woes, underscored by Moody's credit rating downgrade on May 16, are increasingly persuading investors to limit their exposure to U.S. assets.
"There was this very deep and very historically anchored sentiment among investors that if you want to have a low-risk portfolio, a low-risk investment, the U.S. is where you would go first," Ozkardeskaya added.
"But with the trade tensions and geopolitical tensions, this favorable sentiment towards the U.S. assets has shifted."
Trading volumes were lighter than usual due to public holidays in the U.S. and the UK markets. However, U.S. stock futures were up more than 1.3%.
Meanwhile, remarks from ECB President Christine Lagarde will be closely monitored later in the day, apart from key data from the region this week.
