European stocks tumbled, the euro gave back some gains, and euro zone government bond yields fell sharply on Friday after U.S. President Donald Trump said he is recommending a straight 50% tariff on goods from the European Union starting on June 1.
Trump's remarks in a series of social media posts, which also targeted Apple (AAPL.O), halted investors' expectations that the bulk of tariffs he announced in early April would be negotiated away, a view that had supported stock market gains in the past few weeks.
Europe's broad Stoxx 600 index (.STOXX) was last down 1.5%, with auto and luxury stocks both falling well over 3%. (.SXAP), Germany's exporter-heavy DAX (.GDAXI) fell 2.3%.
U.S. S&P 500 futures also fell around 1.5%, as investors also worried that the tariffs would hurt U.S. and global growth.
"This is a major escalation of trade tensions," said Holger Schmieding, chief economist at Berenberg.
"With Trump, you never know. But this would be a major escalation. The EU would have to react and it is something that would really hurt the U.S. and European economy."
The White House has been in negotiations with numerous countries over trade issues, and has agreed deals with Britain, and China.
The back and forth on tariffs in recent weeks has left long-term investors flying blind, as changes in policy whipsaw markets.
The STOXX 600 fell around 12% in a few days in early April after Trump's April 2 tariff announcement, but steadily recovered in the weeks that followed. At the start of this week, it had rebounded 16% from those lows, and was last less than 1% off its April 2 close.
A measure of European stock market volatility posted its biggest one-day jump since the turmoil sparked by the April 2 announcement. (.V2TX)
Investor expectations that tariffs would hurt economic growth in the currency bloc caused them to up bets on the scale of European Central Bank easing this year, and sent them scurrying towards government bonds.
Germany's rate-sensitive two-year bond yield was last down 8 basis points at 1.75%, while benchmark 10-year yields were down 7 bps at 2.57%. ,
In currency markets, the biggest gainer was the safe-haven Japanese yen. The dollar was last down 1% on the yen at 142.5, while the euro was down 0.5% at 161.58 yen. ,
The euro was more muted versus the dollar - in recent weeks investors have sold the U.S. currency when worried about tariffs - and so traders had to balance that with concern about the euro zone growth outlook.
The euro gave back some of its earlier gains against the dollar on the latest tariff news, but was last 0.5% higher on the day at $1.1335.
