European stock markets took a hit on Thursday as investor optimism waned, fueled by uncertainty surrounding Ukraine and growing trade tensions.
The pause in the rally was partly attributed to EU leaders’ inability to finalize a €5 billion funding package for Ukraine, dampening investor sentiment. The European Central Bank’s cautious stance on the economy and inflation added to the bearish mood, especially in the defence and automotive sectors.
The pan-European Stoxx 600 Index slipped by 0.43%, while France’s CAC 40 fell 0.95%, and Spain’s IBEX 35 dropped 0.76%. Germany’s DAX was hit hardest, losing 1.24%, as industrial and automotive stocks experienced significant selloffs. Investor hopes for Germany’s fiscal reform faded after the EU summit failed to provide a clear plan to support Ukraine.
At a summit in Brussels on Thursday, the leaders of the 27 EU member states failed to reach an agreement on a €5 billion ammunition aid package for Kyiv, as France and Italy hesitated to commit to specific financial contributions. The bloc is also under pressure to assert its role to avoid being sidelined in the peace talks after US President Donald Trump brokered a 30-day ceasefire agreement on energy and infrastructure in Ukraine with the Kremlin and Kyiv.
A group of European nations, including Germany, Italy, and Poland, will meet in Paris next week to further address their position in Ukraine peace talks, with the UK, Canada, and Ukraine also expected to attend. European defence stocks, which had recently reached record highs, fell sharply following the day’s events. The Euro Stoxx Aerospace & Defence Index declined 2%, with shares in German arms manufacturer Rheinmetall plunging as much as 12% before recovering to close 3.2% lower. The stock had already dropped 4.5% in the previous session after a strong rally since mid-February.
Other major defence stocks also suffered losses, with Airbus falling 2.3%, BAE Systems down 1.76%, Rolls-Royce sliding 2%, and Safran declining 1.79%.
The automotive sector also saw steep declines due to mounting concerns over trade barriers. Volkswagen fell 4.15%, BMW dropped 3.53%, Mercedes-Benz lost 2.44%, Porsche declined 3.4%, and Stellantis retreated 3%. Carmakers are considered among the most vulnerable to trade tensions due to their extensive international exposure and manufacturing operations in Canada and Mexico—both of which have been primary targets of Trump’s tariffs.
Despite Thursday’s downturn, the sector had been on an upward trajectory since December, benefitting from Europe’s broader market outperformance.
