European shares dropped on Friday after President Donald Trump intensified tariff threats against the EU, casting doubt on trade talks and dampening investor confidence.

The pan-European STOXX 600 index fell 0.7% to 548.98 points by mid-morning but remained on course for a weekly gain. Germany’s DAX declined 0.9%, France’s CAC 40 lost 0.8%, Spain’s IBEX dropped 0.6%, and the UK’s FTSE slipped 0.3% after briefly hitting a record high.

The drop followed Trump’s announcement of a 35% tariff on Canadian imports from 1 August, alongside warnings of a 15–20% tariff hike for other countries, including the EU. He also suggested a formal notice on EU tariffs could arrive by Friday, shaking hopes of a constructive deal.

"The recent DAX rally was built on expectations of better trade ties with the U.S., but this development challenges that optimism," said Jochen Stanzl of CMC Markets.

European banks led losses, with the banking index down 1.3%. Norway’s DNB fell 7.8% after disappointing earnings, while energy stocks gained 0.4% as BP reported strong Q2 output. Gjensidige rose 5.8% and Storebrand climbed 3.5% after strong earnings.

ECB’s Isabel Schnabel, meanwhile, noted that another rate cut is unlikely in the near term, citing resilient euro zone growth and stable inflation at 2%.

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