Portugal Colonial - Stocks drop after US economy contracts amid tariffs turmoil

Instead of increasing slightly as analysts expected, US GDP fell 0.3 percent in the first quarter -- a huge reversal from the 2.4 percent growth seen in the fourth quarter of last year.

Wall Street indexes opened sharply lower, dragging down most European markets in their wake.

"The long-predicted slowdown in the US economy has indeed materialised," said Jochen Stanzl, chief market analyst at CMC Markets.

"Although the precise extent to which tariffs will dampen growth remains unclear, the prevailing view is that the trajectory will be downward rather than upward," he said.

The report also bodes ill for US labour market data on Friday, which could reveal a larger-than-expected slowdown in hiring as firms brace for tariff turmoil that would dent consumer and business spending.

Investors are also awaiting key US inflation data later Wednesday to gauge the tariff impacts, which could determine whether the Federal Reserve will cut rates as Trump has vociferously urged on social media in recent days.

"Both reports will be key data points for the Fed, particularly with its two-day meeting and interest rate decision due next week," said Bret Kenwell, an analyst at the trading platform eToro.

The surprise GDP contraction "will likely raise the probability of a recession in the US over the next twelve months", added Richard Flax, chief investment officer at Moneyfarm.

Most European stocks had advanced earlier following data that showed the eurozone economy expanded more than expected in the first quarter, despite the uncertainty over tariffs.

But shares in German auto giants Volkswagen and Mercedes-Benz fell after they reported big drops in the first-quarter net profit.

Mercedes-Benz and US-European auto giant Stellantis also suspended their annual financial guidance due to uncertainty over Trump's 25-percent tariffs on car imports, though the US leader softened the levies on Tuesday.

In Asia, data on Wednesday showed that tit-for-tat tariffs between the United States and China began to bite in April, as Chinese manufacturing activity contracted at its fastest pace since July 2023.

That came after Chinese exports soared more than 12 percent last month as businesses rushed to get ahead of the swingeing tariffs.

"Tariffs are a lose-lose proposition, and the PMI data is our first official look at how it's affecting China. Our take is that there's a clear negative shock taking place," said Lynn Song, chief economist for Greater China at ING.

Hong Kong's stock market advanced, but Shanghai slipped.

Tokyo rose, boosted by a 7.1 percent surge in Sony fuelled by a report that it is considering spinning off its chip unit -- a move investors hope will unlock value in the Japanese entertainment and electronics company.

Equities had clawed back much of the losses suffered in early April as Trump has shown more flexibility on some issues and as governments hold talks with Washington.

US Commerce Secretary Howard Lutnick said he had reached a deal with a country but did not name it, while Treasury Secretary Scott Bessent said progress had been made with India, South Korea and Japan.

Oil prices extended losses on concerns that the trade war will slow growth and reduce demand, and as traders expect a stronger increase in oil production by OPEC+.

- Key figures at 1340 GMT -

New York - Dow: DOWN 1.3 percent at 40,017.38 points

New York - S&P 500: DOWN 1.7 percent at 5,469.22

New York - Nasdaq DOWN 2.2 percent at 17,079.95

London - FTSE 100: DOWN 0.1 percent at 8,453.19

Paris - CAC 40: DOWN 0.2 percent at 7,539.28

Frankfurt - DAX: DOWN 0.5 percent at 22,323.09

Tokyo - Nikkei 225: UP 0.6 percent at 36,045.38 (close)

Hong Kong - Hang Seng Index: UP 0.5 percent at 22,119.41 (close)

Shanghai - Composite: DOWN 0.2 percent at 3,279.03 (close)

Euro/dollar: DOWN at $1.1375 from $1.1390 on Tuesday

Pound/dollar: DOWN at $1.3342 from $1.3399

Dollar/yen: UP at 142.76 yen from 142.22 yen

Euro/pound: UP at 85.23 pence from 85.08 pence

West Texas Intermediate: DOWN 0.9 percent at $59.90 per barrel

Brent North Sea Crude: DOWN 0.9 percent at $62.71 per barrel

E.Borba--PC