Picture: 123RF/SOLAR SEVEN
Picture: 123RF/SOLAR SEVEN

London — European stocks opened higher on Wednesday, recovering some of the losses made in the previous session when US President Donald Trump surprised world markets by saying a trade deal with China could wait until after the 2020 presidential election.

US stocks sold off for a third consecutive session overnight, while Asian shares extended losses as hopes for a quick preliminary agreement between the world’s two biggest economies were dashed.

A full-blown global trade war is seen as the biggest threat to world markets. Fresh US tariffs on Argentina and Brazil, plus a threat to impose duties on French goods, are fueling fears that risks are tilting towards an escalation of the crisis.

“Any doubts about the vulnerability of equity markets to the mood of the US president should have been dispelled, as his recent tweets and comments have nearly wiped out the entirety of November’s gains,” said Ian Williams, economics and strategy analyst at Peel Hunt.

The pan-European equity index Stoxx 600, which had slumped 2.2% since the beginning of December, rose 0.4%, but futures markets were still pointing to a slightly negative open on Wall Street.

The mood on the European trading floor is subject to change, with investors awaiting a salvo of surveys on the health of the service sector of major European countries.

“For some months now there has been a concern that the weakness in the manufacturing sector might start to weigh on services activity and there has been some evidence of that in recent months, though not quite to the same extent,” wrote Michael Hewson, chief market analyst at CMC Markets, in a note to clients.

The latest trade-war scare has put the brakes on a rally that had lifted the S&P 500 since early October, when top diplomats from China and the US met and outlined an initial agreement that Trump said he hoped could be sealed within weeks.

US commerce secretary Wilbur Ross said that if no substantial progress is made soon, another round of duties on Chinese imports including cellphones, laptops and toys would take effect on December 15.

The US House of Representatives’ passage of a bill proposing a stronger response to a crackdown on Muslims in China’s west also added yet another layer of tension, drawing swift condemnation from Beijing on Wednesday. Beijing’s handling of civil unrest in Hong Kong has also drawn criticism from Washington.

“The market was too complacent, thinking both superpowers would be able to compartmentalise these issues away from the broader trade narrative,” Stephen Innes chief Asia market strategist at AxiTrader, said in a note.

In currency markets, the euro was flat against the dollar at 1.1081. The yen and Swiss franc, seen as safe havens during market storms, were making gains, up 0.17% and 0.13%, respectively.

European yields continued their descent on Wednesday as investors continued to fret about the effect of America’s trade war, falling between one and two basis points.

The yield on benchmark 10-year US treasuries fell as low as 1.6930% overnight, the sharpest fall since May and was trading at 1.7105% on Wednesday.

Gold rose 0.4% to $1,482.9 an ounce.

Brent crude futures were up 0.58% at $61.17 a barrel while US West Texas Intermediate (WTI) crude gained 0.52% to $56.39 a barrel.

Reuters