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Europe stocks dragged lower by fresh worries over a trade war


European stocks came under pressure on Wednesday, as concerns flared up again over the potential for a full-blown U.S.-China trade war that could act as a drag on global growth.

What are markets doing?

The Stoxx Europe 600 index

SXXP, +1.03%

 fell 0.3% to 375.78, after closing Tuesday little recovered from an early-week selloff. The pan-European benchmark slumped 2% on Monday to log its worst one-day percentage decline since March 2 and its lowest end to a trading day since April 11, according to FactSet data.

The U.K.’s FTSE 100 index

UKX, +1.17%

 was modestly lower at 7,534.01, while Germany’s DAX 30 index

DAX, +1.50%

 dropped 0.3% to 12,203. France’s CAC 40 index

PX1, +1.42%

 slipped 0.2% to 5,268.99. The FTSE MIB Italy index

I945, +1.17%

 dropped 0.6% to 21,289.52.

The euro

EURUSD, -0.3691%

 was unchanged at $1.1649 from late Tuesday in New York. The pound

GBPUSD, -0.5445%

 extended losses, trading at $1.3213 from $1.3222 late Tuesday, after the Bank of England released its Financial Stability Report.

What is driving the market

A selloff for global equities appeared to be picking up where it left off on Monday, as investors grew increasingly concerned over ever-increasing tensions between the U.S. and China over trade. Worries that Europe will get caught in the crossfire have led investors to pull billions of dollars from European equity and bond funds in recent weeks, The Wall Street Journal reported. The European Union itself is also embroiled in a trade spat with the U.S.

Read: Harley-Davidson isn’t riding off to Europe simply because of the Trump tariffs

China’s Ministry of Commerce said Wednesday that the government is keeping a close eye on a U.S. plan to restrict Chinese investment as trade hostilities escalate, The Wall Street Journal reported. On Tuesday, President Donald Trump hinted he may ease up on tough new curbs on China’s tech investments.

Also Wednesday, investors were taking note of an unconfirmed report from SGH Macro Advisors that President Xi Jinping has warned his cabinet to get ready for a “full-scale trade war” and that the People’s Bank of China is may be ready to pare back or even cut purchases of U.S. Treasurys.

What are strategists saying?

“Early gains proved fleeting throughout Europe this morning, as the continued slide in global equities plays out yet again. With the trade war showing no signs of letting up, there is a substantial threat to the likes of the EU and China, given the substantial trade surplus they currently enjoy with the U.S.,” said Joshua Mahony, market analyst at IG.

Which stocks are in focus?

Shares of BASF SE

BAS, +1.55%

 fell 0.5% after the European Commission said it has opened an in-depth probe into the German chemical company’s proposed takeover of Solvay SE’s

SOLB, +1.25%

 nylon business.

Auto stocks were taking a hit, with Volvo AB

VOLVB, +2.07%

VOLVA, +1.96%

 down nearly 1% and Daimler AG

DAI, +0.55%

 falling 0.5%. On Friday, Trump threatened to put 20% tariffs on European cars in response to the EU’s decision to impose 25% tariffs on more than $3 billion in U.S. goods.

The Stoxx Europe 600 Automobile sector

SXAP, +1.02%

 has lost 9% year-to-date, putting it among the worst-performing sectors in the index.

Banks were down across the board, with Italian names leading the declines. Intesa Sanpaolo SpA

ISP, -0.34%

shares dropped 3%, and UniCredit SpA

UCG, -1.59%

 fell 2.7%.

Which economic data is in view?

French consumer confidence unexpectedly fell in June, hitting its lowest level in nearly two years, statistics agency Insee reported Wednesday.

The recovery in eurozone bank lending continued, as lending to non-financial corporations grew at an annual rate of 3.6% in May, according to a European Central Bank report. That marks the highest rate since May 2009.

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June 27, 2018

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