A flare-up in diplomatic tensions with Russia abruptly cut short an attempted recovery in European stock markets yesterday, as Wall Street’s initially strong comeback also lost momentum.
The United States and its European allies expelled dozens of Russian diplomats in a co-ordinated action against Moscow which they accuse of poisoning an ex-spy in the English city of Salisbury.
Trade war fears meanwhile continued to hang over market sentiment like a dark cloud, although some investors became more optimistic amid signs that global trade players are making efforts to avoid an all-out trade conflict, dealers said.
Having held on to modest gains since the opening bell, key markets London, Paris and Frankfurt all slipped into the red in reaction.
London’s FTSE 100 was down 0.5% at 6,888.69 points, Frankfurt’s DAX 30 lost 0.8% at 11,787.26 and Paris’s CAC 40 slipped 0.6% t0 5,066.28 points at the close yesterday.
All three were also penalised by the strength of the euro and pound against the dollar.
“The rebound didn’t last,” said Marco Bruzzo, at Mirabaud Asset Management. “The market is still nervous.”
Wall Street also came off its early highs as Europe faltered, but still boasted a gain of more than a per cent approaching midday in New York.
The Wall Street Journal reported at the weekend that China and the United States had begun behind-the-scenes negotiations to improve American access to the Chinese domestic market.
The US move to impose $60bn in levies on China – claiming the country is breaching intellectual property rights – sparked a rout on equity markets across the world, while Beijing warned it was “not afraid of a trade war”.
US Treasury Secretary Steve Mnuchin said at the weekend that Trump was not ready to back down, but added that he had “very productive conversations” with Chinese officials on the issue.
Trump’s announcement came weeks after he unveiled tariffs on the import of steel and aluminium products as he presses on with his “America First” protectionist programme.
“How China escalates will determine the pace of play, but Chinese retaliation so far has been more genial than initially thought, and they have made efforts for a diplomatic solution,” said Stephen Innes, head of Asia-Pacific trading at OANDA.
Pedestrians walk past the London Stock Exchange. The FTSE 100 lost 0.5% to 6,888.69 points yesterday.
