European stock markets sank yesterday after US President Donald Trump reportedly raised the stakes in a global trade war with China, dealers said.
London stocks dived by over 1%, hit also by weak manufacturing data on the eve of a likely UK interest rate hike, while Frankfurt and Paris showed smaller losses at the closing bell.
London’s FTSE 100 fell 1.2% at 7,652.91 points; Frankfurt’s DAX 30 was down 0.5% at 12,737.05, while Paris’ CAC 40 fell 0.2 % at 5,498.37 at close.
Wall Street gave up early gains to trade unchanged approaching midday in New York, with Dow member Apple’s shares surging following a stronger-than-expected earnings report.
In a mixed Asia session, Shanghai and Hong Kong both lost ground, despite overnight Wall Street gains.
“European stock markets are largely lower as fears about global trade have crept back into traders’ psyches,” said CMC Markets UK analyst David Madden.
“Tensions between the US and China have risen after President Trump threatened to slap a higher tariff on $200bn worth of Chinese imports,” Madden said. “This is seen as a move by Mr Trump to put pressure on Beijing.”
Trump is now considering a 25% tariff on $200bn in Chinese imports, rather than the 10% previously touted, reports said Tuesday.
Contradicting reports surrounding the state of US-China trade relations were creating “a sense of confusion across markets, while also possibly desensitising investors towards global trade developments”, said Lukman Otunuga, an analyst at FXTM.
This was weighing on “risk appetite”, he said.
The US imposed tariffs of 25% on $34bn of Chinese products earlier this month, with plans to add another $16bn of imports on Tuesday.
“The Trump administration has decided to use another aggressive tactic to bring China on the negotiating table,” noted ThinkMarkets analyst Naeem Aslam.
In Beijing meanwhile, Chinese foreign ministry spokesman Geng Shuang said yesterday that “blackmail and pressure from the US side will never work on China”.
The latest developments mark a major ramping up of pressure over Washington’s trade standoff with Beijing.
“Yesterday’s optimism over progression on US-China talks has fallen short, as China calls out US President Donald Trump for attempting to blackmail the Chinese with threats of further tariffs,” added IG analyst Joshua Mahony.
Back in London, the Bank of England is widely expected today to hike interest rates to combat stubbornly high inflation, as it also eyes potential fallout from both Brexit and the global trade war, economists said.
Policymakers are forecast to increase the British central bank’s main interest rate by a quarter-point to 0.75 % — which would be the highest level for more than nine years.