Europe stocks try battling back after Trump-inflicted meltdown

Punch-drunk stock markets attempted a comeback yesterday emboldened by a new flicker of hope for a US-China trade deal, but fears that President Donald Trump may yet unleash a tariff war capped gains.Trump’s threat to hike tariffs on $200bn of Chinese imports at the end of the week wiped more than $1tn off stock market valuations on Monday and Tuesday.Nervous investors shifted money into government bonds, gold or the Japanese yen, all attractive safe-haven assets in times of uncertainty.“We’re in risk aversion mode in the markets as investors prepare for the prospect of tariffs on Friday rather than a trade deal between the world’s two largest economies,” said Craig Erlam, an analyst with OANDA.But analysts wouldn’t rule out Trump stepping back from the brink before the new tariffs become a reality, a view the president himself seemed to back Wednesday.While pressing on with his tariff plans, Trump also said that Chinese trade officials intend to “make a deal” when they arrive in Washington this week for talks.“US stocks are hovering around the flatline after overcoming an early drop after a tweet from President Donald Trump said China was coming here ‘to make a deal’,” Charles Schwab analysts said.But until any such deal actually happened, market participants should tread carefully, analysts warned.“The fact this could be little more than a bargaining gambit cannot be ignored,” said James Hughes, chief market analyst at AxiTrader. “Developments in the coming days could see volatility maintained.”Having traded mostly lower in the morning, key European markets posted small gains by the close, but investors clearly didn’t have the stomach to take big positions with so little visibility on trade developments.Frankfurt’s saving grace was a sharp gain in DAX index heavyweight Siemens which reported steady profits and announced the spinoff of its historic power and gas unit.Wall Street reversed an early weak trend to trade steady approaching midday in New York.“The two largest economic powerhouses, the US and China, either will be at a trade war or a trade peace and in reality there’s only a couple of people who know the answer to that and it isn’t those of us on Wall Street,” Larry Robbins, CEO of Glenview Capital Management, told Bloomberg TV.Earlier yesterday Asian markets slumped again, following Tuesday’s blowout on Wall Street.In Europe, London’s FTSE 100 gained 0.2% to 7,271.00 points, Frankfurt’s DAX 30 was up 0.7% to 12,179.93 and Paris’s CAC 40 rose 0.4% to 5,417.59 at close yesterday.Hopes that it could soon be back to business as usual on the trade front helped oil prices rise.Sterling slumped yesterday on signs that Brexit talks between Britain’s government and the main opposition party may soon collapse.The pound has been falling as negotiations between the Conservative and Labour Parties lumber on with little success and as concerns grow about a challenge to Prime Minister Theresa May’s leadership.But a suggestion by broadcaster ITV’s political editor that the talks could be pronounced dead later on Wednesday took Sterling down another leg.The pound dropped below $1.31 for the first time in a week, down 0.6% on the day. It also hit a six-day low versus the euro of 86.24 pence, again down 0.6% on the day.Volatility in currency markets is currently very low and in recent weeks investors have also curtailed their bets on big swings in the pound.The government conceded on Tuesday that Britain would take part in European Parliament elections this month, a poll that could deliver more bruising results to both major parties.“The announcement that the UK will take part in European elections confirms that cross-party Brexit talks aren’t going anywhere fast. This also refocuses attention on a leadership challenge to May. Favour the pound to “$1.2950,” said ING analysts in a note to clients.Some analysts attribute Sterling’s recent tepid performance to major risks that could yank the currency either way.“To the upside, the probability of no Brexit via a second referendum and vote to remain... has started to edge up again in recent days. The downside is associated with.. the risk of May being replaced as PM which is rising,” said RBC’s chief currency strategist Adam Cole.May agreed a withdrawal deal with the EU last year, but it was rejected three times by a deeply divided British parliament. That delayed the exit date, a postponement that has weighed on the pound as investors fret about prolonged political uncertainty.Sterling has traded in a narrow range of $1.28-$1.31 since Britain pushed its scheduled departure from the European Union back from March until October 31. There is still little clarity about when, how, or even if, Brexit will happen.Investors have been broadly impervious to tepid economic data recently and even relatively hawkish comments from the bank of England last week failed to jolt the currency.