European shares hit 7-week low amid US-China trade standoff

European shares extended losses early on Monday from the biggest weekly slump this year as the U.S.-China deadlock quelled hopes that the two largest economies will be able to resolve their trade dispute anytime soon.

The STOXX 600 index dropped 0.5 per cent by 0855 GMT to hit 7-month lows. Germany’s trade-sensitive DAX under pressure more than its peers.

Asian shares fell and US stock futures also pointed to a sharply lower open as United States and China appeared at a deadlock over trade negotiations with Washington demanding promises of concrete changes to Chinese law and Beijing said it would not swallow any “bitter fruit” that harmed its interests.

Trade tensions have plagued investors all of last week with Washington hiking tariffs on $200 billion worth of Chinese goods by Friday, raising chances of a retaliation from Beijing and stoking fears that the tit-for-tat tariffs would dent global growth.

While all European sub-sectors were lower, the tariff-exposed autos significantly underperformed with its 1.7 per cent fall, especially weighed down by shares of Daimler AG.

Over the weekend Reuters reported that China’s BAIC Group may be seeking to buy a stake of up to 5 per cent in the Mercedes-Benz owner.

BAIC signalled its interest in buying a Daimler stake as far back as 2015, and has redoubled its effort after the chairman of rival Chinese carmaker Zhejiang Geely Holding Group built a 9.69 per cent stake in Stuttgart-based Daimler in early 2018.

“There has been loads of rumours of an Asian buyer in Daimler around over the last week,” a trader said, adding that such announcements normally come out after the buying has been done.

Among the biggest decliners was Thyssenkrupp, which tumbled 6.2 per cent after short-covering boosted its shares to a record surge on Friday. The German industrial giant said it would seek partners for its steel operations after abandoning a European merger with India’s Tata Steel.

Telecoms sector also took a big hit, pressured by Vodafone shares. The Times reported that the world’s second-biggest mobile operator was set to slash dividend to pay for auctions for mobile phone airwaves in Germany and Italy.

Novartis fell 0.6% after issuing a voluntary nationwide US recall of an oral suspension form of one of its best-selling medicine, Promacta due to potential peanut contamination.

Meanwhile gains in oil majors kept losses in check in London’s FTSE 100. On top of STOXX 600 was Britain’s largest energy supplier Centrica Plc after it maintained its full-year outlook despite warning about a challenging trading environment. In Paris, European stock market operator Euronext rose after winning a regulatory nod from Norway’s finance ministry to buy up to 100 per cent of Oslo Bors.

Britain’s FTSE 100 edged lower on Monday as Vodafone slipped after a report of a dividend cut, offseting gains in oil heavyweights, while concerns over the stand-off in Sino-U.S. trade negotiations continued to overshadow markets.

The FTSE 100 was down 0.1 per cent while the FTSE 250 was 0.4 per cent lower by 0832 GMT. Both indexes hit a more than six-week low.

Vodafone tumbled 3.4 per cent to the bottom of the main index after that the world’s second-biggest mobile operator was set to slash dividend to pay for auctions for mobile phone airwaves in Germany and Italy. Shares of rival BT also gave up 2 per cent.

Uncertainty around the trade situation loomed large as negotiations between Washington and Beijing seemed to be at a deadlock over the weekend.

“The rhetoric and posturing is not good for risk and events over the last few days diminish the likelihood we will see a meaningful deal done,” Markets.com analyst Neil Wilson said.

Spreadex analyst Connor Campbell said investors were “nervously waiting for China to blast back following last week’s aggressive trade war volley from the US.”

Sentiment was also weighed down by Brexit worries, amid a lack of clarity over where cross-party talks were headed and growing calls for Prime Minister Theresa May’s departure.

UK-focussed banks and industrial groups traded in the red on both indexes. However, concerns about supply disruptions in the Middle East led oil majors Shell and BP higher.

Another notable blue-chip gainer was British Gas owner Centrica, which added 1.6 per cent after maintaining its annual operating cash flow and net debt forecast despite a challenging trading environment.

Metro Bank, which has lost more than two-thirds of its value this year, slipped 6 per cent to hit another all-time low on the mid-cap index.

It said on Friday its plan to raise equity was well advanced, while a Financial Times report on Sunday said it was looking to sell loans that were hit by an accounting error.

Rating actions also drove some moves. Shopping centre operator Intu sank 5.5 per cent after a JP Morgan downgrade while hedge fund manager Man Group dropped 3.1 per cent after Goldman Sachs cut rating.

Reuters