European stocks drop on fears of new trade war escalation

LONDON: Europe's stock markets slid Tuesday on fears of a new escalation in the burgeoning trade war between China and the United States, dealers said.

Frankfurt equities fell 0.6 percent and Paris shed 0.3 percent, while London lost 0.6 percent despite data showing that Britain's unemployment rate held at a 43-year low of 4.0 percent.

"The European indices took a tumble after it was reported that China is seeking permission from the World Trade Organization to impose sanctions on the United States, relating to America's non-compliance with a dumping duties ruling tracing back to 2013," said Spreadex analyst Connor Campbell.

"This news immediately sparked fears that the next round of trade war escalation is not far off.

"The Dow Jones (Industrial Average) is set to join them in the red once the bell rings on Wall Street."

President Donald Trump had already ramped up the China-US tariffs row late last week by threatening to tax all imports from the Asian giant, sending equities further into the red on Monday.

While some investors are returning to pick up bargain stocks, ongoing worry about a possible full-blown trade war between the world's top two economies is keeping a lid on prices.

- Heavy selling -

"US futures have come under heavy selling early in the European session off the back of news that China has asked the World Trade Organisation for authorisation to impose trade sanctions on the US," added AxiTrader analyst James Hughes.

"This is reported as being in retaliation to alleged non-compliance of a trade dispute ruling, with some suggesting the move now is a precursor to the imminent US tariffs on Chinese imports.

"The news is breaking now so the response from Washington in the next few hours will be closely followed."

Asian investors meanwhile trod uneasily on Tuesday as concerns over trade and emerging markets also dragged on confidence.

Hong Kong fell 0.7 percent and is now more than 20 percent from its record touched in January, putting it in a bear market. Shanghai ended down 0.2 percent around lows not seen since January 2016.

However, Tokyo rose 1.3 percent as exporters were supported by a weaker yen.

Dealers are also awaiting developments in Argentina, which is holding talks with the International Monetary Fund on accessing bailout cash as it looks to avert an all-out crisis.

The country's troubles, along with worries in Turkey and South Africa, have led to concerns of contagion in other emerging markets or even the global economy.

- Pound holds steady -

Sterling steadied after surging Monday on comments from the European Union's chief Brexit negotiator Michel Barnier that lifted hopes Britain will leave the bloc with some sort of divorce deal.

He said it was "realistic" to expect an agreement within the next eight weeks, with Britain slated to leave early next year.

"Barnier's optimism helped trigger a sterling relief rally as the markets were buying back volumes of short sterling position," said OANDA analyst Stephen Innes, adding that a deal could lead to a possible increase in interest rates.

However, there is some unease about an ongoing row within the ruling Conservative party over Brexit that is causing uncertainty about Prime Minister Theresa May's political future.

- Key figures around 1115 GMT -

London - FTSE 100: DOWN 0.6 percent at 7,236.80

Frankfurt - DAX 30: DOWN 0.6 percent at 11,909.63

Paris - CAC 40: DOWN 0.3 percent at 5,252.03

EURO STOXX 50: DOWN 0.5 percent at 3,291.94

Tokyo - Nikkei 225: UP 1.3 percent at 22,664.69 (close)

Hong Kong - Hang Seng: DOWN 0.7 percent at 26,422.55 (close)

Shanghai - Composite: DOWN 0.2 percent at 2,664.80 (close)

New York - Dow: DOWN 0.2 percent at 25,857.07 (close)

Euro/dollar: DOWN at $1.1585 from $1.1594 at 2100 GMT

Pound/dollar: DOWN at $1.3021 from $1.3027

Dollar/yen: UP at 111.35 yen from 111.13 yen

Oil - Brent Crude: UP 49 cents at $77.87 per barrel

Oil - West Texas Intermediate: UP 12 cents at $67.66