European shares hit six-month lows in a volatile session on Thursday, with London stocks losing more than 1%, as China warned of retaliation against US tariffs, heightening fears of the continued impact of their trade war on global growth. But the pan-European STOXX 600 index made up for some losses after US stock futures turned positive and strong retail sales numbers from the United States subsequently helped Wall Street open higher.
The STOXX 600 closed down 0.3%, having fallen as much as 1%earlier in the session to its lowest since Feb. 11. China on Thursday vowed to counter the latest US tariffs on $300 billion of Chinese goods but called on Washington to meet it halfway on a potential trade deal, as President Donald Trump said any pact would have to be on the United States' terms.
Trump said on Wednesday he would strike a trade deal with China only after China found a humane resolution to weeks of protests in Hong Kong. "It's the trade war which is driving markets right now," said Craig Erlam, senior market analyst at Oanda. "The speed in which this trade war has ramped up in the past few weeks is considerable even by its own standards."
"Investors are just very sensitive to anything negative on trade," he said. Stocks have had a rollercoaster ride over the past two weeks, buffeted by new US tariff threats on China, their subsequent postponement, recession fears, political turmoil in Italy and the unrest in Hong Kong.
If falls were to continue at this pace, Europe's main index could fall beyond May's 5.7% slump which was the most in more than three years.
Weighing on the benchmark index the most on Thursday was a drop automakers and commodity stocks, the sectors that tend to fall the most during trade uncertainties due to their reliance on exports and demand from China.
Lower oil prices pressured oil stocks which weighed on London's FTSE 100 along with several heavyweight stocks that traded without dividend entitlement. A rally in the pound on strong UK retail sales also added to the FTSE's woes. In earnings news, strong numbers from beer maker Carlsberg and food retailer ICA pushed shares of both companies to the top of the pan-region index. Shares in Danish facility services provider Iss were at the bottom,
extend losses following quarterly results, with analysts pointing to concerns over free cash flow. Markets in Italy, Austria and Greece were shut for a public holiday.
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