European shares dip as trade caution lingers

• Frankfurt-listed shares fell 0.3pc, as data showed retail sales in Germany dipped in October.
• The country, which is heavily reliant on trade with China, escaped a recession last quarter.
• Traders are now awaiting a raft of other economic indicators, including the euro zone unemployment rate.

European shares fell for the second straight session on Friday as investors grew fearful that China's retaliation to a US law backing Hong Kong protesters could threaten to derail negotiations on a trade truce between the two countries.

On Thursday, China warned of "firm counter measures" to the law. The editor of China's state-backed Global Times tabloid said later in a tweet these could include barring drafters of the legislation from mainland China, Hong Kong and Macau.

The pan-European STOXX 600 index was down 0.2pc, but still on track for its best week in three after a boost from positive headlines on trade earlier in the week.

"We were hoping that by December we might see some news, but it's going to be difficult to achieve that at the moment," said Jonathan Bell, chief investment officer at Stanhope Capital.

"The strong run we've seen in markets recently, I suspect, will tail off as we head towards the year-end. Next year, I think we'll still see an agreement."

The deal was initially expected by mid-November. In the absence of an agreement, the next round of US tariffs is due to take effect in just over two weeks.

Frankfurt-listed shares fell 0.3pc, as data showed retail sales in Germany dipped in October, suggesting private consumption took a pause before the Christmas shopping season.

German shares have recovered in the past two months as the latest batch of data signalled that an economic downturn in Europe's powerhouse could be bottoming out.

The country, which is heavily reliant on trade with China, escaped a recession last quarter, but the manufacturing sector is still declining.

Traders are now awaiting a raft of other economic indicators, including the euro zone unemployment rate for October and preliminary GDP figures for the fourth quarter from Italy.

Norway's largest bank DNB fell 6pc to the bottom of the STOXX 600 index after police said they were investigating to establish whether any laws were broken in its handling of payments from an Icelandic fisheries firm to Namibia.

In a bright spot, British online grocer Ocado jumped 15pc, tracking its best day since May 2018, as the company signed its first deal in Asia with Japan's Aeon.

The wider retail index was one of the biggest gainers among the major European sectors.