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European stocks set to slip as trade tensions escalate

European markets were set to follow Asia lower on the first day of trading in June, while oil prices slipped and haven assets gained as trade tensions between the US and China escalated.

Futures pointed to broad losses at the open in Europe, with the composite Stoxx Europe 600 set to open 0.6 per cent lower after shedding nearly 6 per cent in May. London’s FTSE 100 was called to open with a fall of 0.5 per cent.

Over the weekend, China released a report on the state of US trade talks, criticising Washington for “exorbitant demands” and for “resorting to intimidation and coercion”. Separately, China’s commerce ministry said it would compile a list of “unreliable” foreign companies, while state media said the country would investigate FedEx for allegedly “undermining the legitimate rights and interests of Chinese clients”. 

Japan’s Topix was down 0.8 per cent to its lowest level since the start of January, Hong Kong’s Hang Seng index and the CSI 300 of Shanghai and Shenzhen stocks both slipped 0.2 per cent and Australia’s S&P/ASX 200 shed 1.2 per cent.

“The series of actions over the weekend means that China’s ‘long march’ has begun,” said Iris Pang, greater China economist with ING. “We take this seriously. It means that the trade war has not only become a technology war but also a broad-based business war.”

Stocks suffered their worst month of the year in May as trade tensions amplified global growth concerns, sending investors piling into the government bond market. The yield on 10-year German Bunds was recently hovering around all-time lows at minus 0.203 per cent.

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Investors reacted with dismay at the end of last week when Donald Trump opened up a new trade front by threatening tariffs on Mexico over migration. Goldman Sachs economists said the escalation “poses a risk to both corporate profit margins and the health of the US consumer,” and that they believe the opening 5 per cent levy planned for June 10 will be implemented.

Concerns over trade tensions spread beyond equities markets. Weak demand and global trade fears weighed on oil prices with Brent crude down 1.2 per cent at $61.22 per cent. The yen, which is seen as a haven in times of uncertainty, was flat on the day but holding at its strongest level against the US dollar since mid-January, and gold climbed 0.4 per cent to a 10-week high.


Coming up

  • Turkey consumer price index
  • Turkey manufacturing PMI
  • Italy, France, Germany, UK manufacturing PMIs

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Markets Briefing is a concise look at global markets, updated throughout the trading day by Financial Times journalists in Hong Kong, New York and London. Feedback? Write in the comments below or send us an email.


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