Europe close: Rally pauses ahead of China-US trade talks

European stocks gave back some of Friday's gains as investors eyed the latest trade talks between the US and China.

The benchmark Stoxx Europe 600 index was down 0.15% at 342.88, while Germany's DAX dipped 0.18% to 10,747.81 and th Cac-40 gave back 0.38% to 4,719.17.

Periphery stocks fared better, with Spain's Ibex 35 adding 0.44% to reach 8,776.30 and the FTSE Mibtel advancing 0.65% to 18,953.27.

Officials from the US and China were due to meet for talks in Beijing later in the day in what will be the first discussions since Trump and Xi Jinping agreed a temporary truce in December.

James Hughes, chief market analyst at Axi Trader, said: "Although China has already telegraphed that it is happy to resolve the trade spat amicably, it’s difficult not to see Beijing as pushing for the best deal here.

"The White House is on the back foot, with a potentially damaging government shutdown ongoing and Donald Trump very much seen as the culprit of the recent stock market volatility. The trade deal - assuming it’s reached - should be good for stocks, but this point won’t have escaped Chinese negotiators."

In the US, meanwhile, the government shutdown entered its third week. Trump promised over the weekend to build his Mexico border wall out of steel as a compromise and repeated his threat that he may seek the necessary funding by declaring a state of emergency.

"While the direct impact of the shutdown is arguably limited, indirectly the fact that the president is considering bypassing Congress entirely by declaring an emergency highlights the elevated degree of policy paralysis in the US which is a further negative from a growth outlook perspective," Rabobank said.

In corporate news, France's Alstom was down following a report in Les Echos that the Alstom-Siemens rail deal is not likely to be approved by European Authorities.

Elsewhere, Heineken fizzed lower as Goldman Sachs cut the stock to 'sell' from 'buy'.

On the data front, figures out earlier showed Germany retail sales rose 1.4% on month in November, beating expectations for a 0.4% increase. The headline non-working day adjusted year-over-year rate fell to 1.1% from a revised 5.2% in October.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "German consumers’ spending appeared to have picked up in Q4, a bit, though we have to be careful making too much of the retail sales data given their usual volatility.

"Two points are important to make at the outset. First, Black Friday almost surely boosted today’s headline - seasonals haven’t yet caught up to this trend - so we have to expect a reversal in next month’s report. Second, the plunge in the headline year-over-year rate is misleading. The fully adjusted rate fell only marginally, by 0.2pp to 0.7%. Factoring in a 0.8% month-to-month dip in December, we estimate that retail sales increased 0.3% quarter-on-quarter in Q4, modest, but significantly better than the 0.5% fall in Q3."

Meanwhile, factory orders in the country fell 1% on the month in November, missing consensus expectations for a 0.1% dip. On the year, factory orders were down 4.3% compared to a 2.7% drop in October.

Elsewhere, the headline Sentix investor sentiment index for the eurozone slipped to -1.5 in January from -0.3 in December last year, coming in ahead of consensus expectations for a reading of -2.0. The index for the current situation edged up to 18.0 from 20.0 in December, but the expectations index fell to -19.3 from 18.8 last month.

"These are levels not seen since the sovereign debt crisis, highlighting just how depressed investor confidence is at the moment," said Vistesen.