Europe close: Stocks take heavy hit from trade frictions

Stocks on the Continent got dinged on Thursday, weighed down by a slate of weaker-than-expected economic data ahead of the expected announcement of US trade tariffs against China later in the day.

Just as important, reports overnight indicated that Beijing had prepared a series of retaliatory measures which it might bring to bear in response.

In the event, shortly after the market close in Frankfurt, US president Donald Trump instructed the country's Trade Representative to draw up a list of goods worth at least $50bn on which levies would be imposed.

Against that backdrop, by the close of trading the benchmark Stoxx 600 had falled by 1.55% or 5.81 points to 369.15, alongside a 1.70% or 209.07 point fall to 12,100.08 on the German Dax while the Cac-40 was retreating 1.38% or 72.53 points to trade at 5,167.21.

In parallel, euro/dollar was still down a touch, off by 0.28% at 1.23030, alongside a six basis point drop in 10-year German bund yields to 0.53%.

Commenting on the White House's announcement, analysts at Capital Economics said: "The tariffs on Chinese imports outlined by President Donald Trump today won’t have a huge impact on the economy even if implemented in full, and we suspect they will end up being watered down.

"But as the market reaction today highlights, there is a clear risk that sentiment continues to deteriorate. And the damage from a further escalation of the trade conflict with China could be much greater."

Weak prints on key manufacturing and business sector surveys - partly do to such trade tensions, but between the US and Germany or the European Union - also weighed on sentiment.

The key IHS Markit euro area manufacturing sector purchasing managers' index dropped from a reading of 59.6 for February to 56.1 in March, marking a significant shortfall versus forecasts for a reading of 58.2.

IHS Markit's Chris Williamson put down at least part of that weakness to bad weather in Northern Europe, but said other factors were "clearly at play", with the export order book having halved.

IFO's widely-followed German business confidence index also weakened, from 115.4 last month to an 11-month low of 114.7.

That was only a shade weaker than expectations for a reading of 114.8, but according to the research institute's president, "the threat of protectionism is dampening the mood in the German economy."

"It is reassuring to know that German exporters have a strong footprint in the EU. For instance, car producers shipped 12% of their total exports to the US last year but 54% went to the EU (China: 9%)," said Dr.Andreas Rees, chief German economist at UniCredit Bank.

"We think that there is no reason to become overly pessimistic. The latest business sentiment data (Ifo, PMIs) still signal respectable GDP growth ahead."