Europe midday: Stocks jump after US-China trade talks, some analysts remain cautious

Stock markets across the Continent cheered the trade truce struck between the US and China at the weekend, looking past weak readings on euro area and Chinese manufacturing, although some analysts remained of a clearly cautious bent.

Commenting on the results of trade talks at the weekend, strategists at Bank of America-Merrill Lynch told clients that markets were likely to see the results of the trade talks as a "modest positive in the short-run".

However, BofA-ML emphasised how none of the existing trade levies had been removed; indeed, rate cuts by the US central bank might unintentionally allow for a more aggressive trade policy.

"We expect a deal with China later this summer, but it could take a large market correction to get there. The risk of another round of tit-for-tat tariffs remains elevated," BofA-ML said.

"We also expect tariffs on a growing list of products and countries in the coming quarters. In addition, if the dollar remains strong despite Fed cuts, we would not rule out FX intervention."

Against that backdrop, as of 1200 BST, the benchmark Stoxx 600 was higher by 0.88% to 388.28, alongside a rise of 1.24% to 12,552.10 for the German Dax, and a rise of 0.83% to 5,585.01 for the Cac-40.

Milan's FTSE Mibtel meanwhile was edging higher by just 0.29% to 21,296.08, despite a continued rally in the country's long-term government bonds.

Notably, despite a much weaker than expected reading on China's manufacturing sector, the Stoxx 600 gauge for Basic Resources was climbing by 1.58% to 468.42.

Technology stocks were also strong, adding 1.79%, on the back of news of a limited reprieve for Chinese telecoms equipment maker Huawei in the wake of the latest round of US-China trade talks

However, the latest batch of economic reports out of Europe made for a rather downbeat read.

In particular, survey compiler IHS Markit's factory sector Purchasing Managers' Index for June was marked lower from a preliminary reading of 47.8 to 47.6, amid downwards revisions to the data for France and Germany.

Credit to the private sector also shrank in June, the European Central Bank said, with the annual rate of growth slipping from 2.7% in April to 2.5% for June.

Unemployment in the euro area on the other hand continued to grind lower according to Eurostat, despite the slowdown in the bloc's economy, with the rate of joblessness unexpectedly retreating from 7.6% for April to 7.5% in May - reaching its lowest level since July 2008.