Europe open: Shares muted as investors eye China move on chip materials

European shares made a muted start on Tuesday as investors eyed the implication of China’s decision to tighten controls over exports of two key materials used to make computer chips.

The pan-European Stoxx 600 index was up 0.03% in early deals with most major bourses flat. There was little corporate news to drive sentiment US markets are closed for the for the Independence Day holiday.

China said that from next month, special licenses will be needed to export gallium and germanium. The country is the world's biggest producer of the metals.

‘’Just when the battle to tame inflation appears to be working, a fresh skirmish in the trade war between the US and China, threatens to snarl up supply chains, potentially pushing up prices,” said Hargreaves Lansdown analyst Susannah Streeter.

“China’s move to restrict exports of some rare earth metals, used in highly sought-after products such as semi-conductors, appears to be a tit-for-tat move, in response to US curbs on the sales of chips which are in high demand for AI capabilities.”

“Coming just days before Janet Yellen, the US Treasury Secretary is due to visit Beijing, the policy is likely to have been designed to put pressure on the US to release its current export bans and drop further curbs which are expected.”

In economic news, the Reserve Bank of Australia left its benchmark cash rate unchanged at 4.1% as it waited to assess the impact of recent rate rises to quell inflation.

Germany’s trade surplus missed expectations, falling to €14.4bn in May, from a revised €16.5bn and well below the consensus of €17.5bn, according to official data published on Tuesday.

In equity news, UK supermarket Sainsbury’s fell as it held guidance after a 9.8% rise in underlying sales.

Reporting by Frank Prenesti for Sharecast.com