Europe close: US-China trade talk concerns sap investor sentiment
Stocks on the Continent saw modest losses with investors catching their breath as they awaited clarity on the US-China trade talks, even amidst multiple stark warnings regarding the potential risks for the global economy that lay on the horizon.
Capturing the mood music in markets perhaps, CMC Markets UK's, David Madden, told clients: "Stocks are in the red as the concerns about China’s economy are still doing the rounds.
"The fear of a global slowdown is playing on traders minds' and the major equity benchmarks in Europe are lower this afternoon. The geopolitical situation isn’t looking too hot at the moment and traders are nervous."
Indeed, overnight news broke of a warning from the Chinese President himself, Xi Jinping, to provincial bosses and ministers about risks including to the Communist Party's hold on power in the face of a slew of challenges, including from slow growth.
Against that backdrop, the benchmark Stoxx shed 0.36% or 1.27 points to 355.09, alongside a drop of 0.42% or 20.25 points for the French Cac-40 to 4,847.53 while the FTSE Mibtel was off by 1.03% or 201.37 points at 19,437.27.
In parallel, the Stoxx 600 sector gauge for banks fell 0.94% to 140.77, with shares of UBS near the bottom of the pile, having traded down by 3.17%. Basic Resources was another area of the market under pressure, with the corresponding sector gauge retreating 1.23% to 419.16.
Out in the commodities space, front month Brent crude oil futures were off by 3.259% at $60.76 per barrel on the ICE, alongside a 0.01% gain in euro/dollar to 1.13705.
Nearer to home, UBS reported that clients withdrew roughly $13bn of funds from its global wealth and asset management units at the end of 2018, with the Swiss investment bank going on to warn that heightened protectionism and geopolitical tensions would continue to take their toll in the first quarter of 2019.
Continuing with the Swiss theme, speaking at the World Economic Forum, in Davos, Blackrock chief, Steve Schwarzman, said US officials were "very focused" on China's compliance with any trade deal that might be agreed, Bloomberg reported.
Noting that it might be a 'dealbreaker', he proposed that Beijing create a "compliance bureau" under the supervision of China's vice-premier.
"That enforcement mechanism becomes key, and that's not something that the Chinese are used to," Schwarzman reportedly said.
But it wasn't all bad news - to a degree.
The ZEW Institute's widely-followed economic confidence gauge for Germany surprised positively, rising by 2.5 points from the previous month to print at -15.0 for January (consensus: -18.5).
The think-tank's President, Achim Wambach, expressed surprise at the results, describing the resilience in analysts' confidence in the face of trade tensions and the uncertainty around Brexit as "remarkable".
Nonetheless, analysts at Daiwa Securities were rather less enthused, pointing out that another index linked to the current situation in the Eurozone's growth engine fell by 17.7 points to 27.6, hitting its lowest reading since the start of 2015. That, they said, also meant it was down by a "whopping" 68.0 points over the past year and at its weakest in four years.
On a somewhat more positive note, equity strategists at Barclays Research were telling clients: "Soft Q4 results may not be a shock to the market as the de-rating of 2018 provides some cushion to equities. FY'19 estimates still look too high, but global economic surprises may be close to bottom and trade news-flow is turning more constructive.
"Cyclicals will likely see more downgrades ahead, but valuations and positioning have improved. We close our Tech UW."
Further south, Spain's INE reported a 34.8% increase in the country's trade deficit over the year to November to reach €30.6bn, with exports growing by 3.4% over that same time frame and imports 6.0% higher.