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EUROPE MARKETS: European Markets Slip On Further Worrying Signals From U.S.-China Trade

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05/22/2019 | 09:15am EDT

By Dave Morris

European markets drifted into negative territory as investors struggled to digest conflicting signals on U.S.-China trade.

How did markets perform?

The Stoxx 600 fell 0.5% to 377.64, after ticking up 0.5% Wednesday.

The U.K.'s FTSE 100 was flat at 7,328.91, after Wednesday's gain of 0.2%.

The pound fell to near 2019 lows after inflation data appeared to push the case for an interest-rate hike. The pound dropped 0.4% to $1.2653. It was up 0.4% Wednesday.

In Germany, the DAX slipped 0.2% to 12,107. On Wednesday, it increased by 0.8%.

France's CAC 40 dropped 0.4% to 5,361.2. It gained 0.5% Wednesday.

Italy's FTSE MIB dropped 0.7%, falling to 20,561.8 after posting an increase of 0.8% Wednesday.

What's moving the markets?

The picture for China-U.S. trade negotiations remains full of noise and static. On the positive side of the ledger, China's Washington Ambassador Cui Tiankai said the country was ready to continue talks, telling Fox News that "our door is still open" (https://www.reuters.com/article/us-usa-trade-china-diplomacy/china-ready-for-further-u-s-trade-talks-ambassador-says-idUSKCN1SR2K3). On the negative side, Tiankai blamed the U.S. for changing its mind "overnight" and breaking the tentative deal reached in previous negotiations.

Meanwhile, the U.S. considered adding more Chinese companies to its blacklist, which already includes Huawei. The New York Times reported (https://www.nytimes.com/2019/05/21/us/politics/hikvision-trump.html) that video surveillance equipment firm Hikivision Digital Technology could potentially be restricted from buying U.S. technology.

U.K. Prime Minister Theresa May's concessions to her Brexit deal were met with predictable scorn from hard-line Brexiteers within her own party, as well as the opposition Labour Party, according to media reports. Labour leader Jeremy Corbyn called it a "rehash of her bad old deal", (https://www.thetimes.co.uk/edition/news/tories-reject-may-s-final-attempt-at-brexit-deal-jzhtcv3hz) while Conservative leadership contenders Boris Johnson and Dominic Raab were staunchly critical. Environment secretary Michael Gove, an influential Brexiteer, indicated on the BBC's Today radio program that the proposal may not be brought forward for a vote.

The succession races for several top jobs in European politics are heating up. The Financial Times reported (https://www.ft.com/content/971433e0-7bbb-11e9-81d2-f785092ab560) that European Central Bank President Mario Draghi, whose term will end October 31, could be succeeded by Germany's Jens Weidmann. The Bundesbank president was a noted critic of the ECB's aggressive response to slowing economic growth.

In economic data, the U.K. reported lower than expected inflation. Purchasing Power Index (PPI) output in April was 2.1% higher than a year ago, though lower than predictions of 2.3%. Investors will be looking ahead to the release of the U.S. Federal Reserve's Federal Open Market Committee minutes.

Which stocks are active?

Banks and autos were among the losing sectors. Banco Santander (SAN.MC) fell 1% and Daimler AG lost 1.5%.

Marks & Spencer Group PLC (MKS.LN) shares fell over 7% after it reported its fiscal 2019 profits were dented by restructuring costs. It also announced details of a GBP601.3 million rights issue, signaled in February, to fund its joint venture with online grocer Ocado Group. Adjusted pretax profit fell 10% to GBP523.2 million. Citi analysts said the costs were "funding an exciting new chapter in the M&S investment case".

Royal Mail jumped 4.6% despite delivering the unwelcome news that the privatized postal service's dividend would be cut in order to fund investment in new services. Neil Wilson, chief market analyst for Markets.com, noted that the fiscal 2019 results showed parcel growth offsetting declines in letter volumes, and that spending on parcel-related services would help compete in an Amazon-driven mail-retail world. "Today's strategy update means going all in on parcels--it's about time," he wrote.

Stocks mentioned in the article
ChangeLast1st jan.
BANCO SANTANDER, S.A. -0.01% 3.965 End-of-day quote.-0.20%
CAC 40 0.17% 5657.69 Real-time Quote.19.14%
CAC 40 INDEX FUTURE (FCE) - LIF/C1 -0.38% 5623 Delayed Quote.19.37%
DAIMLER AG 0.90% 49.645 Delayed Quote.8.14%
DAX 0.05% 12754.69 Delayed Quote.20.79%
EURO STOXX 50 0.13% 3604.82 Delayed Quote.19.26%
FTSE 100 INDEX 0.28% 7234.11 End-of-day quote.0.00%
MARKS & SPENCER GROUP PLC -1.34% 195.75 Delayed Quote.-17.20%
OCADO GROUP PLC -0.69% 1296.5 Delayed Quote.63.80%
ROYAL MAIL PLC -2.96% 219.3 Delayed Quote.-19.40%
STOXX EUROPE 600 0.09% 394.59 Delayed Quote.16.05%
STOXX ITALY 45 (EUR) -0.26% 101.35 Delayed Quote.21.36%
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