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By Carla Mozee, MarketWatch

Tit-for-tat tariff threats unsettle markets

European stocks sank Tuesday, following sharp losses in Asian equities after U.S. President Donald Trump indicated his administration is looking to hit China with further tariffs on $200 billion in imported goods, ramping up trade tensions between the world's two largest economies.

How markets are performing

The Stoxx Europe 600 Index fell 1.1% to 381.51, heading for a third straight decline. No sector traded higher, and the basic materials and tech groups lost the most. On Monday, the pan-European index fell 0.8% (http://www.marketwatch.com/story/european-stocks-slump-as-merkel-comes-under-pressure-in-germany-2018-06-18).

Germany's DAX 30 index retreated 1.6% to 12,627.07, after falling 1.4% on Monday as Chancellor Angela Merkel's governing coalition came under pressure. France's CAC 40 index fell 1.2% to 5,385.06.

Spain's IBEX 35 dropped 1.3% to 9,639.30, and the U.K.'s FTSE 100 gave up 0.9% to 7,591.63. Italy's FTSE MIB index slid 1.5% to 21,790.06.

The euro pulled back to $1.1585, from $1.1624 late Monday in New York.

What's driving markets

A slide in Asian equities set the tone for European stocks and U.S. stock futures , which were under heavy pressure before Wall Street's open. The Shanghai Composite fell 3.8%, and the Shenzhen index tanked 5.8% in Asian trade. The losses came after Trump threatened more tariffs on more Chinese goods (http://www.marketwatch.com/story/trump-seeks-additional-200-billion-in-tariffs-against-china-and-threatens-even-more-2018-06-18).

"Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship," Trump said in a statement late Monday.

For its part, Beijing is threatening to impose tariffs on another batch of U.S. products (http://www.marketwatch.com/story/china-threatens-further-tariffs-on-us-products-as-trade-conflict-escalates-2018-06-19) if the Trump administration follows through with a second round of levies, state-run Xinhua News Agency reported.

The Stoxx Europe 600 Basic Resources Index , which includes mining stocks, stumbled 2.1%, lagging other sector indexes. Analysts have said a trade war could lead to reduced demand for industrial and precious metals, and China is the world's largest buyer of copper.

Tech stocks dropped despite a report that U.S. tariffs would spare iPhones produced in China (http://www.marketwatch.com/story/asian-markets-sink-led-by-apple-suppliers-on-trumps-latest-tariff-threat-2018-06-18).

What strategists are saying

"This latest escalation, if it materialized, would mean significant economic impact in China, the U.S. and elsewhere at a sensitive time for the global economy. It will not be easy for the U.S. to identify$200 billion of imports from China to levy tariffs on without hurting U.S. companies and/or consumers, given the strong involvement of U.S. companies in a large share of China's exports to the U.S.," said Louis Kuijs, head of Asia economics at Oxford Economics, in a note.

"While there is in principle still room for negotiation, attitudes seem to be hardening on both sides. The new U.S. initiative calls for a domestic process similar to the one followed with the initial tariff proposals, including consultation. This means it will take a few months before the new tariffs would be imposed," Kuijs added.

Stock movers

Among mining stocks, Anglo American PLC (AAL.LN) fell 2%, Antofagasta PLC (ANTO.LN) shed 1.5%, and steel maker ArcelorMittal PLC (MT) fell 2.6%.

Shares of Volkswagen AG (VOW.XE) (VOW.XE) were down 2.6% following the arrest of Audi's chief executive, Rupert Stadler, on Monday over emissions-test cheating. Prosecutors jailed the head of VW's luxury unit without bail on worries he might try to interfere in a probe into whether he was involved in the diesel-emissions cheating scandal.

(END) Dow Jones Newswires

June 19, 2018 04:35 ET (08:35 GMT)

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