By Carla Mozee, MarketWatch

Tit-for-tat tariff threats unsettle markets

Investors knocked European stocks to a near three-week low Tuesday, after U.S. President Donald Trump indicated his administration was 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 performed

The Stoxx Europe 600 Index dropped 0.7% to end at 383.21, marking its lowest close since May 31, even as it managed to pare an intraday loss of 1.3%. The basic materials and tech sectors fell by the most, but utilities turned higher. On Monday, the pan-European index logged a 0.8% drop (http://www.marketwatch.com/story/european-stocks-slump-as-merkel-comes-under-pressure-in-germany-2018-06-18).

Germany's DAX 30 index retreated 1.2% to 12,677.97, extending Monday's 1.4% decline as German Chancellor Angela Merkel's governing coalition remained under pressure over the issue of immigration. France's CAC 40 index fell 1.1% to 5,390.63, the lowest finish since April 18.

But Italy's FTSE MIB index ended 0.1% lower at 22,084.33, but gains for bank stocks help the index pare an intraday decline of more than 1%. Spain's IBEX 35 also fell by more than 1% during the session but closed down 0.1% at 9,755.40.

The U.K.'s FTSE 100 gave up 0.4% (http://www.marketwatch.com/story/ftse-100-drops-as-us-china-trade-fight-intensifies-2018-06-19) and wrapped up the session at 7,603.85.

The euro pulled back to $1.1571, compared with $1.1624 late Monday in New York. The shared currency stepped lower during the session after European Central Bank President Mario Draghi reiterated the central bank's dovish message on monetary policy, indicating that it could extend its bond-buying program if necessary (http://www.marketwatch.com/story/ecbs-draghi-says-bank-could-extend-qe-if-warranted-2018-06-19). That program is set to end in December.

What drove markets

A slide in Asian equities on the back of the increasing trade tensions set the tone for European stocks. The Shanghai Composite fell 3.8%, and the Shenzhen index tanked 5.8% in Asian trade 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). Meanwhile on Wall Street, the Dow Jones Industrial Average faced losing the gains it's made in 2018. (http://www.marketwatch.com/story/dow-futures-slump-more-than-300-points-as-fears-of-a-us-china-trade-war-ratchet-up-2018-06-19)

Trump said "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," in a statement late Monday. Beijing responded by threatened tariffs of its own 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), state-run Xinhua News Agency reported.

The Stoxx Europe 600 Basic Resources Index , which includes mining stocks, stumbled 2.5%, 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).

Read:Escalating U.S.-China trade spat comes at a bad time for global growth, economist says (http://www.marketwatch.com/story/escalating-us-china-trade-spat-comes-at-a-bad-time-for-global-growth-economist-says-2018-06-15)

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, which would feel the pain on reduced metals demand from China, Anglo American PLC (AAL.LN) fell 2%, Antofagasta PLC (ANTO.LN) lost 1.6%, and steel maker ArcelorMittal PLC (MT) fell 3.8%.

Elsewhere, shares of Volkswagen AG (VOW.XE) (VOW.XE) fell 2.4% 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 13:13 ET (17:13 GMT)

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