European shares drop as trade jitters return

(Reuters) - European shares retreated from a four-year peak on Thursday as concerns about a U.S.-China trade truce resurfaced after U.S. President Donald Trump signed into law a bill supporting protesters in Hong Kong, drawing a sharp rebuke from Beijing.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, November 25, 2019. REUTERS/Staff/File Photo

The law warns of sanctions against human rights violations in Hong Kong amid pro-democracy protests. In response, Beijing said it would take “firm counter measures” in what it views as interference in an internal matter.

The pan-European STOXX 600 index fell 0.1% after gaining for four straight sessions, as the diplomatic standoff threatened to derail trade negotiations between the world’s top two economies.

Shares of trade-sensitive auto parts makers led declines on the index, shedding 0.8% in their worst day in more than a week.

“The market is reacting in a cautiously positive way to the fact that we don’t have any details of (China’s) retaliation,” said Ken Odeluga, market analyst at City Index in London. “I think we’ll know more in the coming days and the market is keeping its powder dry for that.”

European shares tracked global stocks higher this week as investors turned hopeful that at least a partial trade deal would be signed by the end of the year. The next important date in the dispute is Dec. 15, when U.S. tariffs kick in on Chinese imports including electronics and Christmas decorations.

Investors are also closely watching economic indicators as Europe’s powerhouse - Germany - teeters on the edge of recession, although latest figures have signalled that the downturn could be bottoming out.

Fresh data on Thursday showed German annual inflation rose slightly in November, but remained well below the European Central Bank’s target level for the seventh month in a row. Traders also shrugged off a better-than-expected rebound in euro zone economic sentiment in November.

“It’s pretty clear that while some of the downturning growth may be stabilising, there’s no realistic or meaningful sign just yet that we have come to the end of the slowdown,” Odeluga said.

In corporate news, Virgin Money UK Plc jumped 19% in its best day since going public in 2016 as it said provisions for the PPI mis-selling scandal were within its previous expectations.

British online grocer Ocado rose 3.6% after saying it would open its first “mini” robotic warehouse by early 2021. The stock led the wider European retail index to a four-year high.

Reporting by Sagarika Jaisinghani in Bengaluru Editing by Uttaresh.V, Shounak Dasgupta and Frances Kerry