Europe open: Stocks drop sharply as Trump douses optimism on trade, geopolitics
European stocks have started the morning lower after the US President said he was not happy with the results of recent trade talks between his country and China.
Also overnight, Donald Trump mused aloud that a meeting between Washington and Pyongyang scheduled for 12 June could be delayed, in what some analysts believed was a bid to dial-back on excessive optimism ahead of the meeting.
Commenting on Trump's comments regarding foreign trade, Michael Hewson at CMC Markets UK said: "This optimism didn’t see out the day as it became apparent that a lot of Republicans were unhappy at some of the concessions being reported particularly in respect of Chinese telecoms company ZTE, and were seeking to block them if they came about."
In any case, his comments knocked Wall Street's main indices off their session highs and weighed on Asian trading. They also put a firm bid into US Treasuries as risk aversion in financial markets jumped.
As of 1056 BST, the benchmark Stoxx 600 was down by 1.02% or 4.03 points at 392.84, alongside a 1.58% or 208.33 point fall for the German Dax to 12,960.72
The worst performance however was to be seen in Milan's FTSE Mibtel, which was sliding 1.92% or 444.75 to 22,772.80.
Meanwhile, euro/dollar was trading lower by 0.44% to 1.17273, alongside a five basis point dip in the yield on the benchmark 10-year German bund to 0.51%.
"There is no [China trade] deal [...] We'll see what happens, but that deal I will say could be much different from the deal that finally emerges and it may be a much better deal for the United States," Trump said on Tuesday evening.
Markets were also waiting on political events in Italy, even as local press reports suggested the process of choosing a new Prime Minister might not be as straightforward as some had hoped for.
Investor sentiment was also knocked lower by a much weaker-than-expected reading on euro area economic activity for May.
IHS Markit's 'composite' purchasing managers' index, which tracks activity on both the manufacturing and services side of the economy, fell from a reading of 55.1 in April to an 18-month low of 54.1 for this month.
Economists had projected a reading of 55.0.
The survey's chief economist, Chris Williamson, cautioned that many firms had noted the unusually high number of public holidays in May as one of the chief factors that dragged on activity.
"However, it's also becoming increasingly evident that underlying growth momentum has slowed compared to late last year, especially in relation to exports," he said.
Dearer oil prices and rising wages were also pressuring companies' margins, as weak final demand meant they were at pains to pass those higher costs onto customers.
"Some of the fog will hopefully lift with the June PMI data, providing a clearer signal of the underlying growth momentum. Until then, however, it's likely that the disappointing May survey results will rekindle some concerns regarding downside risks facing the euro area economy."
Analysts at UniCredit bank chipped in, saying: "We see two main reasons for the loss of growth momentum in the eurozone: the deceleration in global trade compounded by fears of protectionist policies, and the recent spike in oil prices, which has already significantly raised gasoline prices at the pump, thus starting to erode the purchasing power of households."