UPDATE 1-European shares retreat as U.S. law on Hong Kong sparks trade jitters

(Reuters) – European shares pulled back from near-record highs on Thursday, as U.S. President Donald Trump signed into law a bill backing protesters in Hong Kong, sparking doubts about a resolution to the prolonged tariff war between Washington and Beijing.

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

The law, which warns of sanctions against human rights violations in Hong Kong amid pro-democracy protests, drew a sharp rebuke from China for what it views as U.S. interference in an internal matter.

The pan-European STOXX 600 index was down 0.2% after closing Wednesday just points away from a record high, as the latest standoff threatens to derail trade negotiations between the world’s top two economies.

Shares of trade-sensitive auto parts makers .SXAP shed 0.8% in their sharpest one-day drop in more than a week. The tech sector .SX8P, which includes chipmakers with a large exposure to China, was down 0.6%.

“I wouldn’t go as far as to say that we’re back at square one, but this clearly underlines the more structural tensions between the United States and China,” said Teeuwe Mevissen, senior market economist at Rabobank.

“But the interests for both China and the U.S. to not escalate the situation and pause this conflict are still very much alive.”

European shares tracked global stocks higher this week as investors were 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.

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Investors are also closely watching economic indicators as Europe’s powerhouse – Germany – teeters on the edge of recession. Data this week showed German business morale rose in November, but the manufacturing sector is still declining.

Focus now turns to euro zone consumer confidence data and preliminary November inflation figures from Germany, with trading volumes expected to be light in view of the U.S. Thanksgiving holiday.

Among country indexes, the export-laden London’s FTSE 100 .FTSE and Germany’s DAX .GDAXI led declines. The blue-chip FTSE 100 was also pressured by a handful of stocks trading ex-dividend, including Vodafone (VOD.L), and a firmer pound. [.L]

Virgin Money UK Plc (VMUK.L) jumped 21.4% to the top of the STOXX 600 as traders reacted positively to provisions for the payment protection insurance mis-selling scandal, which were within its previous expectations.

The stock is on track for its best day since going public in 2016.

Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Uttaresh.V and Shounak Dasgupta



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