EUROPE MARKETS: Europe Stocks Hammered By U.S.-China Trade Tensions

By Steve Goldstein, MarketWatch

Europe stocks dropped sharply on Monday on concerns about being caught up in escalating U.S.-China trade tensions.

   The Stoxx Europe 600   index slumped 2.06% to 370.37, in broad-based selling. 

The U.K. FTSE 100 index slumped 2.24% to 7241.13, the German DAX skidded 1.81% to 11657.52 and the French CAC 40 slumped 2.18% to 5241.94.

What's moving markets

Asian stocks were hit hard as the dollar rose about the key 7 level vs. the Chinese yuan (http://www.marketwatch.com/story/chinas-yuan-falls-below-key-level-with-us-dollar-2019-08-04), and as protests continued in Hong Kong.

"Today's decision by China's central bank to allow the yuan to breach the watershed 7 per dollar mark is a result of the threat by President Trump to impose further U.S. tariffs on imports from China. But it is also consistent with China's policy increasingly to allow the currency to move in line with currency market pressures," said analysts at Oxford Economics.

Markets are still reacting to the news that the U.S. plans to impose 10% tariffs on $300 billion of Chinese goods that, unlike past tariff rounds, would focus on consumer products. China has said it would retaliate.

"German manufacturing continues to weaken. Driven by China weakness and autos, a swift turnaround seems unlikely. This is Europe's weak spot," said Ruben Segura-Cayuela, an economist at Bank of America Merrill Lynch.

Related:Recession will come in 9 months if Trump takes this one step, Morgan Stanley argues (http://www.marketwatch.com/story/global-recession-will-come-in-9-months-if-trump-takes-this-one-step-morgan-stanley-argues-2019-08-05)

The yield on the key 10-year Treasury dropped as traders priced in the possibility of more Fed rate cuts. "The fact that the Fed bases its interest rate policy on US-China trade tensions rather than the economic data raises the suspicion that Donald Trump may be adding fuel to the flames on the Chinese side to increase pressure for lower rates," said Ipek Ozkardeskaya, senior market analyst at London Capital Group. U.S. stock futures pointed to a sizeable decline at the open.

Focus stocks

HSBC Holdings shares (HSBA.LN) (HSBA.LN) dropped 2.1% after the bank ousted its chief executive (http://www.marketwatch.com/story/hsbc-ceo-john-flint-ousted-after-just-18-months-2019-08-04), John Flint, and announced a rise in second-quarter profit. The bank also announced it is going to cut thousands of jobs (http://www.marketwatch.com/story/hsbc-to-cut-thousands-of-jobs-after-ceo-ouster-2019-08-05).

Shares of Linde PLC (LIN) rose 1.8% in Frankfurt, after the industrial gases company reported a second-quarter profit and sales that topped expectations and provided an upbeat full-year outlook.

Scout24 (G24.XE) shares edged up 0.9% as the activist investor Elliott (http://www.marketwatch.com/story/elliott-advisors-pressures-scout24-2019-08-05) pushed the German classifieds firm to sell its car-listings business and ramp up a share buyback.

(END) Dow Jones Newswires

August 05, 2019 07:58 ET (11:58 GMT)

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