August 23, 2019 / 7:37 AM / a month ago

European shares slide as U.S.-China trade war intensifies

(Reuters) - European shares fell on Friday after U.S. President Donald Trump furiously reacted to China’s latest imposition of tariffs on certain U.S. goods, while a lack of direction in the U.S. central bank’s rate outlook somewhat frustrated investors.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, August 23, 2019. REUTERS/Staff

In a surprise move Beijing imposed additional tariffs on thousands of U.S. products effective Sept. 1, infuriating Trump who hit back asking U.S. companies to start looking for alternatives to their China operations.

“Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing ... your companies HOME and making your products in the USA,” Trump said as part of a series of tweets.

Markets reacted sharply to those developments, with Wall Street indexes shedding over 1% and the pan-European STOXX 600 ending 0.7% lower after a volatile session. Germany's trade-sensitive DAX .GDAXI fell 1.2%.

Trade-sensitive autos .SXAP, mining .SXPP and tech stocks .SX8P were the biggest losers across Europe, while defensive real estate stocks .SX86P were the only ones in positive territory.

The benchmark index still managed to record its first weekly gain in four weeks.

European equities have seen wild swings in August amid fears that the economic effects of the U.S.-China trade war could tip major economies into recession.

ECONOMIC PAIN

“The trade war will only get uglier and cause both sides more economic pain before we see a final resolution,” said Edward Moya, senior market analyst at OANDA.

“Trump is going to try to gather as many chips as he can to try and punish China before settling on a deal that appeases a majority ahead of the 2020 U.S. Presidential elections.”

U.S. Federal Reserve Chairman Jerome Powell’s latest comments also came under Trump’s attack as the President asked whether his appointee to the central bank was a greater “enemy” than China’s leader Xi Jinping to the country.

Powell, in a much anticipated speech at an economic symposium at Jackson Hole said the U.S. central bank would “act as appropriate” to keep the current economic expansion on track, but did not offer a clear indication on future interest rate-cuts.

“His statement wasn’t as clear as we hoped it would be, but it was enough to show that he was at least leaning toward a rate cut in September,” said Philip Marey, senior U.S. strategist at Rabobank.

London's FTSE 100 .FTSE had its fourth straight week of losses, the longest streak since February. Oil majors Shell (RDSa.L) and BP (BP.L) had the biggest negative impact on the day. [.L]

Among individual stocks, Kloeckner & Co (KCOGn.DE) shares jumped 7% after a newspaper said Thyssenkrupp (TKAG.DE) was in talks to buy the metals distributor.

Peppa Pig owner Entertainment One (ETO.L) hit a life high after agreeing to be acquired by Hasbro.

Reporting by Agamoni Ghosh & Amy Caren Daniel in Bengaluru; Editing by Patrick Graham and David Holmes

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