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Europe: Shares fall on doubts over US-China trade truce


[LONDON] European shares fell on Tuesday led lower by auto stocks as investors started to question whether the truce agreed by the United States and China on their trade dispute would lead to a long-term deal.

After enjoying a rally for its first day of trading in December, Germany's DAX – the most sensitive to China and trade war fears – fell 1.1 per cent, while the broader pan-European Stoxx 600 index declined 0.8 per cent.

"The number one driver for global risk sentiment is the US-China trade talks, which suddenly don't look as promising as they did over the weekend," Commerzbank rates strategist Christoph Rieger wrote.

The European automotive sector, which is most sensitive to trade war fears, was the biggest sectoral faller, down 1.7 per cent. Shares in German carmakers Volkswagen , Daimler and BMW fell between 1.6 and 3 per cent.

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The tech sector was also a big loser, down 1.4 per cent. Chipmakers, which are also heavily exposed to China and trade, sustained heavy losses with AMS down 5.1 per cent, Siltronic down 8.1 per cent.

Adding to the weak sentiment, the yield curve between US three-year and five-year notes and between two-year and five-year inverted on Monday, a first since the financial crisis, excluding very short-dated debt.

Analysts now fear an inversion of the two-year, 10-year yield curve could be imminent and point towards a possible U.S. recession.

"Recessionary fear is starting to raise its ugly head," wrote Stephen Innes at broker Oanda.

Top faller on the Stoxx 600 was IG Group, down 9.7 per cent, after the British online trading platform forecast a drop in first half 2019 revenues as it suffered from newly-introduced limits on ordinary individuals making highly-leveraged financial bets.

French catering group Elior sank 8.6 per cent after cutting its sales growth outlook, and Belgian postal services firm Bpost plunged 22.8 per cent after a profit warning.

France's JCDecaux fell 2.9 per cent after Exane BNP Paribas reinitiated its coverage of the stock with an "underperform" rating.

Energy stocks gave up earlier gains as crude prices came off highs on worries that demand would stall due to a Sino-US trade war, and that Russia remained a stumbling block to a deal to cut global crude supply.

BP however rose 0.9 per cent and Royal Dutch Shell ended flat.

German industrial gases group Linde will replace British bank Barclays on the leading index of pan-European stocks Stoxx Europe 50, Stoxx Ltd, the operator of Deutsche Boerse Group's index business, said.

The change comes as part of the quarterly reshuffle and will be effective at the opening of European trading on Dec. 24, Stoxx said on Monday. Linde shares rose 2.1 per cent and Barclays was down 2.6 per cent.