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Europe: Trade fears and hawkish Draghi dent sharess

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[LONDON] In European equities markets, the benchmark index for euro zone blue chip stocks retreated 0.6 per cent, while the pan-European Stoxx 600, which also includes stocks in Britain and outside the European Union, was down 0.56 per cent.

Europe had followed Asia lower, with MSCI's broadest index of Asia-Pacific shares outside Japan closing 1.17 per cent lower, while Japan's Nikkei rose 0.82 per cent.

China and the United States, the world's two biggest economies, implemented with fresh tariffs on each other's goods on Monday, showing no signs of backing down from an increasingly bitter trade dispute that is expected to knock back global economic growth.

"This is here to stay," said Adrien Dumas, a manager at Mandarine Gestion in Paris, arguing that because trade is at the core of the Trump administration's agenda, investors should accept that the issue is unlikely to recede any time soon.

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"It's a negative and it adds to other issues," he said, pointing to stress in emerging markets or political risk in Italy and Britain.

A worsening trade environment is likely to exacerbate diverging economic performance and policy rates between different regions, Citi analysts said in a note on Monday.

"The US economy is moving full steam ahead, bolstered by pro-cyclical policies, while others are lagging," they said.

Brexit, as Britain's planned exit from the European Union is known, weighed on sentiment. On Friday, British Prime Minister Theresa May said talks with the EU had hit an impasse.

British opposition leader Jeremy Corbyn said on Sunday he would support a second Brexit referendum if his Labour Party backs the move, heaping more pressure on May, amid speculation that she could opt to call a snap parliamentary election.

European Central Bank chief Mario Draghi said he expected a vigorous pickup in euro zone inflation, backing moves toward unwinding an ECB asset purchase programme meant to stimulate the economy. That drove the euro to a more than three-month high against the dollar.

The dollar index fell 0.02 per cent.

Oil prices jumped more than 3 per cent to a four-year high after Saudi Arabia and Russia ruled out any immediate increase in production despite calls by Trump for action to raise global supply.

US crude oil futures settled at US$72.08 per barrel, up US$1.30, or 1.84 per cent. Brent crude was last at US$81.36, up 3.24 per cent, or US$2.55. 

REUTERS