European shares handed back gains yesterday to close flat after comments from the White House undid optimism over a potential US-China trade deal, while a strong rally in shares of chemicals company Bayer propped up German equities.
The pan-European Stoxx-600 index rose up to 0.4% earlier in the day, spurred by signs overnight of progress between Washington and Beijing in resolving their trade dispute that has roiled markets for the past year.
However, White house adviser Larry Kudlow said no specific agreements had been made ahead of talks between US president Donald Trump and his Chinese counterpart Xi Jinping this weekend and Washington was still insisting on structural changes on intellectual property and enforcement mechanisms.
Another Trump official said that lifting sanctions on Chinese telecom equipment maker Huawei Technologies seemed unlikely. Analysts warned against excessive optimism.
“China is unlikely to make more concessions than they have already made and certainly they will not make the type of concessions that Trump is expecting and eventually the trade war will resume,” said Simona Gambarini, a markets economist at Capital Economics in London said before the White House comments.
New European Commission figures also showed that eurozone economic sentiment sank to its lowest point in nearly three years in June, with industry in particular hit by global trade tensions. The data is likely to strengthen the hand of those at the ECB who favour easing monetary policy again if inflation in the bloc fails to pick up.
Germany’s government bond yields fell back towards record lows after data showed its annual inflation remained well below the ECB’s target in June.