European stocks erased earlier gains to close in negative territory on Wednesday, tracking losses in the U.S. where growing fears of a trade war sent markets lower.
Stocks in Europe had traded higher earlier in the day, buoyed after European Central Bank President Mario Draghi said its bond-buying program will likely continue if underlying inflation in the region remains subdued.
Meanwhile, investors were also sifting through more corporate updates, including one from Adidas AG that sent shares of the German sports gear maker flying higher by double digits.
How markets are moving
The Stoxx Europe 600 index SXXP, -0.15% fell 0.2% to close at 374.94, after trading as high as 377.71 earlier in the day.
France’s CAC 40 index PX1, -0.18% ended 0.2% lower at 5,233.36, while the U.K.’s FTSE 100 index UKX, -0.09% fell 0.1% to 7,132.69.
Germany’s DAX 30 DAX, +0.14% rose 0.1% to 12,237.74, lifted by Adidas.
The euro EURUSD, +0.1132% bought $1.2370, down from $1.2392 late Tuesday in New York.
What’s driving markets
European stocks started to erase gains in the afternoon and turned lower as U.S. markets suffered sharp losses. The downbeat mood stateside came as traders fretted that President Donald Trump’s tariffs on steel and aluminum tariffs could spark a trade war, with the New York Times writing that manufacturing stalwart Boeing Co. BA, -2.48% could be among companies particularly hurt.
Regional indexes in Europe had traded higher earlier in the day as the euro pulled back during a speech by ECB President Mario Draghi at conference in Frankfurt. He did say the eurozone economy has been strengthening more than it had anticipated.
However, “there is a very clear condition for us to bring net asset purchases to an end: we need to see a sustained adjustment in the path of inflation toward our aim, which is a headline inflation rate of below, but close to 2% over the medium term,” he said, adding that “the performance of underlying inflation remains subdued compared with previous recoveries.”
The euro declined as soft inflationary pressures would likely keep the European Central Bank from raising interest rates in the foreseeable future. “The key issues we need to examine are wage dynamics, their pass-through to prices, and the possible risks to the inflation outlook,” said Draghi.
A weaker euro can help bolster shares of European exporters as it makes their goods and services less expensive to purchase for overseas buyers. The euro on Tuesday leapt above $1.24 for the first time since March 8 after an expected reading of U.S. consumer prices February tamped down concerns that the Federal Reserve will raise interest rates four times in 2018 instead of three as previously expected.
The eurozone’s final reading of consumer price inflation for February is scheduled for release on Friday.
What strategists are saying
“The positive mood in Europe has waned after U.S. markets turned lower. Equity benchmarks pushed higher this morning, but have faded toward the close as investors take their cues from their American counterparts,” said David Madden, market analyst at CMC Markets, in a note.
“Growing fears of a trade war is weighing on U.S. stocks, and indices like the Dow Jones are losing ground quickly. Dealers are fearful that China will react to President Trump’s tariffs by imposing levies on the aerospace industry, and Boeing shares have taken a hit,” he added.
Stocks in focus
Adidas AG shares ADS, +9.79% jumped 11% for the Stoxx Europe 600’s biggest gain after the sporting goods company upgraded its long-term profitability target even as its posted a fourth-quarter net loss due to a one-off negative tax effect. Adidas will also propose lifting its dividend of €2.60 a share and that it will initiate share buyback program of up to €3 billion.
Shares in Inditex SA ITX, +3.83% rose 3.8% as the parent company for apparel retailer Zara said sales in stores that have been open for a year or more rose 5%. The rise, however, was a marked slowdown from the 10% growth reported the previous period.
Prudential PLC PRU, +5.07% climbed 5.1% after the financial services company saying it will demerge M&G Prudential. Following that move, M&G Prudential will be an independent provider of savings and investment services.
Shares in Bpost BPOST, -22.02% tumbled 22% for the Stoxx 600’s biggest drop after the Belgian postal-services company forecast 2018 core earnings of 560 million euros ($693 million) to 600 million euros. That was below a Thomson Reuters consensus estimate of 637 million euros.
