European shares rebound after Trump's trade war scare

The European shares recovered on Wednesday from some losses made in the previous session. The rebound came after Trump surprised the world markets by saying the US-China trade deal could wait until after the 2020 presidential election in the U.S

The U.S. stocks sold off for the third consecutive session overnight, while Asian shares extended losses amid dashing hopes for a quick phase one trade deal.

The pan-European equity index STOXX 600, which had slumped 2.2% since the beginning of the month, rose 0.4%. 

However, futures markets were still pointing to a slightly negative open on Wall Street.

The mood on the European trading floor is subject to change, with investors awaiting a salvo of surveys on the health of the service sector of major European countries.

"For some months now, there has been a concern that the weakness in the manufacturing sector might start to weigh on services activity, and there has been some evidence of that in recent months, though not quite to the same extent," wrote Michael Hewson to clients.

Michael is the chief market analyst at CMC Markets.

The latest trade war scare put brakes on a rally that had lifted the S&P 500 since early October when top diplomats from China and the United States met. They outlined an initial agreement that Trump said he hoped could be sealed within weeks.

A full-blown trade war, the biggest threat to world markets.

Fresh US tariffs on Brazil, Argentina, and France are fueling fears that risks are tilting towards an escalation of the crisis.

"Any doubts about the vulnerability of equity markets to the mood of the U.S. President should have been dispelled, as his recent tweets and comments have nearly wiped out the entirety of November's gains," said Ian Williams. 

Ian is the economics & strategy analyst at Peel Hunt.

U.S. Commerce Secretary Wilbur Ross said that if no substantial progress soon, another round of duties on Chinese imports, including cell phones, laptops, and toys, will take effect on Dec. 15.

The U.S. House of Representatives' passage of a bill proposing a stronger response to a crackdown on Muslims in China's west also added yet another layer of tension, drawing swift condemnation from China on Wednesday.

China's handling of civil unrest in Hong Kong has also drawn criticism from the U.S.

"The market was too complacent, thinking both superpowers would be able to compartmentalize these issues away from the broader trade narrative," Stephen Innes said in a note.

Stephen is the chief Asia market strategist at AxiTrader.

In currency markets, the euro was flat against the dollar at 1.1081. The Japanese yen and Swiss franc, seen as safe havens, stood during market storms were making gains, up 0.17% and 0.13% respectively.

European yields continued their descent on Wednesday as investors continued to fret about the impact of America's trade war, falling between one and two basis points.

The yield on benchmark 10-year U.S. Treasuries fell as low as 1.6930% overnight-the sharpest fall since May and was trading at 1.7105% on Wednesday.

Gold rose 0.4% to $1,482.9 per ounce.

Brent crude futures were up 0.58% at $61.17 a barrel while U.S. West Texas Intermediate crude gained 0.52% to $56.39 per barrel.