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European stocks are on the back foot as futures indicate Wall Street may retreat for a third day in a row as the “Trumpflation trade” that helped take global equities to record levels seems to fade.

Government bond yields are nudging higher and sterling is softer ahead of the UK government’s Budget.

Has a shift in China’s trade profile reduced the chances of a damaging economic spat between the world’s two biggest economies?

Data released on Wednesday showed China in February recorded a trade deficit in renminbi terms for the first time since 2014 as imports surged 44.7 per cent from a year earlier and exports climbed just 4.2 per cent.

President Donald Trump has said he might slap tariffs on Chinese goods imported into the US in order to counteract what his administration believes to be unfair trade practices promoted by Beijing.

In recent weeks such rhetoric has softened — a formal accusation that China is a currency manipulator has not yet come to pass — and the latest trade reports may allow the White House to shelve any retaliatory actions for now.

Given most analysts believe a bout of Sino/US trade tit-for-tat would badly damage the global economy, the latest development may provide relief to investors.

Hong Kong’s Hang Seng index rose 0.4 per cent on Wednesday and on the mainland the Shanghai Composite eased less than 0.1 per cent.

The offshore renminbi is 0.1 per cent weaker at Rmb6.9028 to the dollar. The onshore renminbi, which trades within a 2 per cent band around a daily fix set by the People’s Bank of China, is flat at Rmb6.8995 to the dollar.

What to watch
It’s Budget Day in the UK, expected to be the last such fiscal presentation before prime minister Theresa May triggers divorce proceedings with the EU.

Chancellor of the Exchequer Philip Hammond is due to start his address to the House of Commons around lunchtime in London.

The FTSE 100 equity index is down 0.1 per cent and benchmark 10-year UK government bond yields are steady at 1.20 per cent.

Sterling, which is hovering just above 31-year lows as traders fret about the potential damage to the UK economy from a hard Brexit, is down 0.25 per cent on Wednesday to $1.2170.

Stock markets are generally soft as the rally that last week took Wall Street, London and a global equity measure to record highs — amid hopes the Trump administration may help bolster US growth — loses momentum.

US index futures suggest the S&P 500, which started the month by closing at the never before seen level of 2,396, will shed another 5 points to 2,363, when trading gets under way later in New York.

The pan-European Stoxx 600 is off 0.1 per cent as declines for Deutsche Post
contribute to a 0.2 per cent fall for Germany’s Dax index.

Copyright The Financial Times Limited 2019. All rights reserved.

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