European equities mostly drop as outlook darkens

European stocks mostly sank on Wednesday on stubborn worries over global trade and high oil prices, but London rose after the EU offered to extend Britain's Brexit transition period, dealers said.

In early afternoon deals, Frankfurt and Paris stocks both sank, despite gains in Asia and on Wall Street on upbeat US company earnings.

London however added 0.2% after diplomats indicated that the European Union was willing to add a year to the post-Brexit transition.

Barclays chief European economist Antonio Garcia Pascual told AFP that two key factors were casting a shadow over the outlook: the potential prospect of $100 oil and the festering global trade war.

Oil fell on Wednesday after data showed a drop in US stockpiles - but dealers kept a close eye on Riyadh, with major producer Saudi Arabia under intense pressure over the disappearance of journalist Jamal Khashoggi.

 Oil supply shock?

Traders are on tenterhooks over any fallout because OPEC kingpin Saudi Arabia is the world's biggest oil exporter.

Investors fear oil could shoot back above $100 per barrel on Saudi tensions - and also on sliding output from Iran which faces renewed US sanctions next month.

"This is a big issue for Europe in general because Europe is highly oil dependent," Pascual told AFP.

"A big supply shock could be something that Europe would not cope very well with."

Meanwhile, this year US President Donald Trump has levied or threatened tariffs on goods from economies around the world, notably China, but also on traditional allies including the European Union.

"I'm very worried about trade," added Pascual on Wednesday, noting Trump's threat of a 25% tariff on European car imports.

"We have US-China trade war - but we also have the prospect of a US-EU trade war."

 'Worst case scenario'

Barclays estimates that a scenario of $100 oil could slash 0.6 percentage points from its current 2019 global economic growth guidance of 3.8%.

The bank also estimates that its "worst-case scenario" of $100 oil and a US-EU trade war could slash 2019 eurozone economic growth by 1.0 percentage points from its current forecast of 1.9%.

European economies are already being buffeted by concerns surrounding Brexit as well as Italy's fiscal troubles.

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