Global markets sink as uncertainty reigns

European markets slid on Wednesday on the back of sharp Asian losses and overnight on Wall Street, as concern grew over the US economic outlook, dealers said.

With Wall Street closed on a US national day of mourning for the funeral of former president George H.W. Bush, European stocks tanked as investors faced a raft of problems from trade to Brexit that erased the positive start to the week when sharp gains were made after the US and China appeared ready to dial down their trade war.

After US President Donald Trump and Chinese counterpart Xi Jinping moved to a truce in their trade spat, Trump tweeted that he saw "very strong signals being sent by China," after Beijing acknowledged a 90-day deadline to reach a tariffs agreement.

For Capital Economics, the two leaders "seem to have different understandings of what they have agreed. But the deal has, at least, paused the escalation of the dispute".

European markets were not cheered, however, with London, Frankfurt and Paris all off around one percent some two hours from the close as the uncertainty from Britain's ongoing Brexit saga continued unabated.

"European stock markets are firmly in the red following the major losses incurred on Wall Street," said CMC Markets analyst David Madden.

"From a political and economic point of view, not much has changed, but investor confidence has been shaken in light of the move in the US yesterday, and that is playing on investors' minds."

Glum mood

Wall Street had been pummelled Tuesday, the Dow losing 3.1% amid worries over slowing US growth and the trade spat with China.

While Trump hailed the deal at first, on Tuesday he warned on Twitter "remember, I am a Tariff Man", adding: "When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so.".

In another tweet he left open the door to an extension of the agreement's 90-day timeline to end the row.

China's commerce ministry Wednesday called the pact "successful" and said it "will start with the implementation of the specific matters in which consensus has been reached, the sooner the better."

Concerns are also mounting about the US economy as short-term and long-term money market rates moved closer together, stoking fears of "inversion".

If the process continues and short-term rates overtake long-term, it is often taken as a clear precursor to a recession.

Pound's Brexit woes

The pound continued to struggle on concerns Britain could leave the EU without a deal, which most observers fear could hammer the economy.

Sterling had briefly hit a 17-month-low at $1.2659 after Prime Minister Theresa May suffered a series of stunning defeats in parliament that highlighted the fight she has in passing her Brexit deal.

If she loses there are expectations she will face a no-confidence vote and a defeat that could force early elections, leaving the country in chaos.

"May's triple defeats in parliament are highly discouraging and may intensify fears over her Brexit deal being rejected next week," said FXTM analyst Lukman Otunuga.

Separately, oil prices extended losses after another jump in US inventories and as Saudi Arabia raised questions about the chances of an output cut at a meeting of OPEC and non-OPEC members this week.

Saudi Energy Minister Khalid Al-Falih said it was "premature to say what will happen" in Vienna, days after Russian President Vladimir Putin had said the pair had agreed to maintain a production cap.

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