By Avantika Chilkoti 

U.S. stocks were set to open lower Wednesday as investors closely monitored rising U.S.-China tensions.

The Dow Jones Industrial Average and S&P 500 futures were both down 0.4% before U.S. markets opened.

In Asia, the Shanghai Stock Exchange dropped 1.1%, Hong Kong's Hang Seng Index was also down 1.2% and Korea's Kospi dropped 0.4%. The moves echoed sharp losses in U.S. markets Tuesday.

Meanwhile, in Europe, the Stoxx Europe 600 dropped 0.3% in morning trading, with benchmark indexes across the U.K., France and Germany all drifting lower.

Companies in the finance and utilities sectors dragged the European benchmark lower Wednesday, while technology and communications groups did better.

Siemens, Europe's largest engineering company and a bellwether for the regional economy, was among the biggest winners, gaining 4.5% following an announcement that it would spin off its power and gas business. And shares in Wirecard, the German financial services group, were up 2.4% after the company posted its latest earnings.

Despite rising tensions, China said top trade envoys will head to Washington Thursday to resume negotiations. U.S. officials had accused Beijing of reneging on its side of the bargain and threatened to raise tariffs on $200 billion of Chinese imports to 25% from Friday.

It is unsurprising that the U.S. has increased pressure on China in recent weeks, said Ed Smith, head of asset allocation research at Rathbone Brothers Plc., the investment manager, given expectations that talks will formally wrap up around the meeting of G-20 leaders in Osaka in June--and President Donald Trump's usual negotiating tactics.

"He loves a bit of brinkmanship and he particularly likes some particularly vocal and belligerent brinkmanship," said Mr. Smith, who is currently recommending investments he sees as stable like the FTSE100 and S&P 500 indexes, as well as sectors like beverages, aerospace and defense.

After falling steeply at the beginning of the year, the Cboe Volatility Index or VIX, a yardstick for expected swings in equities, has picked up this week.

The 10-year U.S. Treasury dipped to 2.430% from 2.448% on Tuesday. Yields move inversely to prices. German 10-year government bonds were still in negative territory at -0.038% as investors mull the possibility that President Trump could soon ramp up trade barriers for Europe too.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was up slightly.

Investors will be watching closely when the Commerce Department publishes the latest trade data on Thursday. Economists surveyed by The Wall Street Journal forecast a widening in the deficit in March. And the Labor Department will publish inflation figures Friday, with economists expecting price growth to tick up on a year-on-year basis.

Elsewhere in commodities, global benchmark Brent crude oil was down 0.5% on Wednesday morning at $69.50 following reports that Iran is to stop complying with parts of the 2015 nuclear deal, as relations with the U.S. grow tense.

Analysts at Commerzbank, point out that fresh U.S. tariffs on China could weigh on oil demand, given that the countries together make up around one-third of global oil demand. But supply has also tightened and U.S. sanctions are set to further quell oil shipments from Iran and Venezuela, in particular.

Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com

 

(END) Dow Jones Newswires

May 08, 2019 07:23 ET (11:23 GMT)

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