Oil approximately $80 as shares knocked after new U.S. tariff threat on Chinese goods

European share markets followed Asian counterparts lower on Monday as investors took fright at news Washington was set to announce a new round of tariffs on Chinese goods.

Oil prices rebounded as supply concerns outweighed assurances from Washington that Saudi Arabia, Russia and the United States can raise output fast enough to offset falling supplies from Iran and elsewhere.

Brent crude oil futures rose to 78.29 dollars a barrel.

U.S. President Donald Trump’s expected announcement of new tariffs on 200 billion dollars in Chinese goods drew an immediate threat of reprisals from Beijing.

The month-long trade conflict between the world’s two largest economies has rattled investors who fear an escalation will eventually buffet global growth.

Meanwhile, talks between the two countries have failed to make much headway.

The pan-European STOXX 600 index fell as much as 0.2, while Germany’s DAX, home to large exporters and carmakers, dropped half a per cent.

France’s CAC 40 and Britain’s FTSE 100 fell 0.2 per cent and 0.1 per cent respectively.

Europe’s STOXX 600 had last week enjoyed its best weekly gain since July as the Turkish central bank’s interest rate rise brought a broad relief rally, but the mood was less buoyant on Monday.

However, after the initial falls there were signs that some investors were ready to look past the dispute.

Earlier in the day, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.2 per cent, snapping three straight sessions of gains.

World shares remain more than five per cent off their record highs touched in January, based on the MSCI world equity index , which tracks shares in 47 countries.

“On the Chinese side, Mr. Trump has burned a lot of political capital so it’s hard to see how talks can resume if Mr. Trump goes ahead on the 200 billion dollars,” Freya Beamish, chief Asia economist at Pantheon Macroeconomics, told the Media Global Markets Forum.

“China’s scope to retaliate is surprisingly limited however, especially since the outbreak of swine flu, which will anyway push up CPI inflation,” Beamish said.

He referred to the deadly swine fever strain that is seen impacting Chinese pork prices.

Beamish doubted whether the United States would slap 25 per cent tariffs on 200 billion dollars of Chinese imports, as the Trump administration has said it is considering.

The Wall Street Journal reported the tariff level would probably be about 10 per cent.

But market watchers reckon further escalation is likely.

In currency markets, the dollar succumbed to some selling pressure, with the greenback index down 0.2 per cent at 94.778, having bounced from a low of 94.359 at the end of last week as Treasury yields rose.

The euro added 0.3 per cent to 1.1650 dollars and the yen strengthened 0.2 per cent to 111.86, with broader foreign exchange moves limited.

European government bond markets were quiet and yields mostly flat but Italian yields fell 6-8 basis points amid growing hopes Italian ministers, who meet later on Monday, will agree a market-friendly 2019 budget.