European markets focus on U.S.-China tensions

European stocks opened cautiously higher on Wednesday although U.S.-China tensions are putting a damper on investor sentiment.

The pan-European Stoxx 600 climbed 0.4% in early trade, with banks adding 1.5% to lead gains while health care stocks slid 0.5% lower.

European markets are following the trend set by their Asian counterparts overnight, with investors weighing the potential impact of rising tensions between Washington and Beijing, against economies reopening following coronavirus lockdowns.

A Bloomberg News report said the U.S. was considering sanctions on Chinese firms and officials over the situation in Hong Kong. U.S. President Donald Trump said Tuesday afternoon he would make an announcement about the administration’s response to China’s actions by the end of this week. Stocks in Asia Pacific were mixed in Wednesday afternoon trade.

European stocks could get a boost Wednesday when the European Commission unveils a new coronavirus-related stimulus package. It comes after Germany and France proposed last week to raise common European debt in an effort support the region’s economic recovery from the coronavirus crisis. 

In the U.K., pressure is mounting on U.K. Prime Minister Boris Johnson as a political battle over the position of his top aide Dominic Cummings, who is accused of breaking U.K. lockdown rules, intensifies. Cummings has refused to apologize and Boris Johnson has backed his advisor, despite widespread calls for Cummings to resign.

The crisis is seen to be damaging the ruling Conservative Party. A YouGov survey for The Times newspaper shows the Conservative lead over opposition party Labour has been cut by nine points in a week. Support for the Tories was down by four points to 44%, while support for Labour rose five points to 38% compared with a week ago, the Times said.

On the data front, French consumer confidence for May is released on Wednesday. Renault-Nissan-Mitsubishi will give a  merger update, while BP holds an AGM.