European shares subdued; investors eye progress on U.S. trade talks

By Sukriti Gupta and Sanchayaita Roy

(Reuters) -European stocks edged lower in choppy trading on Monday, but were set to log gains for the quarter, while investors monitored signs of any progress on U.S. trade talks as the July tariff deadline loomed large.

The pan-European STOXX 600 index was down 0.2% at 542.64 points, as of 0912 GMT, and was on track to log a monthly fall. However, the index was set to gain for the second consecutive quarter.

Other regional indexes also traded lower.

Market optimism over potential U.S. trade deals got a boost last week due to easing U.S.-China trade tensions, with trade talks between Canada and the U.S. back on the cards.

On Sunday, Toronto said it had rescinded its digital services tax to restart stalled talks with the U.S., lifting investor optimism over U.S. trade deals.

Additionally, the British government said on Monday the trade deal that reduced U.S. tariffs on UK cars and aircraft parts has come into effect.

However, the issue of steel and aluminum tariffs remains unresolved.

"Markets seem to have a pretty relaxed view on tariffs right now...I don’t think there to be any game-changing news on tariffs with regards to the EU in the near few, but that could be a source of volatility in the near term," said Iain Barnes, chief investment officer at Netwealth.

European defence stocks led sectoral gains with a 1% climb, and was on track to post a sixth consecutive month in green. The index was also set to log an all-time high in the quarter ended June.

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Barnes attributed the gain to people pricing in geopolitical changes and the methods used to get European countries to re-engage on the defence side, which also strengthened the broader equity market so far.

In the market, European renewable energy groups fell 0.7%.

Investors were also keeping an eye on the progress of a U.S. tax-cutting and spending bill slowly making its way through the Senate.

The U.S. Senate Republicans advanced President Donald Trump’s bill, which includes provisions to phase out solar, wind and energy tax credits by 2028, on Sunday.

Vestas fell 5.9%, EDP Renovaveis (ELI:EDPR) lost 4.3%, while Orsted (CSE:ORSTED) was down 2.9%.

Bank sector fell 1.1%, leading sectoral declines. Deutsche Bank was down 4.1%.

Among other stocks, Zalando rose 4.9% after Jefferies initiated coverage of the German online retailer at "buy".

Data on Monday showed lending growth to euro zone businesses stalled last month, suggesting that trade uncertainty and weak overall growth offset any support provided by European Central Bank rate cuts.

Meanwhile, inflation fell in three important German states in June, preliminary data showed.

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