European stocks closed lower on Tuesday after China's central bank set the yuan's official reference point at a stronger than expected level, easing its retaliation to U.S. tariffs, while rejecting Washington's designation of Beijing as a "currency manipulator."
The pan-European Stoxx 600 was 0.4% lower during afternoon trade, with household goods stocks — which covers the China-exposed luxury sector — leading the gains. Luxury brands LVMH, Christian Dior and Hugo Boss all saw their shares cross into positive territory.
The People's Bank of China (PBOC) denied Washington's allegations of currency manipulation, and set its yuan fixing at 6.9683 per dollar, below the important line of 7 per dollar that it had breached on Monday.
Global stocks had extended already substantial losses to start the week after China allowed the yuan to slide below 7 per dollar to an 11-year low. The U.S. Treasury formally accused Beijing of manipulating its currency, the first designation of its kind since 1994.
The PBOC said in a statement on Tuesday that the label "seriously undermines international rules and will have a major impact on global finance and economy."
China has also suspended the purchase of U.S. agricultural products, a blow to American farmers already stretched by the trade war. Markets worldwide have been in freefall since U.S. President Donald Trump on Thursday unexpectedly announced 10% tariffs on another $300 billion worth of Chinese goods, starting September 1.
Stocks on Wall Street enjoyed a rebound at the U.S. open of trade Tuesday, following the worst day of the year in the previous session.
Back in Europe, German industrial data on Tuesday morning also brought some relief. New industrial orders increased 2.5% month-on-month in June, though were still down by 3.6% on the year.
July construction PMI (Purchasing Managers' Index) data for Germany came in at 49.5, down from 50.0 in June and dipping into contraction territory for the first time since October 2018.
In corporate news, German postal giant Deutsche Post raised its 2019 forecast after restructuring measures and a rise in German postage and parcel prices. The group reported a rise in operating profit of 2.9% to 769 million euros ($861.55 million), surpassing the 727 million average forecasts from analysts polled by Reuters. Deutsche Post stock traded 3.5% higher midway through the afternoon session.
British industrial group Rotork saw its stock jump 7.7% after reporting first half results, while shares of German cash and carry group Metro continued a tough week, falling 7.6% after Czech investor Daniel Kretinsky's investment vehicle said on Monday that it would not raise its 5.8 billion euro bid for the company.