- The pan-European Stoxx 600 had ended Monday's trading session at an all-time high, surpassing 418, after Washington and Beijing announced on Friday that an agreement had been reached and would be signed in January.
- Markets then reversed Tuesday, as profits were taken.
- U.K. Prime Minister Boris Johnson's revamped threats of a hard Brexit also kept traders wary.
European stocks traded lower Tuesday as caution returned following a worldwide rally on the back of a "phase one" U.S.-China trade deal.
The pan-European Stoxx 600 slipped 0.73% by the close of play, with household goods shedding 2.7% to lead losses as most sectors and major bourses entered negative territory. Oil and gas and utilities stocks bucked the trend to climb 0.61% and 0.53% respectively.
The European blue chip index had ended Monday's trading session at an all-time high, surpassing 418, after Washington and Beijing announced on Friday that an agreement had been reached and would be signed in January. However, some details remain in question. By Tuesday afternoon, the Stoxx 600 ended at 414.
Traders were also reacting to U.K. Prime Minister Boris Johnson's revamped threats of a hard Brexit if the EU does not agree a free trade agreement by the end of 2020.
With the U.K. set to leave the bloc before January 31, Johnson will use his newly-secured majority in parliament to outlaw any extension to the Brexit transition period beyond the end of 2020, Reuters reported.
Meanwhile Johnson held a phone call on Monday with U.S. President Donald Trump in which the two leaders looked ahead to an "ambitious free trade agreement," according to a Downing Street spokesman.
On Tuesday, U.S. Trade Representative Robert Lighthizer told Fox Business Network that a trade deal with the U.K. was a "priority" for Washington.
The Bank of England on Monday announced plans to tweak its capital requirements for British banks to allow them to continue lending in the event of an economic crisis.
In corporate news, Reuters reported citing sources that the board of Fiat Chrysler will meet Tuesday afternoon to consider a proposed $50 billion merger with French automaker Peugeot.
NMC Health shares plummeted 34% on Tuesday after U.S. short-selling titan Muddy Waters announced it had shorted the stock, citing "serious doubts about the company's financial statements, including its asset values, cash balance, reported profits, and reported debt levels."
Unilever shares dropped 6.9% by afternoon trade after the consumer goods giant cut its 2020 sales growth forecast.
Following the news of Johnson's intention to dangle a "cliff-edge" Brexit as part of his trade negotiations with the EU, the U.K. domestic bellwethers which rallied on the Conservatives' emphatic election victory slid across the board on Tuesday.