European stocks slipped and US equities trod water yesterday as profit-taking eroded the previous session’s strong gains and investors viewed upcoming United States-China trade talks with a dose of scepticism.

Earlier, Asian bourses rode high on Friday’s Wall Street bounce – prompted by strong US jobs data and signs of slowing rate rises – but investors in Europe felt it was time to cash in on the rebound as their US counterparts also went on the defensive.

“Stocks are still not out of the woods”, said Fawad Razaqzda, a market analyst at Forex.com.

If the forthcoming fourth quarter earnings season in the US produces “more misses than beats then the selling pressure could resume again”, he said.

Chinese and US officials yesterday kicked off talks to find a solution to the trade war that has seen the two sides impose tariffs on hundreds of billions of dollars worth of goods.

But traders said there were no guarantee of progress in the key talks.

“Realistically we are unlikely to see any form of tangible breakthrough in the immediate future, with issues such as the protection of intellectual property rights providing a major stumbling block that needs to be overcome,” said Joshua Mahony, senior market analyst at IG. 

Realistically we are unlikely to see any form of tangible breakthrough in the immediate future

Dealers though started the week on the front foot following a surge on Wall Street Friday that came after figures showed more than 300,000 US jobs were created in December, tempering recent concerns about growth.

Also Friday, Fed boss Jerome Powell said the bank had no “pre-set” plan for raising borrowing costs and was keeping a close watch on financial developments.

The news was music to the ears of traders, who have been fretting that the Fed would press on with its rate hike cycle, making it more expensive to borrow for investment.

China’s move to make it easier for banks to lend also provided support to equities, traders said.

But investors continue to worry about a budget gridlock on Capitol Hill that has shut down the US government.