MORNING BID EUROPE-Nagging doubts

By Mike Dolan

LONDON, Nov 20 (Reuters) - Not all’s rosy in the garden. Record-high world stock markets stepped back from their latest peaks on Wednesday, fearful that the year-end rally had assumed a U.S.-China trade deal that’s far from guaranteed. A drop in oil prices, poor U.S. retail earnings, declining Japanese exports and an equivocal reaction to the UK election’s first live TV debate all added to a note of caution on Wednesday.

The ebb and flow of optimism about a trade agreement between Washington and Beijing has become a fact of life, but sentiment surrounding the negotiations still packs a punch – not least with markets "priced for perfection" the way they have been and the assumption that a global recession will be avoided next year only with a significant truce. The latest obstacle to a deal is the U.S. Senate’s approval on Tuesday of a bill supporting human rights in Hong Kong amid a crackdown on a pro-democracy protest movement there – a decision that drew angry condemnation from Beijing. Earlier, U.S. President Donald Trump insisted he would raise tariffs on Chinese goods even higher if no deal is forthcoming. Two people briefed on the talks said Trump has decided that rolling back existing tariffs, in addition to canceling a scheduled Dec. 15 imposition of tariffs on some $156 billion in Chinese consumer goods, requires bigger concessions from China, according to Reuters reports.

The result was a brake the recent surge in world stocks. Wall Street indices ended lower overnight, weighed down by a near 20% drop in shares of the department store Kohl’s and a drop of more than 5% in retailer Home Depot following poor earnings updates and guidance from both. Brent crude also dropped to it lowest price since Nov. 1, just above $60 a barrel, after data showed a glut in inventory was rebuilding even as Russia indicated it was reluctant to consider deeper supply cuts. U.S. 10-year Treasury yields fell below 1.80% to their lowest level since the Nov. 1, dragging the yield curve between three months and 10 years back below 20 basis points to its flattest level of the month. Adding to caution overnight was data that showed Japanese exports plunged 9.2% year-on-year in October, below forecasts, and the pace of contraction was accelerating. The data was distorted somewhat by base effects related to spike in the same month last year, but nevertheless underlined the damage done by a year of trade wars. Japan’s Nikkei225 index lost 0.6% and the yen weakened.

The darker mood surrounding the trade talks took 0.7% off both Shanghai's and Hong Kong’s benchmarks and Seoul’s Kospi lost more than 1%. China’s offshore yuan weakened. U.S. stock futures were down about 0.25%. The dollar was higher against both developed- and emerging-market currencies. Sterling edged down, with markets now assuming a election majority for PM Boris Johnson’s Conservatives is already about 70% priced in and leaving the market a little more vulnerable to any shift in the opinion polls. The first TV debate between the two leaders of the biggest parties was considered a draw, and a YouGov poll for the Times newspaper from late Tuesday showed the Conservative lead over Labour narrowing to 12 points. Canada's dollar fell to its lowest since Oct. 11 in early London trading after a speech by the Bank of Canada’s senior deputy governor boosted the perceived chances of an interest rate cut there.

In European corporate news, Wirecard was set to come under renewed selling pressure after German business newspaper Handelsblatt reported auditor EY refused to sign off on the Singapore audit of Wirecard for 2017, citing irregularities. Its shares were down 7.7% in early Frankfurt trade. In the UK, home improvement retailer Kingfisher was expected to open 5% lower after it reported another decline in underlying sales in the latest quarter. Fevertree Drinks was seen falling 5% after the premium tonic water maker said it was still being hurt by slack consumer spending in Britain.

* Europe corp events: Inmarsat, United Utilities, Investec, Sage; Kingfisher trading, Direct Line trading

* Germany Oct producer prices

* Riksbank Financial Stability Report

* UK Q3 labour productivity

* European Central Bank chief economist Lane speaks in Milan; Irish central bank chief and ECB policymaker Makhlouf gives first public speech as governor in Waterford; Finland’s central bank chief and ECB policymaker Rehn speaks in Helsinki

* EU Commission to issue opinions on 2020 draft budgets of euro zone states

* South Africa Oct inflation

* Russia Oct jobless, retail sales, wages

* Ghana central bank policy decision

* Canada Oct inflation

* FOMC minutes released (Editing by Larry King)