• Asian markets rallied earlier on renewed hopes for an end to the US-China trade war.
  • "The delay to tariffs looks more like a temporary reprieve for domestic reasons rather than a genuine signal of willingness to talk with China," one analyst said.
  • View Markets Insider's homepage for more stories .

European equities and US futures dropped on Thursday, fueled by rising fears of a German recession and worrisome developments across Hong Kong, Italy, and Argentina. Asian markets rallied earlier on renewed hopes for an end to the US-China trade war.

Germany shrunk 0.1% in the second quarter , a sharp swing from first-quarter growth of 0.4%. The contraction reflected weakness in its auto industry, concerns about the UK's departure from the EU, and the toll of the US-China trade war on its export-focused manufacturing sector, according to the Financial Times .

"The risk of a recession is now elevated," Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said in a morning note.

Germany's bad news came after Argentina's currency, stock market, and government bonds plummeted on Tuesday following an election upset.

Italy is also in turmoil as Matteo Salvini seeks to bring down its coalition government. the Senate intends to discuss the deputy prime minister's motion of no confidence next week.

Moreover, Chinese industrial output rose by an estimated 4.8% in July its slowest growth rate since February 2002, according to Reuters .

The Hong Kong situation is also heating up, after protestors occupied the region's airport for a second day and Chinese troops began gathering on its border.

"Hong Kong remains a trouble spot the situation remains tense and we see further escalation as a real risk," Neil Wilson, chief market analyst for Markets.com, said in a research note.

The latest moves in the trade war were more positive. Weeks after President Donald Trump announced he would extend tariffs to virtually all Chinese goods at the start of September, his administration decided to exempt some items and delay a portion of the tariffs until mid-December. Cellphones, laptops, video-game consoles, and toys are among the products being granted a temporary reprieve.

US trade officials have also restarted talks with their Chinese counterparts, rekindling hopes they can strike a deal that ends the year-long trade dispute between the world's two largest economies.

However, analysts aren't convinced an agreement is on the cards.

"The delay to tariffs looks more like a temporary reprieve for domestic reasons rather than a genuine signal of willingness to talk with China," Neil Wilson, chief market analyst for Markets.com, said in a research note.

"The president didn't like what he saw in the markets and decided to intervene."

Here's the market roundup as of 10:42 a.m. (5:42 a.m. ET):

  • Asian markets rallied with China's Shanghai Composite up 0.4% and Japan's Nikkei up 1%. Hong Kong's Hang Seng slipped 0.1%.
  • European equities slumped in morning trading. Germany's DAX dropped 0.9%, the Euro Stoxx 50 slumped 0.8%, andBritain's FTSE 100 fell 0.5%.
  • US stocks are poised to open lower. Futures underlying the Dow Jones Industrial Average and S&P 500 were down 0.6%, while Nasdaq futures were down 0.7%.
  • Oil prices have dropped with West Texas Intermediate crude down 1.2% at $56.40 a barrel, and Brent crude down 0.7% at $60.90.

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SEE ALSO: The Trump administration delays a portion of planned China tariffs until December