A profit warning from Mercedes-Benz maker Daimler dampened European stock markets early on Monday, as investors looked for direction to a G20 summit this week that brings US and Chinese leaders together after a long lull in talks.

Daimler AG’s shares dropped 3 per cent after it cut its 2019 earnings outlook on Sunday and lifted provisions for issues related to its diesel vehicles by hundreds of millions of euros.

That, allied to data showing German business morale fell in June, sent peers Volkswagen AG Bayerische Motoren Werke AG and Porsche Automobil Holding down about 1 per cent.

The European auto sector fell 1.3 per cent and Germany’s car company-heavy DAX dipped 0.3 per cent, keeping the pan-European STOXX 600 index flat despite gains for all of its other sectoral components.

“The fact that Daimler only lowered profit guidance ever so slightly tells you that they are still going to make the same amount of money as they did last year,” said David Madden, an analyst at CMC Markets, London “For the time being traders are looking forward to the G20 summit ... By and large what we’ve heard in the last two or three weeks from the US-China trade situation, it seems to have been positive.”

The biggest gainer on the main index was MorphoSys up 6.3 per cent after the company presented data that showed its blood cancer drug met its main goal in a study.

Its gains were closely followed by that of German retailer Metro, up 4.2 per cent after the company said an unsolicited takeover offer from two prominent investors substantially undervalued the company.

The benchmark index has gained 4.3 per cent this month, recouping almost all of its losses from a sharp sell-off in May, as the Federal Reserve and European Central Bank signalled that they were ready to act to counter the impact of trade tensions on a slowing global economy.

President Donald Trump and his Chinese counterpart Xi Jinping are expected to discuss trade on the sidelines of the summit in Japan, after talks to reach a broad deal broke down last month with the US accusing China of reneging on previous commitments.

A rise in oil prices helped Britain’s energy heavy FTSE 100 index outperform with a 0.2 per cent rise after US Secretary of State Mike Pompeo said that “significant” sanctions on Iran would be announced on Monday.

Trump said on Sunday he was not seeking war after a senior Iranian military commander warned any conflict in the Gulf region could spread uncontrollably and threaten the lives of US troops.