Stocks flatlined on Wednesday as investors used the last day of May to protect the gains built up in what has been yet another lucrative month, while sterling fell after an opinion poll suggested the ruling Conservatives could lose seats in next week's UK general election.

World stocks are poised to end May up nearly 2 per cent, marking the seventh straight monthly increase and the longest monthly winning streak in over a decade.

MSCI's global equity index held steady on Wednesday, while European stocks edged down 0.1 per cent in early trade following Wall Street's dip on Tuesday .

Asian shares drew some support from data that showed activity in China's manufacturing sector grew at the same pace in May as in April, although a sturdy performance from the Japanese yen helped push the Nikkei into the red.

The biggest mover in currencies was sterling, which shed 0.3 per cent after a YouGov poll showed the ruling Conservative Party might lose 20 of the 330 seats it holds while the opposition Labour Party could gain nearly 30 seats.

“The return of US and UK markets yesterday (after holidays) saw a little bit of weakness creep in as we head into month end and what has been a positive month for markets, with records broken on an almost daily basis,” said Michael Hewson, chief markets analyst at CMC Markets.

“This soft tone looks set to be carried over this morning," he said.

The main pan-European indexes were slightly lower early on Wednesday, Germany's DAX was flat and sterling's weakness helped lift Britain's FTSE 100 by 0.2 per cent.

US futures pointed to a rise of 0.1 per cent on Wall Street.

The month of May

Activity in China's manufacturing sector grew at the same pace in May as in April, with a headline reading of 51.2, official data showed, in a reassuring sign the world's second-biggest economy is not losing too much steam after a solid first quarter performance.

Analysts had seen a slight slowing to 51.0.

European markets could take their cue later in the day from euro zone inflation data, which are expected to show a sharp slowdown to 1.5 per cent in May from 1.9 per cent April.

If confirmed, the European Central Bank may be less inclined to signal the start of the process of withdrawing its huge policy stimulus at its meeting next week, analysts said.

The euro was holding steady just under $1.12, while 10-year German bond yields were up a basis point at 0.305 per cent.

The dollar was steady against the yen at 110.85 yen, and the 10-year US Treasury yield was up a basis point at 2.227 per cent. Two weeks ago it was at 2.41 per cent.

Sterling fell as low as $1.2791, near a one-month low of $1.2775 touched on Friday before recovering some ground to $1.2810. It also slipped to 0.8738 pound per euro, near Friday's eight-week low of 0.8750.

New constituency-by-constituency modelling by YouGov showed the ruling Conservative Party might lose 20 seats at the June 8 election while Labour could gain nearly 30 seats, potentially leading to a hung parliament, The Times said.

The news came after a string of opinion polls showed a narrowing lead for prime minister Theresa May's Conservatives, shaking investors' confidence that she would easily win a majority and strengthen her hand in the Brexit negotiations.

“We're getting very negative on sterling again,” said George Saravelos, FX strategist at Deutsche Bank.

“If May is unable to deliver a substantially increased majority, her exibility to negotiate will not have improved. A strong Conservative majority is also only a necessary, not sufficient condition for a smooth Brexit,” he said.

In commodities, oil prices remained soft, as concerns lingered about whether the extension of output cuts by OPEC and other producing countries will be enough to support prices.

US crude futures fell 0.9 per cent to $49.21 a barrel. Global benchmark Brent was down 0.8 per cent at $51.44 per barrel.

Gold was flat at $1,263 an ounce.

Related Topics