World stocks struggled to build on six-week highs on Wednesday after mixed Chinese data, weighed down by a weak start to the session in Europe and political concerns that sent Germany’s 10-year government bond yield to a record low.
European shares fell on Wednesday, with the pan-European FTSEurofirst 300 index down 0.5 per cent by 0815 GMT, after two days of gains pushed the index to a one-month high.
“After 48 hours of gains due to fading expectations of a rate increase in the US this summer, the market is seeing a correction even though there isn’t much conviction,” said Anthilia Capital fund manager Giuseppe Sersale.
The MSCI world equity index, which tracks shares in 45 nations, was up 0.05 per cent after rising in the previous session to the highest in more than six weeks, helped by buoyant crude oil prices and a dovish tone from Fed Chair Janet Yellen.
Asian shares edged up on Wednesday, erasing earlier losses, as investors weighed May Chinese imports that beat predictions against worse-than-expected exports. The MSCI's broadest index of Asia-Pacific shares outside Japan added 0.2 per cent.
China trade
Chinese dollar-denominated exports declined 4.1 per cent in May from a year earlier, compared with an expected drop of 3.6 per cent.
Imports fell 0.4 percent, less than the predicted 6 per cent, and the smallest decline since they turned negative in November 2014. China’s trade surplus is forecast to hit $50 billion in May.
Despite the weak exports, the Chinese central bank said on Wednesday it still expects the economy to grow by 6.8 percent this year.
Anthilia’s Sersale said the Chinese data were not that bad overall bur cautioned that sentiment could be weighed by ongoing concerns surrounding the outcome of a UK vote on whether to stay in the European Union later this month.
Germany bond yields
Nervousness over Britain’s referendum on its EU membership on June 23 sent Germany’s 10-year government bond yield, the benchmark for euro zone borrowing costs, to a record low. Yield on the 10-year bund fell on Wednesday to below 0.04 per cent.
“We are a few basis points away from negative territory and given the Brexit vote later this month, that may give it a final push, it is quite likely we will over the next couple of weeks dip into negative territory,” said Martin Van Vliet, senior rates strategist at ING.
Brexit concerns also continued to sway the pound. Sterling was steady at $1.4545 after having gained roughly 0.8 per cent on Tuesday after two polls gave a narrow lead to the “Remain” camp.
Dollar at 5-week low
But waning expectations that the Fed will raise interest rates anytime soon following a disappointing labour market report week sent the dollar to a five-week trough against a basket of currencies.
The dollar index, which tracks the greenback against a basket of six rivals, edged down 0.1 per cent to 93.740 after dropping as low as 93.68, its lowest since May 6.
Crude oil
Meanwhile, oil prices rose for a third day to hit their highest in about eight months on Wednesday, boosted by industry data showing a larger-than-expected drawdown in US crude inventories, worries about attacks on Nigeria's oil industry and strong Chinese demand for oil.
London Brent crude for August delivery was up 2 cents at $51.69 a barrel, after settling up 89 cents on Tuesday.
A weak dollar supports fuel demand in the rest of the world as it makes dollar-traded oil imports cheaper.