Weak manufacturing reports from Britain and the US prompted investors to seek out safe-haven assets (JEFF KOWALSKY)

London (AFP) – Europe’s main stock markets climbed Tuesday, with the potential for a cut in US interest rates helping to offset lingering global trade tensions.

Frankfurt’s DAX 30 index was the lead performer, up nearly one percent in early afternoon trading, despite official figures that showed eurozone inflation dropped sharply in May, raising the spectre of a global economic slowdown sparked by the Washington-led trade war.

The dollar dropped versus main rivals.

“European markets are moving higher… as we see the slight optimism from a more dovish Fed overshadow ongoing fears surrounding US trade wars with China and Mexico,” noted Joshua Mahony, senior market analyst at IG trading group. 

“The dollar weakened overnight after Fed member (James) Bullard stated that a rate cut ‘may be warranted soon’ given current (weak) growth and inflation risks. 

“However, while the US is talking about rate cuts, the Australians are busy doing it, with the Reserve Bank of Australia cutting for the first time in three-years.”

The Reserve Bank of Australia cut rates by 25 basis points to a historic low of 1.25 percent as the pace of growth slowed to levels not seen since the global financial crisis.

Meanwhile fears of an economic slowdown have mounted in recent days with US President Donald Trump threatening Mexico with tariffs, adding to anxieties over the US-China trade war, which shows no signs of a resolution.

The market’s “assumption that the slowing global economy would recover later this year, bolstered by the US economy, has been shaken by the spread of trade frictions to other countries such as Mexico”, Okasan Online Securities said in a commentary.

Trump followed up his threats against Mexico last week with an announcement that Washington would withdraw preferential trade treatment to India, starting Wednesday, in a bid to press New Delhi to increase market access to US goods.

In a further knock to sentiment, US tech giants sank Monday on reports that Washington planned to intensify its antitrust scrutiny of the sector.

The Wall Street Journal, citing unnamed sources, reported that the Justice Department and Federal Trade Commission had agreed to coordinate antitrust enforcement over tech companies, with Justice taking the lead on Google and the FTC handling Facebook and some aspects of Amazon.

The tech-rich Nasdaq Composite Index finished 1.6 percent lower, with Facebook plunging 7.5 percent and Google parent Alphabet sliding 6.1 percent.

– Eurozone inflation –

On Tuesday, the EU’s Eurostat agency said eurozone inflation last month fell to 1.2 percent, significantly lower than the 1.7 percent level logged in April.

It puts pressure on ECB governors to do more to boost the economy when they meet on Thursday.

However the ECB’s firepower is limited after years of very low rates and other unprecedented steps to boost lending and growth in Europe.

There was a silver lining in the Tuesday’s data, with eurozone unemployment down to 7.6 percent in April. 

On the corporate front, shares in Shell dropped around 1.0 percent as lower oil prices offset news that the energy giant expects a significant jump in shareholder returns in the next few years.

“Royal Dutch Shell’s… potential to return $125 billion through dividends and share buybacks between 2021 and 2025 failed to provide the energy required,” noted Russ Mould, investment director at AJ Bell.

– Key figures around 1115 GMT –

London – FTSE 100: UP 0.2 percent at 7,198.55 points

Frankfurt – DAX 30: UP 0.9 percent at 11,900.40

Paris – CAC 40: UP 0.2 percent at 5,252.29

EURO STOXX 50: UP 0.5 percent at 3,317.26

Tokyo – Nikkei 225: FLAT at 20,408.54 (close)

Hong Kong – Hang Seng: DOWN 0.5 percent at 26,761.52 (close)

Shanghai – Composite: DOWN 1.0 percent at 2,862.28 (close)

New York – Dow: UP less than 0.1 percent at 24,819.78 (close)

Euro/dollar: UP at $1.1251 from $1.1242 at 2100 GMT Monday

Pound/dollar: UP at $1.2680 from $1.2665 

Euro/pound: DOWN at 88.72 pence from 88.77 pence 

Dollar/yen: DOWN at 107.97 yen from 108.07 yen 

Oil – Brent Crude: DOWN 45 cents at $60.83 per barrel

Oil – West Texas Intermediate: DOWN 40 cents at $52.85 per barrel

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Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.