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Global Stocks Limp Into June on Oil and Data Slips

Sliding oil prices hurt energy-related shares and a raft of disappointing economic data dampened demand for riskier assets.
A worker shelters from the rain as he passes the London Stock Exchange in the City of London
A worker shelters from the rain as he passes the London Stock Exchange in the City of London at lunchtime October 1, 2008. REUTERS/Toby Melville/File Photo
/ Source: Reuters

World shares started the new month on the back foot on Wednesday as sliding oil prices hurt energy-related shares and a raft of disappointing economic data dampened demand for riskier assets.

European bourses were led lower by a near 2 percent drop in the resources sector, while earlier in Asia, Australian mining stocks were among the biggest losers pulling the index down over 1 percent.

A worker shelters from the rain as he passes the London Stock Exchange in the City of London
A worker shelters from the rain as he passes the London Stock Exchange in the City of London at lunchtime October 1, 2008. REUTERS/Toby Melville/File Photo

Meanwhile, the U.S. dollar floundered against the yen and the euro after soft data in the world's largest economy prompted investors to reconsider whether the U.S. will raise interest rates in the coming months.

This was followed by manufacturing data showing China's economy is still struggling to regain traction and euro zone factory growth at a three-month low.

"Markets kicked off June in an inauspicious style this morning," said Connor Campbell, a financial analyst at Spreadex.

"China set the tone...the country's continually limp manufacturing...an unwanted reminder of the global weaknesses circling the market like vultures."

While stocks struggled, heightened demand for safe haven bonds pushed German bond yields lower to within 10 basis points of a 0.05 percent record trough.

This was partly also driven by the oil price falls which revived concerns of a global deflationary trend that is forcing central banks to maintain ultra-easy monetary policy.

Oil prices fell over 1 percent as production from major Middle East exporters was expected to remain high. Brent crude futures traded down 60 cents at $49.29 per barrel, with U.S. crude down 51 cents at $48.59 a barrel.

MSCI world equity index, which tracks shares in 45 countries, shed 0.1 percent. Asian-Pacific shares outside Japan also shed 0.1 percent, while the STOXX Europe 600 index also fell 0.5 percent.

Shanghai finished in negative territory after rallying on Tuesday on expectations MSCI could add China's mainland stocks to its emerging market benchmark for the first time.

And Japan's Nikkei lost more than one percent as the yen firmed against the U.S. dollar in a move that weighs heavily on its export-dependent economy.

The driving force being the move in the currencies was a pull back in expectations that the Federal Reserve will raise rates next month. the dollar was down 0.8 percent at 109.86 yen, having come off a one-month high of 111.455 struck on Monday

Data released on Tuesday showed U.S. consumer confidence dipped while a survey on business activity in U.S. Midwest also underwhelmed. That did not bode well for the Institute of Supply Management's manufacturing survey due later on Wednesday, with traders saying that a weak reading could see chances of a June rate hike recede further.

"We don't expect the Fed to make a move before at least the end of the summer," said Arnaud Masset, a market analyst at Swissquote Bank.

According to CME Group FedWatch program, investors are pricing only a 22.5 percent probability of a rate move in June, down from around 32 percent factored in earlier in the week

The euro was at $1.1159, putting some distance between a 2-1/2-month low of $1.1097 touched on Monday.

Sterling was down slightly at $1.4475 after dropping more than one percent on Tuesday after polls showing those who support Brexit may be increasing.