US and European equities suffered a fresh bout of selling on Wednesday following a spike in oil prices and the release of further gloomy eurozone economic data.
There was also plenty of action in the government bond market as the yield on 10-year Treasuries dropped to within a whisker of 4 per cent and yields on German Bunds touched historic lows.
Oil futures on Nymex surged back towards the $51 a barrel level after figures from the Energy Information Administration showed an unexpected drop in US crude inventories last week.
Recent increases in crude stockpiles had helped drive oil prices down from the record levels seen at the beginning of April.
Wall Street extended its opening losses following the release of the oil inventories data.
By the close in New York, the Dow Jones Industrial Average was down 0.4 per cent, the S&P 500 slipped 0.3 per cent and the Nasdaq Composite index was 0.6 per cent weaker.
European shares also ended lower, with the FTSE Eurofirst 300 index dipping 0.1 per cent to 1,094.89.
Sentiment in Europe was unsettled by another downbeat report from Germany.
The Ifo institute’s index of German business confidence fell unexpectedly to 92.9 in May, its lowest level for nearly two years, sparking fresh debate about the next move in eurozone interest rates.
The report came hard on the heels of a similarly weak survey from Germany’s Zew institute and a cut in the Organisation for Economic Co-operation and Development’s eurozone growth forecast for this year
“Another day, another bad eurozone release,” commented Gwyn Hacche, senior European economist at HSBC.
“The decline reflected another big drop in expectations from 93.6 to 92.3, the lowest since May 2003,” he said. “The expectations series is one of the better lead indicators of German, and eurozone, industrial production and is pointing to year-on-year declines later this year.”
Julien Seetharamdoo, international economist at Capital Economics, said: “Overall, today’s survey will add to pressure on the European Central Bank to keep rates low. Indeed, the Ifo institute said today that the ECB has room to cut interest rates.
“The ECB will resist calls for a rate cut next week, but the fact that this option is being discussed at all will certainly keep market rate expectations falling.”
Treasury bond yields fell to three-month lows in early trade as the market shrugged off a strong set of US durable goods orders data for April.
Headline orders rose by a robust 1.9 per cent, although analysts pointed out that the increase was largely due to transportation. After stripping out aircraft, orders actually slipped 0.2 per cent.
A separate report showed an unexpected rise in new US home sales to a record high in April. The yield on the 10-year note just failed to break below the 4 per cent level, while the equivalent German Bund yield hit an all-time low in early trade. But both Treasury and bund prices rallied as the session progressed.
The dollar rose against the yen after a Chinese trade official said that it was not yet time to revalue the renminbi, a move that would allow most Asian currencies to rise against the dollar.
However, the US currency edged a shade lower against the euro in spite of the weak Ifo report.
Asian stock markets were broadly lower, with Tokyo’s Nikkei 225 dropping 1.1 per cent and Hong Kong shedding 1.2 per cent.