Europe’s main stock markets climbed yesterday, 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 per cent in 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 yesterday 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 per cent 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 today, in a bid to press New Delhi to increase market access to US goods.

In a further knock to sentiment, US tech giants sank on 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 per cent lower, with Facebook plunging 7.5 percent and Google parent Alphabet sliding 6.1 per cent.

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