LONDON - Spluttering noises from Germany and an earnings miss from banking giant JP Morgan dragged back stocks on Tuesday, while Britain's pound hovered near a two-month high ahead of a crucial parliamentary vote on Brexit.
Most European markets started in good spirits after attempts by Washington and Beijing to play down the risks associated with their trade war and sterling’s bizarrely positive twist on the looming Brexit drama.
But things began to wobble when German reported its weakest growth in five years and then Wall Street futures flinched as JP Morgan blamed bond market volatility for lower-than-expected fourth quarter 2018 profits.
There were still remnants of positive sentiment. Shanghai and Hong Kong stocks had gained almost 2 percent overnight after U.S. President Trump talked up the chances of a China trade deal and Chinese officials then came out in force hinting at more stimulus for their slowing economy.
Tokyo had risen 1 percent on return from holiday too and Seoul ended up smartly as well.
"It seems like a coordinated effort (between the U.S. and China)," said Saxo Bank's head of global equities strategy, Peter Garnry, highlighting how the Federal Reserve had also scaled back talk of multiple U.S. rate hikes.
"For now at least it seems to be working," he added, given that China's plans to cut some taxes showed its policymakers were starting to wake up to its problems.
All other focus was largely on Britain's Brexit gyrations.
The pound barely budged at $1.2860 and was up 0.2 percent at 88.88 pence per euro in London, having strengthened steadily in recent weeks. But the surface calm was deceptive.
Worries of Britain plunging out of the EU at the end of March without some kind of transition deal appear to have eased but with May potentially facing the biggest defeat for a UK government plan in 95 years, uncertainty still dominates.
May's hopes of keeping her plan alive will hinge on the scale of her expected loss. Avoiding a heavy defeat could give her the chance to ask Brussels for more concessions before trying to get the plan through parliament in another vote.
But a humiliating outcome could pressure her to delay Britain's scheduled March 29 EU departure date and potentially open up other options, ranging from a second referendum, the dangerous no deal path or even a general election.
"We are recommending our clients not to take strong positions on the pound or the equity markets," Garnry added. The vote was due around 1900 GMT.
Euro zone government bond yields tested six-month lows after the weak German economic data that had also hurt the euro. The overall impact of Brexit on German economic growth is also "impossible to quantify", an official of the statistics office said in Berlin.
Overnight, MSCI's broadest index of Asia-Pacific shares outside Japan recovered from early losses and advanced 1.3 percent. South Korea's Kospi hit a one-month high and Japan's Nikkei added 1 percent.
China's CSI300 index of Shanghai and Shenzhen shares ended up almost 2 percent too amid the expectations of more government policy measures to prop up a slowing economy.
China's state planner said it would aim to achieve "a good start" in the first quarter for the economy in a signal of more growth-boosting steps.
State television also quoted Chinese Premier Li Keqiang as saying the government is seeking to establish conditions helpful to meeting this year's economic goals.
That came after data on Monday showed China's exports unexpectedly fell the most in two years in December, while imports also contracted sharply.
Cyclical shares had led the broader gains. Australian financial shares also hit their highest since early December while Japanese electronics and machinery-maker shares rose to their best levels in six weeks.
Local currency emerging market government debt, which was pounded last year when investors dumped riskier assets on the trade war worries, rallied to a near one-year high.
"It appears some contrarian investors are starting to buy cyclicals, looking beyond the last economic slowdown," said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.
"But I would suspect there will be heavy selling if we go up further, to around 2,650 in the S&P500 and 21,500 in the Nikkei," Kuramochi added.
Back in the currency markets the weaker euro meant the dollar was up for a third day in the last four against a basket of top world currencies.
In commodities, meanwhile, oil prices rebounded on supply cuts by producer club OPEC and Russia. International Brent crude oil futures were last at $59.95 per barrel, up 1.6 percent from their last close. U.S. crude futures stood at just over $51 per barrel, up 1.3 percent.