LONDON: World shares came within a whisker of posting their first weekly loss since May on Friday and the dollar was down for a third day running, as even stronger than expected U.S. inflation failed to shake bets on Federal Reserve interest rate cuts.
European shares ticked higher after a run of modest falls this week and as investors also digested an end-of-week blizzard of Chinese data. The pan-European STOXX 600 index was up 0.2per cent by midday in London.
MSCI's All-Country World Index, which tracks shares in 47 countries, was flat on the day, and close to breaking a 5-week streak of gains.
E-mini futures for the S&P 500 index were up 0.2per cent.
Data out of China showed that Beijing's exports fell in June as the United States ramped up trade pressure, while imports shrank more than expected, pointing to further strains on the world's second largest economy.
(China trade: imports and exports (https://fingfx.thomsonreuters.com/gfx/editorcharts/GLOBAL-MARKETS/0H001QEHL78P/index.html)
"The export data was really weak, and it's one signal that the trade war has started to bite Chinese exporters and that companies are starting to re-route their supply chains," said Stefan Koopman, senior market economist at Rabobank in Utrecht, Netherlands.
"European markets are waiting for a cue on what is happening between the United States and China on trade."
The data comes after a string of disappointing economic reports from around the globe, which showed that the global economy suffered from a protracted U.S.-China trade war that forced major central banks to take a more accommodative stance.
China is also due to release second-quarter GDP figures on Monday which are expected to show the world's second-largest economy slowing to its weakest pace in at least 27 years.
Euro zone industrial production rising more than expected in May, offsetting declines in the past two months and defying gloomy forecasts caused by prolonged trade tensions.
The positive reading could undermine European Central Bank policymakers who favor more stimulus to counter weak growth and low inflation in the euro zone, although economists warn the improvement may only be temporary.
ECB policymakers gathering last month agreed on the need to be ready to provide more stimulus to the euro zone economy in an environment of "heightened uncertainty", official minutes of the meeting showed on Thursday.
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.2per cent.
Against a basket of currencies, the dollar was lower for a third straight day, down 0.1per cent. A stronger-than-expected reading of failed to shake convictions that the Federal Reserve will start cutting interest rates at a policy meeting later this month.
The core U.S. consumer price index, excluding food and energy, rose 0.3per cent in June, the largest increase since January 2018, data on Thursday showed.
The reading pushed U.S. Treasury yields higher, but money markets still indicated one rate cut at the end of July and a cumulative 64 basis points in cuts by the end of 2019.
Comments by Chicago Fed President Charles Evans scheduled later on Friday and New York Fed President John Williams on Monday will provide a chance to gauge how dovish the central bank is, said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.
"If these Fed officials are not as dovish as Powell, and if the New York Fed's manufacturing survey on Monday proves stronger than forecast, they could show that the dollar weakening in response to Powell's congressional testimony was overdone."
Elsewhere in currencies, the euro got a boost from a selloff in the German bond market, rising 0.1per cent to US$1.1270.
Safe haven German government bonds were set for their biggest weekly selloff in nearly one-and-a-half years as signs of economic strength in the United States and parts of Europe suggested fears of a downturn may be overdone.
Oil prices hovered near six-week highs and were on track for a weekly gain as U.S. oil producers in the Gulf of Mexico cut more than half their output because of a tropical storm and as tensions continued to simmer in the Middle East.
Global benchmark Brent crude gained 0.24per cent to US$66.68 per barrel. U.S. West Texas Intermediate (WTI) crude was up 0.03per cent to US$60.22 a barrel.
Gold prices, dulled by the stronger-than-expected U.S. consumer inflation data, regained their shine thanks to renewed trade worries and rate cut expectations. Spot gold last traded up 0.3per cent at US$1,407.61 per ounce.
Shanghai nickel prices recorded their strongest weekly gain since June 2018, as investors bet on the potential demand for the metal in the electric vehicle (EV) battery sector.
(Reporting by Ritvik Carvalho; additional reporting by Abhinav Ramnarayan and Saikat Chatterjee in London and Susan Mathew in Bengaluru; Editing by Raissa Kasolowsky)