European shares sagged and the dollar and bond markets barely budged yesterday, as traders braced for midterm elections in the United States and potentially lively sessions ahead.

Japan and Hong Kong had helped Asia overcome another Chinese wobble, but Europe was in the 0.4 per cent red as investors pounced on corporate earnings misses and pre-market caution dragged down Wall Street futures.

The elections mark the first major test of President Donald Trump’s sweeping tax cuts and hostile trade policies. Polls point to his Republican party losing control of the House of Representatives which could curb some of his policymaking power.

With so much at stake, currency market moves were extremely tight. The dollar hardly moved against the euro, lost ground to Brexit-bound sterling but made some back against the yen as dealers kept their options open.

There was plenty for investors to digest from Europe.

Italian and Spanish stocks and bonds weakened as updated PMI figures confirmed euro zone business growth had fallen to a two-year low last month against the backdrop of trade tensions.

The future output index caused even more concern as it fell to a near four-year low.

Italian politics also played on the nerves too after euro zone finance ministers had called on Rome to change its budget at a meeting late on Monday.

With Italy unlikely to bow to the demands any time soon, it pointed to a further escalation in the damaging feud and pushed Italian borrowing costs up 5-7 basis points on the day.

The uncertainty over the US midterms for US stocks futures was understandable.

The S&P 500 has risen 28 per cent since Mr Trump’s election in November, 2016, which is more than under any other president in the past 64 years.

MSCI’s broadest index of Asia-Pacific shares ex-Japan had edged up 0.4 per cent overnight following a positive finish for Wall Street on Monday.

Japan’s Nikkei also climbed 1.1 per cent, although weaker Chinese markets and regional technology shares capped the region.

Meanwhile, safe-haven gold was little changed but in oil markets crude prices were down near multi-month lows after the United States allowed eight countries to continue buying oil from Iran temporarily, easing the likelihood of a sharp supply drop.

US West Texas Intermediate (WTI) crude futures slipped 0.5 per cent to $62.80 a barrel, after hitting a seven-month low of $62.52 on Monday.

Brent crude futures dropped 0.6 per cent to $72.74 a barrel, near Friday’s 2-1/2-month low of $72.16.

Both oil benchmarks have slid more than 15 per cent since hitting four-year highs in early October.

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