The euro slumped to a two-week low against the dollar after disappointing German manufacturing and services data increased expectations that the European Central Bank will cut rates next week in an effort to tackle worsening economic conditions.
The ECB meets next week for its monthly monetary policy committee meeting and it has already said that it is ready to act if the economic outlook worsens. Expectations for a move from the ECB sent the euro below the $1.30 mark.
"The data will strengthen the hands of the doves on the ECB's governing council in arguing the case for a rate cut and/or additional unconventional policy measures," said Martin van Vliet, economist at ING Bank. "A combination of fresh monetary stimulus by the ECB and a slower pace of fiscal consolidation across the region might perhaps foster a very gradual recovery later this year."
As for the euro-zone region overall, the purchasing managers' index for April was almost in line with expectations. Earlier, French PMI beat market forecasts though any optimism following the data was swiftly wiped out by the figures from Germany.
Expectations of an ECB rate cut also sent Spanish and Italian yields lower, with Italy's 10-year bond yields slipping below 4%—the lowest since November 2010.
Earlier, the Spanish Treasury sold €3.011 billion ($3.93 billion) in three- and nine-month Treasury bills, a touch above the upper end of its relatively low €2 billion to €3 billion targeted range. In addition, the prospect of political stability in Italy was helping government bond yields in Southern Europe. Re-elected President Giorgio Napolitano is due to start talks to form a new government which could help end the country's political impasse.
Germany's DAX stock index continued to underperform versus other European equity markets, which were propped up by a decent run of earnings data.
Earlier, Chinese manufacturing data for April put global growth concerns back in the spotlight after it fell below expectations. The HSBC HSBA.LN +0.40% preliminary PMI reading indicated slower growth in the manufacturing sector of the world's second-largest economy.
China's data also added to concerns over midterm demand in the world's top base metal buyer, placing pressure on copper. Gold's recovery also stumbled on the data, as precious metals slipped.
U.S. stock futures were trading down as investors digested bleak data from Germany and China. The focus will be on earnings from Apple due later today, particularly after solid results from ARM Holdings ARM.LN +9.75% earlier Tuesday.
ARM Holdings topped the U.K.'s FTSE 100 gainers after posting market-beating first-quarter results. It highlighted strong demand for its microchip designs that can be found in most smartphones and computer tablets, and forecast that annual revenue would be in line with market expectations.
In terms of U.S. data, figures on house prices and new home sales are scheduled.
