On Thursday, European stocks dropped, government bond yields fell, and the Japanese yen strengthened after the US government imposed harsh sanctions on Chinese telecoms giant Huawei, further stretching Sino-US trade relations. In early European trading, an index of European stocks fell as much as 0.5 % with the German stock index falling 0.4 % Stock futures in the United States was down 0.4 %, indicating a shaky start on Wall Street.

Small gains in Chinese and Hong Kong stock indices partly mitigated the large weakness in European markets, resulting in only modest losses on a global stock index as investors expected state authorities to intervene to help the market and improve sentiments.

“Chinese stocks are rising as markets anticipate government intervention to boost morale, but this is not permanent, and general sentiment will remain poor unless we see a definite resolution to the China-US trade war,” said Neil Mellor, a senior FX strategist at BNY Mellon in London.

At the close of trade, benchmark indices in China and Hong Kong were up 0.8 % but bond markets were indicating more pressure for risk appetite.

Core German government bond yields were approaching their lowest level in nearly three years, while Dutch bond yields were on the verge of entering negative territory for the first time since October 2016.

The US Commerce Department announced late Wednesday that Huawei Technologies Co Ltd and 70 affiliates had been added to its "Entity List," preventing the company from importing products and technology from US companies without government permission.

Global markets were taken aback by the decision, which came after reports that US President Donald Trump was preparing to postpone tariffs on auto imports in the wake of a slew of poor US and Chinese economic results. As trade disputes have resurfaced on investors' radar screens, poor US data has raised market hopes of a rate cut in the following months.

In April, consumer sales in the United States suddenly dropped as households cut back on purchases of automobiles and a variety of other products, while industrial production fell 0.5 % the third decrease this year. 10-year US Treasury bond yields fell to 2.366 %, close to a 15-month low of 2.340 % set on March 28. Fed funds rate futures completely price in a rate cut by the end of the year, with a greater than 50% chance of a cut by September.

“A rate cut is gradually being priced in by the markets. That's a significant shift from a year earlier, when the expectation was three to four rate hikes per year,” said Akira Takei, a bond fund manager at Asset Management One. Falling US yields have weakened aid for the dollar, which is now down 0.1% against a basket of rival currencies.

Despite an unexpected build in US crude inventories, oil prices rose on the possibility of rising tensions affecting global supplies.

Brent crude gained 0.3 % to $71.99 per barrel, while US West Texas Intermediate (WTI) crude gained half a percent to $62.26 per barrel. The price of gold increased to $1,296.9 per ounce. Oil prices rose for the third day in a row on Thursday, as concerns of supply shortages amidst rising Middle East tensions overwhelmed rising US crude inventories.

At 0839 GMT, Brent crude futures were trading at $72.30 per barrel, up 53 cents from their previous close. Brent is on track to post its largest weekly gain in six weeks. WTI crude futures in the United States were trading at $62.49 per barrel, up 47 cents from their previous close. Oil was bolstered by the danger of war in the Middle East, with helicopters transporting US personnel from the US embassy in Baghdad on Wednesday, presumably in response to suspected Iranian attacks.

“As optimistic reports from the (Middleeast) Gulf continue to concern investors, Brent looks poised to break the upper bound of its recent $70-$73 a barrel price range,” Citi said in a statement.

While US crude oil stockpiles rose to their highest level since 2017, government statistics suggested a slight increase in stocks than previously reported industry data, and dropping gasoline stocks have helped to temper the data's bearish tone. Uncertainty over whether Opec and other suppliers can extend supply cuts that have lifted prices by more than 30% in 2019 into the second half of the year is also keeping prices in check.