A global equity bounce stemming from softer rhetoric by US President Donald Trump on the trade dispute with Beijing waned on Wednesday as grim China data and fresh Italian debt woes cast a shadow over global markets.

Concerns that the world’s top two economies could career into a fierce and protracted trade war has kept markets on edge over the past days. Investors had taken some comfort from Trump calling the trade dispute with Beijing “a little squabble” on Tuesday and insisting talks had not collapsed.

But data from China showing surprisingly weak retail sales and industrial output growth weighed on markets and added pressure on Beijing to roll out more stimulus.

Adding to the woes are fears over Italy’s fiscal situation after Rome said it was ready to break EU fiscal rules to spur employment.

Italian stocks declined 0.7% to lead European stocks lower while France’s benchmark slipped 0.4%. Data confirming that Germany’s economy had returned to growth in the first quarter cushioned the DAX which eased 0.2%. London’s FTSE rose 0.2%.

“Investors had been waiting for data to confirm signs of stabilisation in the Chinese economy which, in turn, would bolster expectations that the global economy could start making a sustainable recovery,” said Neil McKinnon at VTB Capital.

“The recent escalation in tariffs makes that more difficult and can only add to investor risk aversion and increase the risk of a more prolonged economic downturn.” The souring mood also looked to spill over to Wall Street with US futures pointing to a softer open following healthy gains in the previous session. MSCI’s broadest index of world stocks traded flat.

In currency markets, the Australian dollar - a proxy of China-related trades - fell to its lowest level in three months amid the China data fallout.

The dollar held broadly steady at 109.51 yen, having pulled away from a three-month low of 109.020 plumbed on Monday when trade war worries boosted investor demand for the safe-haven Japanese currency.

The Chinese yuan was a shade firmer at 6.9056 per dollar in offshore trade, having edged away from a five-month trough of 6.9200 set on Tuesday. The euro remained anchored at $1.1214 while the dollar index against a basket of six major currencies was nearly flat at 97.524 after gaining 0.2% the previous day.

The pound remained near a two-week low after Prime Minister Theresa May’s spokesman said late on Tuesday she planned to put forward her thrice-rejected Brexit deal in early June to try to secure an agreement on how to extract Britain from the European Union before the summer holiday.

In commodities, US crude futures fell 1 per cent to $61.15 per barrel after the American Petroleum Institute (API) reported a bigger-than-expected build in crude inventory.

US crude inventories rose by 8.6 million barrels in the week to May 10 to 477.8 million, compared with analysts’ expectations for a decrease of 800,000 barrels.

Brent crude lost 0.6% to trade at $70.38 per barrel.

Oil fell on Wednesday after data showed a surprise rise in US crude inventories and the U.S.-Chinese trade dispute threatened oil demand, although Middle East tensions capped losses.

Brent crude futures were at $70.84 a barrel at 0903 GMT, down 40 cents. US West Texas Intermediate (WTI) crude futures were at $61.22 per barrel, down 56 cents.

US crude stockpiles rose last week by 8.6 million barrels in the week to May 10 to 477.8 million, data from industry group the American Petroleum Institute showed on Tuesday.

This compared with analyst expectations for a decrease of 800,000 barrels.

Official data on stocks from the US Energy Department’s Energy Information Administration (EIA) will be released later on Wednesday.

US President Donald Trump on Tuesday called the trade war with China “a little squabble” and insisted talks between the world’s two largest economies had not collapsed.

Oil prices have drawn support after Saudi Arabia said on Tuesday that armed drones struck two of its oil pumping stations, two days after the sabotage of oil tankers near the United Arab Emirates.

“Given that nearly one-third of global oil production and nearly all of global spare capacity are in the Middle East, the oil market is very sensitive to any attacks on oil infrastructure in this region,” Swiss bank UBS said, adding it expected Brent prices to rise toward $75 in coming weeks.

The attacks took place against a backdrop of U.S.-Iranian tension following Washington’s decision this month to try to cut Iran’s oil exports to zero and to beef up its military presence in the Gulf in response to what it said were Iranian threats.

The US military said it was braced for “possibly imminent threats to US forces in Iraq” from Iran-backed forces.

Meanwhile, the Organization of the Petroleum Exporting Countries said on that world demand for its oil would be higher than expected this year as supply growth from rivals including US shale producers slows. That points to a tighter market if the exporter group refrains from raising output.

Agencies