Global stock markets were pressured Thursday as investors avoided risk on the eve of a speech by Federal Reserve head Jerome Powell, hotly anticipated for clues on the interest rate outlook.

The British pound, meanwhile, gained on optimism that an orderly Brexit may yet be on the cards.

"Caution is the word of the day... ahead of the key speech by the Fed chairman Jerome Powell," said analyst Naeem Aslam at trading firm ThinkMarkets.

European stocks finished solidly lower following lackluster economic data, including a report that showed Germany suffering its biggest drop in new manufacturing orders in six years.

US stocks were mixed at the end of a choppy session that included another inversion of the US Treasury market, when the return on 10-year notes fell below that of two-year notes, a worrisome development seen as sign of a possible recession.

Gregori Volokhine, fund manager at Meeschaert Financial Services, said lackluster European data and the weight from the grinding US-China trade war are weighing on sentiment.

"There's a fear of a global slowdown and a sense that a 25- or 50-basis interest rate cut won't have much effect," Volokhine said, alluding to expectations that the US Federal Reserve will cut interest rates again next month.

Investors are awaiting Powell's speech Friday at the annual central bank conference in Jackson Hole, Wyoming that some analysts expect will signal a likely interest rate cut next month.

But if his message is opaque -- which it might be given the number of regional Fed officials voicing reticence to cut again so soon -- markets could be in for a wild ride Friday.

Futures investors still overwhelmingly expect the Fed to cut interest rates in September, but 6.5 percent now see no change, which is up from zero last week.

- Sterling's Boris bounce -

Was it something he said? The pound enjoys a Brexit-related bounce / © AFP

In foreign exchange, the British pound spiked after Prime Minister Boris Johnson met with French President Emmanuel Macron, following his talks with German Chancellor Angela Merkel the day before.

Echoing Merkel, Macron supported allowing another month to find a solution to the issue of the Irish border which has bedeviled Brexit negotiations since 2017.

But he also said the so-called Irish backstop that has caused such controversy in London was "indispensable" and all talks had to be based on the withdrawal deal negotiated by Johnson's predecessor Theresa May repeatedly rejected by the British parliament.

"The pound is pushing higher after Merkel said we can find a solution to the backstop that will maintain the integrity of the single market, and uphold the principles of the Belfast Agreement 1998. The softer stance from the EU is helping sterling," said David Madden at CMC Markets.

"Who will blink?", asked Kallum Pickering at Berenberg.

Johnson is "playing a game of chicken with the EU and moderate Conservatives" and "bets that the EU will seek a compromise at the final hour", he said.

- Key figures around 2040 GMT -

New York - Dow: UP 0.2 percent at 26,252.24 (close)

New York - S&P 500: DOWN 0.1 percent at 2,922.95 (close)

New York - Nasdaq: DOWN 0.4 percent at 7,991.39 (close)

London - FTSE 100: DOWN 1.1 percent at 7,128.18 (close)

Frankfurt - DAX 30: DOWN 0.5 percent at 11,747.04 (close)

Paris - CAC 40: DOWN 0.9 percent at 5,388.25 (close)

EURO STOXX 50: DOWN 0.6 percent at 3,373.67 (close)

Tokyo - Nikkei 225: UP 0.1 percent at 20,628.01 (close)

Hong Kong - Hang Seng: DOWN 0.8 percent at 26,048.72 (close)

Shanghai - Composite: UP 0.1 percent at 2,883.44 (close)

Euro/dollar: UP at $1.1086 from $1.1085 at 2100 GMT on Wednesday

Pound/dollar: UP at $1.2253 from $1.2130

Euro/pound: DOWN at 90.44 pence from 91.39 pence

Dollar/yen: DOWN at 106.42 yen from 106.62 yen

Brent North Sea crude: DOWN 0.6% at $59.92 per barrel

West Texas Intermediate: DOWN 0.6% cents at $55.35 per barrel

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