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* Reuters Live Markets blog: (Updates prices, adds comments)
LONDON, Oct 7 (Reuters) - European shares fell on Wednesday but Wall Street looked set to recover some of its losses from the previous session, with confusion over U.S. stimulus plans and uncertainty about the Nov. 3 presidential election dominating markets.
Trump broke off talks with Democrats in a tweet on Tuesday, saying that negotiations will stop until after the election, when he promised a major stimulus bill if he wins.
The news quickly rattled Wall Street but Asian investors became less concerned overnight on the grounds that whoever wins the election will still introduce a fiscal stimulus bill.
European indexes fell, with the STOXX 600 down 0.2% at 1117 GMT, Germany’s DAX down 0.4% and London’s FTSE 100 broadly flat on the day.
The MSCI world equity index, which tracks shares in 49 countries and had climbed to a three-week high before the stimulus talks were cancelled, was down 0.1%.
But U.S. stock futures pointed to Wall Street recovering some losses, with S&P 500 futures up 0.6% and Nasdaq futures up 0.5%, helped by later tweets by Trump where he called for more fiscal support.
“Even if a pre-election deal cannot be reached, Biden’s widening lead in the election polls is making it likelier that more substantial stimulus can eventually be agreed on,” UBS strategists wrote in a note to clients.
A poll on Monday showed Democrat Joe Biden with his widest lead in a month, as a majority of Americans said Trump could have avoided coronavirus.
Trump’s tweets came shortly after U.S. Federal Reserve Chair Jerome Powell reiterated warnings about the economic recovery, saying that the U.S. economy could slip into a downward spiral if the coronavirus is not controlled and growth sustained.
German industrial output fell unexpectedly in August, indicating that the recovery from the coronavirus recession in Europe’s largest economy could be less powerful than hoped.
“Ultimately, we’re still in this situation that’s been really running for some time. UK and European markets have gone nowhere since May/June and the U.S. isn’t making an enormous amount of progress now,” said Russ Mould, investment director at AJ Bell.
“You’ve got the irresistible force on one side of fiscal and monetary stimulus and on the other side you’ve got the pandemic, the recession and uncertainty over what the shape of the recovery’s going to be,” he added.
The dollar - which initially rose when the talks in Washington were cancelled - fell on Wednesday, down 0.1% against a basket of currencies at 93.732 at 1122 GMT.
Minutes from the Fed’s September meeting will be published at 1800 GMT.
The pound was down 0.1% at $1.2859, buffeted by headlines about Brexit negotiations. Ireland’s foreign minister said he still believed a trade deal between Britain and the European Union can be reached but that fishing rights remain a big obstacle.
U.S. Treasury yields rose and the yield curve, which had flattened after Trump’s tweet cancelling stimulus talks, steepened again.
The spread between two and ten-year U.S. treasuries edged back towards recent four-month peaks.
“I would put the recent yield curve steepening down to the perceived increased likelihood of a Democratic ‘clean sweep’ and this resulting in a more significant fiscal stimulus bill being approved,” said Mark Holman, CEO and portfolio manager at TwentyFour Asset Management.
“The upshot of this is an injection into the economy, which of course is good news for the markets and positive for risk assets in general,” he added.
Oil prices extended their decline. With West Texas Intermediate crude oil futures down 3% cents at $39.47 a barrel by 1132 GMT.
Gold was up 0.4% at 1133 GMT, at $1,884.58 per ounce.
The benchmark 10-year Bund yield was up around 2 basis points at -0.489%.
Reporting by Elizabeth Howcroft; Editing by Toby Chopra
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