The steam went out of a shortlived global equity rally early on Tuesday as a month of choppy trading nears its end.
Shares across Europe slipped shortly after the market opened, with the region-wide Stoxx 600 losing 0.4 per cent, London’s FTSE 100 falling 0.5 per cent and Germany’s Dax down 0.7 per cent. That followed an upswing on Monday that proved the best day for European stocks in three months, as investors scooped up shares in sectors hit by last week’s broad sell-off.
Bank stocks, which led Monday’s gains on both sides of the Atlantic, slipped in early dealings on Tuesday, with lenders including Santander and Société Générale down about 2 per cent. Travel stocks including British Airways owner IAG also moved lower. Falls come as coronavirus infections in the region continue to rise, and governments hint at stricter lockdown measures.
“In the short term all eyes are going to be on Europe,” said John Roe, head of multi-asset funds at Legal & General Investment Management. “If one of these countries with an uptick in virus cases successfully stops it [without another full lockdown] markets will gain confidence that every country can do it.”
JPMorgan strategist Mislav Matejka said the Brexit risk to the pound, which is down about 4 per cent against the US dollar this month, made British stocks more attractive to foreign buyers and that FTSE 100 valuations were at “record cheap levels”. Sterling added to Monday’s gains, up 0.4 per cent at $1.2876.
The worries for economic demand also weighed on oil prices. Brent crude, the international marker, was down 0.6 per cent at just above $42 a barrel.
Investors will be watching for eurozone economic data released later on Tuesday after disappointing releases last week pointed to a slowing recovery from the pandemic.
Futures contracts pointed to losses on Wall Street when the market opens later, with both the tech-heavy Nasdaq 100 and the benchmark S&P 500 expected to slip 0.2 per cent.
Investors remain cautious ahead of the US presidential election in November and will be closely watching the first election debate later on Tuesday between incumbent Donald Trump and Joe Biden, his Democrat rival.
Uncertainty about when further fiscal stimulus might come has also weighed on markets, with many investors expecting that a package will not be approved by US lawmakers until after the election. On Monday Democrats unveiled a $2.2tn coronavirus economic relief bill in a bid to reach a compromise with Republicans after weeks of wrangling to renew jobless benefits that expired earlier this year.
Shares across much of Asia also reversed some of their overnight gains, with Tokyo’s Topix down 0.2 per cent and Hong Kong’s Hang Seng falling 0.7 per cent. South Korea’s Kospi and China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks both pared back earlier gains to rise 0.8 per cent and 0.2 per cent respectively.
Telecoms shares weighed on sentiment in Japan on Tuesday after Nippon Telegraph and Telephone Corp announced plans to take NTT DoCoMo, its wireless carrier, private.
Japanese stocks were also pulling back from their highest closing level since February on Tuesday as traders said investors were selling to book profits ahead of the end of the third quarter.
Additional reporting by Leo Lewis in Tokyo