European stocks nosedive on profit-taking despite Asia rally

Europe’s major stock markets retreated on Tuesday from the previous session’s rally, as traders banked profits, digested grim data and mulled coronavirus vaccine hopes.

London stocks lost 0.6 per cent on official data showing a record surge in UK jobless claims during April, with workers laid off by businesses ravaged by fallout from the deadly COVID-19 outbreak.

In the eurozone, Frankfurt fell 0.5 per cent and Paris shed 0.9 per cent on news that European auto sales had collapsed by a record 76.3 per cent year-on-year in April.

Asian bourses however rallied Tuesday, tracking an overnight surge on Wall Street, as investors welcomed a further easing of lockdown measures around the world.

European markets nonetheless eased “amid profit-taking and as market participants awaited fresh direction from Wall Street”, said ThinkMarkets analyst Fawad Razaqzada.

“Monday saw global stock indices soar higher in a broad-based rally as investors looked through the current economic troubles and concentrated on a number of market-friendly developments.” Shares across Europe had gotten a shot in the arm from news of a 500 billion euro ($542 billion) French-German fund to help the European Union economy combat COVID-19 fallout.

New York stocks then soared after US biotech firm Moderna reported “positive interim” results in early testing of a vaccine candidate, with some analysts suggesting that if all goes well it could be in use by the end of the year.

“It’s early days but markets are prepared to see the glass half full at this stage,” said Markets.com analyst Neil Wilson.

“A vaccine − not treatment − is key of course to resuming life as normal. It’s the holy grail right now and markets are prepared to take a leap of faith.” Yet other analysts expressed more caution over the development.

“Moderna’s vaccine may well be yielding positive results... but it still remains well short of a viable large-scale solution, and as such any setbacks on the vaccine front could see recent stock market gains start to unravel,” noted CMC Markets analyst Michael Hewson.

While the number of COVID-19 infected people is fast approaching five million and more than 300,000 have died, the rates are slowing enough to allow governments to begin opening up their economies after months of economically devastating shutdowns.

Investors are eyeing a gradual return to some semblance of normal in key markets, with major tourist attractions in Italy and Greece reopening, top-tier football back in Germany and the “Big Three” Detroit automakers resuming manufacturing.

Investors shrugged off US President Donald Trump’s surprise announcement that he is taking hydroxychloroquine, an anti-malaria drug that his own government experts say is not suitable for fighting the novel coronavirus.

“Investors seem to take any Trump headline of a personal nature in their stride,” said Scope Markets analyst James Hughes.

Gold prices rose on Tuesday, supported by fears of a global recession and fallout from central banks’ stimulus measures, while an uptick in risk-appetite after a positive report about a potential COVID-19 vaccine limited bullion’s advance.

Spot gold was up 0.2% at $1,734.66 per ounce by 0944 GMT. US gold futures rose 0.1% to $1,736.60.

On Monday, gold had slipped from a multi-year peak after drugmaker Moderna said its COVID-19 experimental vaccine showed promising results in an early-stage trial, lifting US stocks and oil prices.

The pandemic, which has battered global growth, has prompted nations to roll out massive stimulus measures to limit economic damage caused by the virus.

Gold tends to benefit from widespread stimulus from central banks because it is widely viewed as a hedge against inflation and currency debasement.

“Right now, market is focused on the aftermath of the big rally in stock markets yesterday that has taken some of the bid out of gold, but the underlying demand has not gone away,” Saxo Bank analyst Ole Hansen said.

“We are looking at weaker economic outlook, massive amount of central bank measures in market and also have the tensions on the geopolitical front which should keep gold prices higher.”

In the latest on damage control, France and Germany proposed a 500 billion euro ($543 billion) Recovery Fund that would offer grants to European Union regions and sectors hit hardest by the virus. Federal Reserve Chairman Jerome Powell over the weekend said that a US economic recovery could stretch deep into next year.

Powell is set to speak before the Senate Banking Committee on Tuesday to discuss how economic rescue efforts are working. Raising fears of a further deterioration in China-US relations, Nasdaq Inc is set to unveil new restrictions on initial public offerings, which will make it more difficult for some Chinese companies to list there, sources said.

“Central bank’s worrisome balance sheet expansion is unequivocally one of gold’s primary drivers. And hedging against an escalation in US trade tensions also seems like a great idea,” said Stephen Innes, chief market strategist at financial services firm AxiCorp, in a note.

“With interest rates near 0% global opportunity cost of owning gold remains alternatively attractive to currency hedges as the path of the U.S.-China trade war could be paving the way higher with gold bars” Elsewhere, palladium dropped 0.6% to $2,001.04 per ounce, having jumped more than 9% at one point on Monday. Platinum fell 0.6% to $813.62, and silver shed 0.7% to $17.06.

Agencies