Stock markets fall as investors lock in profit after recent run

Global stock markets fell on Tuesday as investors locked in profits from a strong recent run, with analysts saying that equity valuations had started to look too optimistic, prompting a reality check.

Dire corporate and economic news in the eurozone sparked selling in Europe, and Wall Street joined in as investors nervously awaited the outcome of a US central bank meeting.

A two-day Federal reserve meeting is the first since the US economy began to meaningfully reopen from the coronavirus shutdowns that froze much activity in March, April and part of May. The gathering also comes after Friday’s surprisingly good jobs report.

The US market pullback came a day after the Nasdaq ended at a record high and the S&P 500 wiped out all its losses for the year so far.

In Europe, a big French government package for the country’s aviation industry meanwhile did little for the affected companies’ share prices, said analyst Neil Wilson at trading site Markets.com.

“Some big names in France − Airbus, Safran, Thales, and Dassault − turned sharply lower even as the French finance minister unveiled a 15-billion-euro support plan for the aerospace industry,” he said.

In economic news, the Bank of France predicted the French economy would shrink by about 10 per cent this year on the fallout from COVID-19.

In Europe’s biggest economy Germany, exports tumbled 24 per cent month-on-month in April to 75.7 billion euros ($85.5 billion), official data showed.

Tuesday’s round of heavy European losses came after Tokyo ended a six-day winning streak.

Nevertheless, Asian equities mostly rose as long-running optimism over the re-opening of economies eclipsed early profit-taking.

Seoul rose 0.2 per cent despite geopolitical concerns re-emerging after North Korea said it was severing all communication links with the South.

Oil prices retreated further on scepticism over a weekend deal to extend output cuts from key crude producing nations.

Banks and oil companies led European stocks lower on Tuesday as investors turned wary ahead of the US Federal Reserve’s policy meeting.

The pan-European STOXX 600 index fell 1.2%, while the main markets in Frankfurt, London and Paris were down between 1.6% and 2.1%.

After a stunning 46% recovery from all-time lows, eurozone banks fell 3.8% after an EU financial stability watchdog said banks should not be allowed to pay dividends at least until the end of this year.

Oil majors Royal Dutch Shell, BP and Total fell between 3% and 4.5% as oil prices fell due to a stronger dollar and oversupply concerns.

Other sectors considered most geared to economic growth such as automakers, travel and leisure and insurers, which led a market recovery in the recent weeks, fell between 2% and 3.4%.

The World Bank said on Monday the coronavirus crisis will cause global economic output to contract by 5.2% in 2020, warning that its forecasts would be revised downward if uncertainty persists.

However, a surprise recovery in US jobs data and unprecedented stimulus from central banks have helped push the European benchmark rise just 15% below its record high, while Wall Street’s tech-heavy Nasdaq confirmed a return to bull market on Monday.

Healthcare and technology stocks, which have taken a hit in the recent days, rose 0.7% and 0.1%.

British American Tobacco (BAT) slid 3.1% after it cut annual targets, citing a demand hit from stricter lockdown measures in key emerging markets.

Meanwhile, Gold jumped more than 1% on Tuesday as risk appetite took a back seat with cautious investors awaiting clarity on the state of the economy and further stimulus from the US Federal Reserve’s policy meeting.

Spot Gold gained 1.26 % to $1,715.89 per ounce by 12:02pm. US Gold futures rose 1.1% to $1,723.70. “The expectations of further Fed stimulus are in the forefront of what’s been supporting Gold over the last couple of days. In addition, we’re also seeing global equities tick lower slightly across the board,” said David Meger, director of metals trading at High Ridge Futures.

“We’re seeing unprecedented amount of global liquidity and that underlying fundamental environment is extremely supportive for Gold.” Massive global stimulus to limit the economic damage from the coronavirus pandemic has supported Gold, considered a hedge against inflation and currency debasement.

Oil prices were little changed on Tuesday, as traders said concerns about a resurgence in coronavirus cases offset recent commitments from major oil producers to curb production.

Brent crude fell 20 cents to $40.60 a barrel by 11:55am.  West Texas Intermediate crude (WTI) fell 8 cents to $38.11 a barrel.

Fuel demand has recovered from April’s collapse brought on by lockdowns to control the pandemic. Analysts have said, however, that the oil market’s rapid surge to more than $40 a barrel may be banking an overly optimistic view of consumption. “A second wave of the pandemic isn’t such a distant possibility any more and if it is realized, oil demand, which has slowly been recovering, might plunge back to lockdown levels,” said Bjornar Tonhaugen, Rystad Energy’s head of oil markets.

Agencies