Old ghosts came back to haunt markets as a surge in U.S. virus numbers cast a shadow over the third-quarter recovery and a fresh flare-up in U.S.-China trade tensions doused the stocks rally.
Global stocks retreated on Tuesday following a reversal on Wall Street late on Monday that saw the S&P slumping 1% after briefly scaling post-pandemic highs and turning positive on the year.
Safe havens were back in demand, with the dollar gaining U.S. Treasury and German bund yields slipping. Oil prices fell.
The risk-off move came after California joined Arizona and Texas in re-introduced lockdown measures to curb the spread, with bars, restaurants, cinemas and many other venues ordered to shut their doors again. The three states - along with Florida - are the new hotspots of the U.S. pandemic, although infections are rising in most of the country.
Australia and Japan also ramped up measures as new clusters emerged.
The sombre news didn’t end there. Sino-U.S. tensions grew after Washington rejected China's claims to offshore resources in most of the South China Sea - a shift in tone that drew a rebuke from Beijing.
Data from Singapore saw the trade-reliant economy plunged into recession in the second quarter with a record 41.2% dive, signalling a challenging outlook ahead beyond its borders. And numbers from the UK showed the economy rose 1.8% in May and had shrunk by 24% year-on-year – much worse than expected.
Even better-than-expected trade data from China showing the recovery is on track thanks to a massive stimulus programme could not assuage frayed nerves.
The rest of the day will bring some more data for markets to chew on. Germany’s ZEW index is expected to remain stuck in negative territory in July while euro zone industrial production for May is expected to have contracted again.
The United States will release inflation data later in the day and the Federal Reserve’s James Bullard will discuss the economy and monetary policy to round the day off.
Second-quarter reporting gets underway in earnest with JPMorgan, Citigroup and Wells Fargo all due to report earnings later today. Results are likely to show a 40% collapse in earnings for S&P 500 companies alone, analysts calculate, with investors anxious for some signs of optimism for the third quarter.
But back to today’s frontline: European markets fell on opening with London’s FTSE down 0.9%, Germany’s DAX slipping 1.2% and Paris’ CAC tumbling 1.4% tumble as investors look with equal trepidation to Europe's earnings season.
Shares in Swatch Group gained 1.2% amid expectations of improving sales and profits in the second half. Lockdown stocks enjoy some gains with Germany's Hellofresh up 5.2% in early trade and Ocado rising 1.2% after the British online supermarket said retail revenue soared 27% year-on-year in its first half to May 31.
Norwegian oil firm Aker BP swung to a pretax profit in the second quarter on record output and a partial reversal of impairments from the previous quarter.
Swiss pharma firm Roche will pay up to $1.7 billion to Blueprint Medicines to help develop and commercialise a new treatment for people with so-called RET-altered cancers that have mutations that drive tumour growth.
In currencies, the dollar strengthened while the safe-haven yen and Swiss franc were treading water.
Across emerging markets, stocks pulled back 0.8% due to losses in Asia, which saw heavyweights Hong Kong drop 1.2% and China mainland stocks nearly matching those falls.
— A look at the day ahead from emerging markets chief correspondent Karin Strohecker. The views expressed are her own —