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Gloomy forecasts drag down stock markets

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
Updated ·2-min read
An investor looks at screens showing stock market movements at a securities company in Fuyang in China's eastern Anhui province on July 6, 2020. - Shanghai stocks surged on July 6 to a more than two-year high as investors piled in following a combination of rosy predictions for the market and strong economic data. (Photo by STR / AFP) / China OUT (Photo by STR/AFP via Getty Images)
An investor looks at screens showing stock market movements at a securities company in Fuyang in China's eastern Anhui province on July 6, 2020. Photo: STR/AFP via Getty Images

Global stock markets sold-off on Tuesday, reversing some of the gains made in a bumper prior session.

European stock markets opened lower on Tuesday and losses magnified as the session wore on. Gloomy economic forecasts from the European Commission and the OECD weighed on sentiment, as did news that Melbourne has gone into lockdown following a fresh spike in COVID-19 cases.

“Already fearful of the COVID-19 situation in the US and Australia — Melbourne has just been put in a 6-week lockdown — the European Commission’s latest forecasts merely compounded the market’s concerns on Tuesday,” said Connor Campbell, a financial analyst at SpreadEx.

The FTSE 100 (^FTSE) closed down 1.5% in London, while the DAX (^GDAXI) dropped 0.9% in Frankfurt, and the CAC 40 (^FCHI) fell 0.7% in Paris.

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Sentiment was more mixed on Wall Street. The S&P 500 (^GSPC) was flat by the time European markets closed, while the Dow Jones (^DJI) had fallen by 0.5% and the Nasdaq (^IXIC), which closed at a new all-time high on Monday, was up 0.6%.

Tuesday’s action was in stark contrast to the strong gains for equities globally in the previous trading session, led by China.

Chinese equities markets surged after the government-owned Securities Times urged the public to invest in stocks. That sparked a global rally for equities.

“Many investors are comparing the rally in the Chinese stocks with 2015 bubble but the reality is that the current stock rally is different because investors are not taking the same kind of leverage as they did back in 2015,” said Naeem Aslam, chief market analyst at Avatrade.

“Basically, investors are happy to back riskier assets because the economic data is confirming that the economic recovery from coronavirus is taking place.”

Action was mixed in Asia overnight. Japan’s Nikkei (^N225) fell 0.4% and the Hong Kong Hang Seng index (^HSI) shed 0.6%. On mainland China, the Shanghai Composite (000001.SS) rose 0.6% and the Shenzen Component (399001.SZ) rallied 2%.