FTSE 100 and European stocks drop as Wall Street rally fizzles out
The FTSE 100 sank into the red on Tuesday as Prime Minister Boris Johnson prepared to outline further measures to ease the Covid-19 lockdown.
The blue-chip index was expected to make gains after the UK reported its lowest tally of coronavirus deaths since lockdown began yesterday, with London reporting no new Covid deaths, but had instead ended the day 2.11 per cent down.
Read more: London reports no new coronavirus deaths since early days of pandemic
Wall Street also slipped into the red on Tuesday as US investors shift their focus to tomorrow’s Federal Reserve meeting, which will provide a further update on how the economic recovery from Covid-19 is faring.
In the UK, British American Tobacco (BAT) helped drag the FTSE 100 lower, after the cigarette maker cut its annual profit and revenue forecasts in a trading update issued this morning.
BAT ended the session over three per cent down after reporting that demand had been hit by prolonged lockdowns in South Africa and Mexico and weak sales in countries including Bangladesh and Vietnam.
The mid-cap FTSE 250 dropped over 2.1 per cent. Housebuilder Bellway weighed on the smaller index, falling 5.71 per cent following its announcement that it had sold fewer homes between August and May.
“The rampant bullishness of the past week has suffered a reverse, as indices drop back sharply, with the positive impact of the US jobs report fading,” said IG chief market analyst Chris Beauchamp.
“After the week-long bounce in equities we have seen some notable weakness… as investors cut back positions on a thin morning for corporate and economic news,” he continued.
“The rally looks a little tired, as might be expected after the first week of June saw such a strong move higher. The positive impact from the ECB meeting and Friday’s US jobs report has waned, with no fresh bullish news to take their place.”
Wall Street rally comes to an end
US stocks started the session negative, bringing to an end the recent rally that drove the Nasdaq to a record high last week and saw the S&P 500 reverse all losses for 2020 so far.
The Dow fell as much as 1.34 per cent following the open, while the Nasdaq and S&P 500 shed 0.28 per cent and 0.98 per cent respectively.
“It would be very appropriate for the market to enter a correctional move,” said Carsten Roemheld, a capital markets strategist at Fidelity International.
“A consolidation would be good and healthy to lay the foundation of potential further gains later on. I don’t think that we will see a massive drop from here. Everything within a 10 per cent correction would be alright.”
European equities slip
The FTSE 100’s European peers started the session in the green but quickly reversed those gains and slipped back into the red. Germany’s DAX slipped 1.57 per cent, while France’s CAC 40 fell 1.32 per cent.
“After an incredibly strong first week of June, Europe had a crisis of confidence on Tuesday, questioning the market’s recent rally,” said Spreadex’s Connor Campbell.
“Even a better-than-forecast Q1 GDP reading out of the Eurozone failed to help assuage investors’ fears. And that’s fair enough – after all, the 3.6 per cent slump may not be as bad as the initial 3.8 per cent reading, but it is still the worst quarterly contraction on record for the region.”
Asian shares continue to climb
Asain stocks extended their gains for the ninth consecutive session on Tuesday, as the lifting of lockdown of measures fueled investor hopes of a relatively quick global economic recovery.
Read more: Asian shares extend winning streak for ninth consecutive session
MSCI’s broadest index of Asia-Pacific shares outside of Japan advanced for a ninth straight day for its longest winning streak since early 2018. The Shanghai Composite added 0.62 per cent, while Hong Kong’s Hang Seng index added 1.73 per cent.
Japan’s Nikkei 225 went against the upward trend, closing the session 0.38 per cent in the red.