European markets opened with roar but ended in a whimper on Tuesday.
Stocks markets across the continent rose over 1% at the open, building on Monday’s strong gains. But momentum faded as the day went on, hit by a tepid open for US markets and poor retail and consumer data on both sides of the Atlantic.
“Western markets lost their way as Tuesday progressed, with some duff data serving to undermine sentiment,” said Connor Campbell, a financial analyst at trading platform SpreadEx.
Equities had been higher in early trade thanks to an encouraging statement from the US trade negotiator’s office overnight. US trade negotiator Robert Lighthizer and his Chinese counterpart held a call on Monday to review the progress of the “Phase One” trade deal signed in January.
“Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement,” the Office of the United States Trade Representative said in a statement.
“The outcome of [the] trade review between the two largest economies of the world has removed a significant obstacle for the global equity markets,” Naeem Aslam, chief market analyst at Avatrade, said in a morning email.
The statement sparked strong gains in the US futures markets and a bullish open for European markets.
It came despite early data from Germany confirming the country’s economy shrank by 9.7% in the second quarter. The contraction was in fact better than economists had forecast and reflected a period during the height of lockdown in the country, which now looks outdated. Dutch bank ING described the data as the “final glance in the rearview mirror.”
The drift lower coincided with an underwhelming open on Wall Street. The S&P 500 (^GSPC) was flat by the time Europe closed, while the Dow Jones (^DJI) had lost 0.6% and Nasdaq (^IXIC) rose 0.1%. Stocks took a hit after US consumer confidence slipped to a 6-year low.
Despite the muted action, US stock markets remain near record highs and Mark Haefele, chief investment officer at UBS Global Wealth Management, said stocks were expected to continue rising in the short-term.
“The S&P 500 experienced its longest winning streak of the year with four consecutive weekly advances, and notched another record high on Monday,” Haefele wrote in a note.
“We continue to think that markets can advance further, amid progress on COVID-19 treatments and vaccines.”
The FTSE 100 (^FTSE) was a notable under-performer, closing down 1.1%. The bluechip index was hit by a strengthening pound, which rose 0.4% against the dollar (GBPUSD=X). Around 70% of FTSE 100 earnings are in dollars.
Retail data also weighed on the index. The Confederation of British Industry (CBI)’s long-running Distributive Trades Survey recorded the sharpest drop in retail employment in the UK since 2009 in the year to August. The CBI said worse was to come in September.
Earlier in the day UBS had also downgraded its outlook for UK GDP this year, following similar recent downgrades from HSBC, Deutsche Bank, and Barclays in recent weeks.
Action in Asia overnight was mixed. Japan’s Nikkei (^225) rallied strongly, gaining 1.3%, but Chinese markets were muted. The Shanghai Composite (000001.SS) slipped 0.3%, the Shenzen Component (399001.SZ) was flat, and the Hong Kong Hang Seng (^HSI) fell 0.2%.