European stocks fell into the red on Tuesday, with concerns over inflation offsetting hopes of economic recovery and surging travel stocks.
US futures were also pointing to declines, after a sell-off on Monday amid concerns over rising global bond yields. Rising hopes of an economic rebound amid vaccine rollouts have also fuelled fears of an eventual rise in inflation, and an accompanying shifter to tighter monetary policy.
The FTSE 100 (^FTSE) fell 0.5% despite UK prime minister Boris Johnson unveiling a “roadmap” out of lockdown for England on Monday. Cyclical stocks including hotels, airlines, banks, fashion retail and housebuilders made strong gains, but it was not enough to buoy up the wider index.
The CAC (^FCHI) in France was down 0.4%, and the DAX (^GDAXI) in Germany was 1.4% lower in mid-morning trading.
Wall Street looked set for declines. Futures on the S&P 500 (ES=F) were 0.7% lower, after a fifth day of declines on Monday. Analysts noted the last time it had seen such a negative run was a year ago during the major market upheaval triggered by the arrival of COVID-19 across the world.
Nasdaq futures (NQ=F) were down 1.7% after the tech-heavy index had slumped 2.5% on Monday, its worst day of the month. Meanwhile the Dow (YM=F) looked set to open 0.2% lower.
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Analysts said strong demand for commodities had re-fuelled the reflation trade, but it was not enough to counteract inflation concerns. Commodities hit seven-year highs on Monday, with Brent (BZ=F) gaining 3.7% and US benchmark crude prices up 3.8%. Copper prices also hit their highest level in almost a decade.
Brent was trading 1.5% higher at $66.24 a barrel as European markets opened on Tuesday, while West Texas Intermediate (WTI) crude was up 0.3% to $61.69. The gains have lifted energy stocks, with Royal Dutch Shell (RDSB.L) up 2.3% and one of the fastest risers on the FTSE 100 on Tuesday.
“The strength in oil prices followed news of accelerating drawdowns of global inventories and improving demand conditions,” wrote Deutsche Bank analyst Jim Reid in a note.
Stocks had wobbled overnight in Asia, but were boosted by commodity prices. Equities on MSCI’s Asia-Pacific index excluding Japan had fallen to a two-week low in intra-day trading before advancing 0.4%. Japanese markets were closed for a holiday.
“Yesterday had more twists than your average Shakespearian drama in what was a pretty topsy-turvy day for global markets. Equities sold off again on the back of continued concerns over inflationary pressures,” wrote Deutsche Bank analyst Jim Reid in a note. “The risk-off sentiment has come to a halt in Asia this morning though.”
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Market sell-off continues despite surging UK travel stocks – Yahoo Finance