European markets see-sawed on Tuesday, as indices did a round-trip that saw major markets briefly dip into the red before closing higher.
The FTSE 100 (^FTSE) opened up 1% but sunk to a loss of 0.2% by mid-afternoon in London. By the close, equities were back to a gain of 1%. The cautious trading followed a fall of more than 2% on Monday.
Markets suffered a selloff on Monday amid anxiety about rising COVID-19 caseloads and warnings from scientists that measures were being relaxed too soon in the UK. Those concerns continued to hang over markets on Tuesday.
In England, nightclubs were allowed to open for the first time in more than a year on Monday and requirements for mask-wearing were relaxed. It came even as new cases of COVID-19 in the UK averaging almost 50,000 a day.
Overnight, the US raised its travel warning for the UK to the highest level in light of the soaring cases. The US now advises citizens not to travel to the UK.
"The uptick in covid cases around the world has investors wondering whether the strong economic recovery seen in the first half will continue in the coming months," said Naeem Aslam, chief analyst at AvaTrade. "Market sentiment and company valuations skyrocketed on the hope that the pandemic had ended with the development of effective vaccines."
Thin summer trading volumes are likely to have contributed to recent ructions in stock markets. AJ Bell investments director Russ Mould said central bank policy was also contributing to the turbulence.
“The Bank of Canada has cut back the scope of its Quantitative Easing programme for the third time, the Reserve Bank of Australia has also eased the rate of asset purchases and New Zealand has stopped buying assets altogether," said Mould. "None of them are going as far as shrinking their balance sheet, but they are growing them more slowly or, in New Zealand’s case, finally holding it in check.
“Even the US Federal Reserve is getting in on the act. The American central bank is using reverse repos in vast quantities, even as it continues to run QE at $120 billion a month, with the result that it is siphoning liquidity away from the financial system with one hand even as it pumps it in with another."
Stocks opened higher on Wall Street, returning to life after losses the previous day. The S&P 500 (^GSPC) was up 1.4% by the time markets closed in London, while the Dow (^DJI) ticked up 1.6%. The Nasdaq (^IXIC) was 1.2% higher.
Mould said central bank's ready supply of cheap cash was "a prime reason why asset prices are rising despite the difficult backdrop."
Jitters spread through Asia overnight. Japan's Nikkei (^N225) and Hong Kong's Hang Seng (^HSI) sank 1%. The SSE Composite (000001.SS) saw a less dramatic decline of 0.1%, as China stuck with its one-year policy rate of 3.85% and five-year policy rate of 4.65%.
In corporate news in Europe, both Irn Bru-maker A.G. Barr (BAG.L) and Virgin Wines (VINO.L) upgraded forecasts as the UK heads into the summer months. Shares in Virgin Wines and A.G. Barr both ticket more than 3% higher.
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