Stocks sink after gloomy economic reports dull glow from US rally

European stocks slid and Wall Street futures pulled back as a rally that wiped out this year’s losses for the main US benchmark ran out of fuel.

The continent-wide Europe Stoxx 600 dropped 1.2 per cent in mid-morning trade, with markets in London, Frankfurt and Paris off by an even greater margin. Germany’s Dax index fell 1.9 per cent. US S&P 500 futures slipped almost 1 per cent.

US Treasury bonds rallied, suggesting a rising demand for perceived safety assets. The yield on the 10-year note fell 0.06 percentage points to 0.83 per cent.

Reports released on Tuesday highlighted that, even while markets have recovered, particularly in the US, signs of acute strain in the global economy have persisted. France’s central bank forecast that output this year will contract 10 per cent, adding to gloomy forecasts from other big regional economies.

Exports from Germany, Europe’s biggest economy, plunged the most on records dating back 70 years in April, figures revealed. Data from Japan, meanwhile, showed orders for machinery last month fell the most in more than a decade.

Tai Hui, chief Asia market strategist at JPMorgan Asset Management, said global economic activity was “far from where we were before the pandemic”. There were many threats to the recovery, he said, such as a second wave of coronavirus infections, US-China trade tensions and the ripple effects of rising unemployment and corporate bankruptcies.

Global equities have recovered from the lows they struck in March as stimulus measures from governments and central banks have helped to bolster investor confidence. The slow easing of lockdown measures in many countries, with no major second wave of Covid-19 infection reported so far, has also bolstered sentiment, analysts have said.

Overnight, Wall Street’s S&P 500 closed up 1.2 per cent, bringing its gains over the past month to 10.3 per cent. The index is now flat for 2020, after the darkest days in March had pushed it down a third for the year.

Mr Hui said that the rally in US stocks was “good news” in that it “shows central banks’ effort to stabilise the market have worked”.

“Equities at these levels are supported by reopening economies and continued monetary and fiscal stimulus. But the move does increase the importance of selectivity — looking for the stocks and sectors that still have room for growth,” added Mark Haefele, chief investment officer at UBS Wealth Management.

In Europe, the travel and leisure index fell 2 per cent, squeezed particularly by airline groups IAG and easyJet, which have been under persistent pressure amid a plunge in global travel.

Oil prices rose following a sell-off on Monday that was prompted by Saudi Arabia’s admission that the extension of Opec+ production cuts until the end of July would not include voluntary curbs by a trio of Gulf producers.

Brent crude, the international benchmark, fell 1.9 per cent to $40.04 a barrel while West Texas Intermediate, the US marker, dropped 2.4 per cent to $37.25.