European equities struggled to claw back losses from a global stock downturn in the previous session, as caution about the spread of the Delta variant of coronavirus capped enthusiasm about strong corporate earnings.
The Stoxx 600 index rose 0.2 per cent, following its biggest drop of the year on Monday, after UBS reported a surge in quarterly earnings in its banking and wealth management divisions, lifting European bank shares 0.4 per cent.
Brent crude, the international oil marker, added 0.3 per cent to $68.82 a barrel after shedding almost 7 per cent on Monday as jitters about global economic growth were compounded by producer group Opec+ agreeing to raise output by 400,000 barrels a day each month.
The rapid spread of the Delta strain of coronavirus has hit the developing world hard, led to renewed social restrictions in Asia-Pacific countries that had previously appeared to have the virus under control and caused UK businesses to struggle with worker shortages.
Despite some angst over new virus variants, many investors have remained largely optimistic as they look at fundamentals that remain strong for many major countries.
Analysts expect companies listed on the MSCI Europe share index to report 109 per cent year-on-year earnings growth for the second quarter, while a recent Bank of America survey found that fund managers mostly expect the Stoxx to rise this year.
“The underlying factors that were driving markets in the first half of the year are still there,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “Economic recovery, better earnings, super-accommodative monetary policy and a lot of money on the sidelines from savings and cheap borrowing. It is all still there.”
Goldman Sachs strategists warned, however, that they saw “risks for the current pessimism to linger near term,” as the US economic rebound from last year’s coronavirus shutdown peaked and high inflation pressured the Federal Reserve to roll back its pandemic-era monetary stimulus.
Futures markets signalled Wall Street’s S&P 500 share index would gain 0.3 per cent in early New York dealings following a 1.6 per cent loss on Monday, its steepest fall in more than two months.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price, was flat at 1.18 per cent, remaining at its lowest level since February after traders herded into the haven asset on Monday.
“Investors are worried that a fresh outbreak could potentially hinder the pace of economic reopening,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management. “The next one to two months will be an important litmus test of governments’ strategy in normalising lives and economic activities.”
In Asia, Japan’s benchmark Topix closed 1 per cent down, while Hong Kong’s Hang Seng index reversed early gains to lose 0.8 per cent.
In currencies, sterling dropped a further 0.2 per cent against the dollar to $1.364 after losing 0.7 per cent on Monday, marking its lowest level since early February.
The US Centers for Disease Control and Prevention placed the UK on its highest tier of Covid travel warnings on Monday, urging Americans not to visit as England lifted most social restrictions while Delta cases surged.
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