European markets bounced back on Tuesday after a session of steep losses, spurred by a late rally for Wall Street overnight and a recovery for oil prices.
The rise in continental European markets signalled a mild recovery after a day of heavy selling on Monday that left the CAC and DAX both down over 3.5%. The sell-off was driven by fears that US president Donald Trump could hit China with fresh tariffs over its handling of the COVID-19 pandemic.
Wall Street enjoyed a late rally on Monday night. All three major US stock markets managed to close in the green despite spending much of the day in loss territory. The strong finish spurred optimism in Europe on Tuesday morning.
“After looking set to continue their fall yesterday a late rally saw US stocks finish slightly higher as oil continued to recover,” Jim Reid, a strategist at Deutsche Bank, wrote in a note to clients on Tuesday morning.
“The rally also seemed to coincide with California reporting the fewest COVID-19 deaths since early April and potentially opening lower-risk businesses as soon as this Friday,” Reid wrote.
Connor Campbell, an analyst at SpreadEx, said: “With Boris Johnson likely to unveil some form of lockdown plan this week, Italy and Spain easing restrictions, and California to follow suit on Friday, investors decided to turn away from the US-China tensions to focus on the idea that the worst part of the pandemic may be approaching its end.”
US futures were pointing to a higher open in New York later today. S&P 500 futures (ES=F) were trading 0.8% higher, Dow Jones Industrial Average futures (YM=F) were up 1%, and Nasdaq futures (NQ=F) were up 0.8%.
Elsewhere, the euro was under pressure ahead of PMI data later this morning and a key ruling from the German constitutional court on the European Central Bank’s bond buying programme.
“This could limit the amount of bonds the Bundesbank can buy, potentially creating a rift with the ECB and other member states,” said Neil Wilson, chief market analyst at Markets.com. “The real concern is whether it could affect the €750bn Pandemic Emergency Purchase Programme (PEPP), which has much looser rules than other QE programmes.
“It’s high stakes — if the court blocks the Bundesbank from participating in QE it would be curtains for the ECB and creates significant Eurozone breakup risks.”
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