Global stocks went into retreat following a sharp reversal on Wall Street, as concerns mounted over the rollback of reopening measures in the US and investors braced for a brutal quarterly results season.

Japan’s Topix index dropped 0.4 per cent on Tuesday morning and Australia’s S&P/ASX 200 was down 0.5 per cent. Hong Kong’s Hang Seng index fell 1.3 per cent while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks shed 0.8 per cent.

The declines came after a volatile session on Wall Street, where the S&P 500 gave up initial gains to end almost 1 per cent lower after briefly crossing into positive territory for the year. The Nasdaq fell 2.1 per cent.

The reversal was spurred in part by California’s decision to join Texas and Arizona in rolling back its economic reopening. Gavin Newsom, governor of the US’s most populous state, ordered the shutdown of bars, cinemas and dine-in restaurants in an effort to contain a sharp rise in Covid-19 cases and hospitalisations.

Investors were also bracing for a grim US earnings season, with S&P 500 companies expected to report a 45 per cent plunge in quarterly profits, according to data provider FactSet. That would be the biggest drop since the depths of the 2008-09 global financial crisis.

However, the economic fallout from the pandemic remains the focus, with new outbreaks in the southern and western parts of the US threatening the recovery in some of the country’s most important economic hubs.

“Investors have been looking beyond the prospect of a temporary period of poor earnings in general,” said John Higgins, chief markets economist at Capital Economics. “The biggest threat to the overall stock market now is probably a renewed hit to economic activity from the recent resurgence of coronavirus cases.”

The IMF and OECD have downgraded their economic forecasts for 2020 in recent weeks.

In contrast, Oxford Economics this month raised its global GDP forecast to a contraction of 4.5 per cent.

However, Ben May, director of global macro research at Oxford Economics, warned the latest data suggest “that the easy activity gains may have already been exhausted . . . we see sound reasons to be cautious about the pace of recovery in [the second half of the year] and beyond”.

Futures tipped US stocks to open slightly higher when trading begins on Wall Street later in the day, with the S&P 500 expected to rise 0.1 per cent. London’s FTSE 100 was set to fall 1.3 per cent.

Crude prices dropped, hit by the prospect that renewed restrictions on activity in various US states could undermine oil demand. Brent crude, the international benchmark, was down 2 per cent at $41.86 a barrel while US marker West Texas Intermediate fell 2.4 per cent to $39.13.

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