World shares rose slightly led by Europe on Monday after last week’s rout in US tech stocks, though investors worried that any rally could be short-lived against the backdrop of a global economy in recession.
Market activity was subdued with the United States closed for the Labor Day holiday, though Nasdaq futures fell 0.4 per cent.
European bourses, which have fewer technology stocks compared with the United States, started the week in the black, driven by a 2 per cent gain in Germany’s DAX and London’s FTSE 100.
“This market rally may likely pause given stretched valuations,” said Stephane Ekolo, an equity strategist at TFS Derivatives in London.
“If earnings do not improve materially, investors might well need to buckle up and expect a correction.”
UK bluechip stocks, many of which derive much of their profits overseas, were also helped by a falling pound, with Brexit talks plunging into crisis following Britain’s threat to override its EU divorce deal. Sterling fell around 1 per cent against the dollar and 0.6 per cent versus the euro on Monday.
“It is almost inevitable that the perceived probability of ‘no deal’ will escalate over the coming weeks,” Goldman Sachs analysts wrote in a note.
The tech sell-off showed no signs of abating as Tesla, the poster child of the euphoria in US big technology stocks, fell 3 per cent in Frankfurt after it was excluded from a group of companies that were being added to the S&P 500.
The US-heavy MSCI world shares index was up 0.4 per cent. The index had hit a record high last week, driven by unprecedented central bank stimulus, but the rally fizzled out on Thursday amid worries over heady valuations and a patchy economic recovery.
“Our risk indices have begun to turn from their euphoria highs,” Jefferies said, adding that it was switching its weighting on the MSCI All-World index to “tactically bearish” in the short term.
“On the balance of probabilities, last week’s correction has further room to go.”
In Asia, China’s blue-chip index slipped 2.3 per cent as the possible US blacklisting of China’s largest chip maker, Semiconductor Manufacturing International Corp, hit tech firms across the board.
Data earlier on Monday showed Chinese imports fell 2.1 per cent in August from a year earlier, confounding expectations for a 0.1 per cent increase, in a sign of sluggish domestic demand. Exports jumped by a larger-than-expected 9.5 per cent.
Japan’s Nikkei fell 0.5 per cent with SoftBank coming under heavy selling pressure following media reports it has spent at least $US4 billion buying call options on listed US technology stocks.
In currency markets, the US dollar index gained 0.15 per cent in holiday-thinned trade on Monday, while traders shifted their focus to the European Central Bank’s meeting on Thursday. Most analysts don’t expect a change in policy stance.
In commodities, oil prices hit their lowest since July, after Saudi Arabia made the deepest monthly price cuts for supply to Asia in five months. US crude fell 1.3 per cent to $US39.25 a barrel. Brent crude skidded to $US42.11.
Fading optimism about a recovery in global demand amid the coronavirus pandemic also hung heavy on financial markets on Monday.