U.S. Markets

European stocks hit as cyclicals reverse gains

(Reuters) - Banks and oil companies led European stocks lower on Tuesday as investors turned wary ahead of the U.S. Federal Reserve’s policy meeting.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, May 26, 2020. REUTERS/Staff

The pan-European STOXX 600 index .STOXX fell 1.2%, while the main markets in Frankfurt .GDAXI, London .FTSE and Paris .FCHI were down between 1.6% and 2.1%.

After a stunning 46% recovery from all-time lows, eurozone banks .SX7E fell 3.8% after an EU financial stability watchdog said banks should not be allowed to pay dividends at least until the end of this year.

Oil majors Royal Dutch Shell RDSa.L, BP BP.L and Total TOTF.PA fell between 3% and 4.5% as oil prices fell due to a stronger dollar and oversupply concerns. [O/R]

Other sectors considered most geared to economic growth such as automakers .SXAP, travel and leisure .SXTP and insurers .SXIP, which led a market recovery in the recent weeks, fell between 2% and 3.4%.

Investors were also awaiting the conclusion of the Fed’s monetary policy meeting on Wednesday for its views on recent signs of economic recovery.

“Some of the moves were pretty crazy yesterday and we are keeping back a little. Maybe a bit concerned pre-Fed,” said Keith Temperton, a trader at Tavira Securities.

“My feeling is the Fed is not going to say or do anything. They’re probably going to reserve the next round of ammunition for potential damage from a second wave or if more lockdown is required.”

The World Bank said on Monday the coronavirus crisis will cause global economic output to contract by 5.2% in 2020, warning that its forecasts would be revised downward if uncertainty persists.

However, a surprise recovery in U.S. jobs data and unprecedented stimulus from central banks have helped push the European benchmark rise just 15% below its record high, while Wall Street's tech-heavy Nasdaq .IXIC confirmed a return to bull market on Monday.

“I personally don’t expect a V-shaped recovery in economic growth. It will take some time to find economic normalization,” said Matthias Scheiber, global head of portfolio management, multi-asset solutions for Wells Fargo Asset Management.

Healthcare .SXDP and technology stocks .SX8P, which have taken a hit in the recent days, rose 0.7% and 0.1%.

British American Tobacco (BAT) BATS.L slid 3.1% after it cut annual targets, citing a demand hit from stricter lockdown measures in key emerging markets.

Reporting by Sruthi Shankar in Bengaluru; Editing by Arun Koyyur and Philippa Fletcher