Europe open: Stocks drop as Commission lowers outlook, flags risks

Stocks across Europe were giving back the prior day's gains on Tuesday as the European Commission sounded a note of caution on the economic outlook and still worrisome headlines around the coronavirus pandemic continued to roll in

"These types of moves are becoming emblematic of how markets have been moving over the last month. We’ve seen sentiment ebb and flow from being quite bearish, to fairly bullish without ever breaking out of the range we’ve been in since we posted those June peaks," said Michael Hewson at CMC Markets.

IG's Chris Beauchamp however was a bit more cautious, noting a move higher in US measures of equity volatility overnight.

Against that backdrop, as of 1024 BST, the benchmark Stoxx 600 was down by 1.16% to 366.83 and the German Dax by 1.5% to 12,541.94, while the FTSE Mibtel was dipping 0.37% to 19,957.69.

Jim Reid at Deutsche Bank on the other hand pointed out that Monday had seen one of the calmest trading days since February on the US S&P 500, while those at Rabobank broached the possibility of a 'summer lull'.

Monday's session saw the S&P 500 'close' a so-called 'bearish gap' left behind on 10 June as the Nasdaq Composite notched up a fresh all-time high, even as geopolitical tensions around China continued to simmer in the background.

On the economic side of things, in its summer forecast, the EC lowered its view for Eurozone GDP growth in 2020 from -7.7% to -8.7%.

"The forecast assumes that lockdown measures will continue to ease and there will not be a ‘second wave' of infections," the Commission warned.

There was also some discussion to be heard around recent comments from European Central Bank policymakers that its emergency bond purchase programme might not be fully used, although Rabobank recommended not reading too much into those comments.

And ECB bank supervisor Kerstin af Jochnick said the monetary authority might extend its recommendation not pay dividends or conduct share buybacks from October until the end of 2020.

On the pandemic front, the news headlines continued to focus on rising Covid-19 caseloads in multiple US states, especially in Califrornia, Florida and Texas.

Analysts at Pantheon Macroeconomics however believed that the daily rate of new cases would start falling from mid-to-late July.