European stocks are expected to open lower Tuesday, with investors taking a fresh look at the difficulties facing the global economy and events in North Korea raising tensions.
"As we move on towards the end of May, the pressures remain tipped on the downside as the fundamentals still point towards economies in distress," said Matt Buckland, a dealer at CMC Markets, "and although last week's comments by S&P may have been played down by governments, the fact remains that the outlook in the medium term is still a difficult one."
Markets were stirred Monday, when the U.K. and the U.S. were on holiday, by North Korea's nuclear test and rocket launch and the slightly disappointing German May Ifo print.
However, the market is likely to focus again on the U.S.'s credit rating and by extension its fiscal situation, noted Nizam Idris at UBS. The White House issued a brief statement over the weekend stating its confidence that the world's largest national economy will maintain its triple-A rating.
"The market will not have to wait long for the real test to that credit concerns in the U.S. Only a good reception to this week's huge $101 billion in Treasury issuance would quell the credit fears," added Mr. Idris.
Asian share markets were mixed Tuesday, but North Korea was keeping them on edge with a Yonhap report Pyongyang was preparing to test-fire short-range missiles. That would follow its test Monday of a nuclear device and three short-range weapons, though investors are fairly inured to North Korean geopolitical risk and markets have tended to bounce quickly in the past after similar events.
"The North Korea issue isn't likely to have a long-lasting impact on the market," said Woori Futures analyst Byeon Ji-young.
Japan's key Nikkei 225 index closed down 0.4%, while South Korea's Kospi Composite ended down 2%, but Hong Kong's Hang Seng index stood 0.3% higher.
In the currency markets, the U.S. dollar was trapped within narrow ranges against the major currencies overnight as holidays in both the U.S. and the U.K. helped quell last week's attack on the dollar.
The euro stayed within $1.3958-$1.4022, the dollar within ¥94.50 and ¥95.17, while sterling saw a range of $1.5835-$1.5925.
In early European trading, the euro stood at $1.3990, the dollar at ¥94.82, and the British pound at $1.5934.
