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European equity markets opened higher on Tuesday, extending a bout of exuberance that began in the US overnight, then quickly changed course as weak earnings from big companies weighed on sentiment.

The Europe Stoxx 600 opened 0.4 per cent higher, before swiftly dropping 0.5 per cent. Germany’s Dax gained 0.8 per cent at the open, then fell 0.7 per cent. The FTSE 100 opened flat before losing 0.5 per cent.

The moves came after Diageo, the world’s largest spirits maker, wrote down the value of its assets by £1.3bn after coronavirus lockdowns and weak trading hurt its businesses in India, Africa and South Korea.

Shares in Bayer dropped more than 3 per cent after the German chemicals-to-drugs group lowered its outlook due to the coronavirus pandemic.

“The overall earnings picture in Europe is not brilliant,” said Georgina Taylor, a multi-asset fund manager at Invesco, while also noting that investors on Tuesday were displaying some optimism towards cyclical industries that had been hit hard by the pandemic, such as oil and gas.

The energy segment of the Stoxx 600 index rose 1.6 per cent on Tuesday morning. Shares in BP gained more than 6 per cent despite the oil major slashing its dividend by 50 per cent in its first cut to a shareholder payout since the Deepwater Horizon disaster in 2010. Shares in BP have fallen 36 per cent so far this year.

Cyclical stocks such as oil companies, whose returns tend to follow economic cycles, “have been the laggards and the polarisation between them and others has got wider and wider,” Ms Taylor said. “So we now have a short-term response to them having become, relatively, so cheap.”

Oil prices themselves continued falling, despite the publication on Monday of better than expected US manufacturing data. Brent crude, the international oil benchmark, fell 1 per cent on Tuesday morning trade in London to $43.67 a barrel.

The Institute for Supply Management said that US manufacturing activity hit its highest level in almost 18 months in July.

This, along with Donald Trump dropping his opposition to Microsoft’s planned purchase of video app Tik Tok from its Chinese owner ByteDance, had lifted US and Asian stocks overnight. The Nasdaq gained 1.5 per cent to reach a new record high and Japan’s Topix climbed 1.9 per cent.

Futures markets tipped the Nasdaq and the S&P 500 to drift 0.2 per cent lower in opening trades in New York, however.

The US dollar, which had its worst month in a decade in July because of concerns about the ability of the coronavirus-scarred economy to lead a global recovery, bounced around a two-year low.

The dollar index, which measures the performance of the US currency against those of trading partners, drifted in a tight range. The index has declined more than 6 per cent in the past three months.

The price of gold, which has surged to an all-time high in recent weeks as investors sought out haven assets, was steady at $1,976 per troy ounce.

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