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The global equities rally that started the week faded on Tuesday as a month of choppy trading neared its end and uncertainty over the economic outlook returned.

Shares across Europe slipped shortly after the market opened. The region-wide Stoxx 600 was down 0.4 per cent, London’s FTSE 100 fell 0.8 per cent and Germany’s Dax lost 0.6 per cent. That followed an upswing on Monday that proved to be the best day for European stocks in three months, as investors scooped up shares in sectors hit by last week’s broad sell-off.

Bank stocks, which led Monday’s gains on both sides of the Atlantic, slipped in early dealings on Tuesday. Lenders such as Spain’s Santander and France’s Société Générale were down more than 2 per cent. Travel stocks including British Airways owner IAG also sank, losing 3.5 per cent.

The falls came as coronavirus infections in the region continued to rise and governments hinted at stricter lockdown measures.

“In the short term, all eyes are going to be on Europe,” said John Roe, head of multi-asset funds at Legal & General Investment Management. “If one of these countries with an uptick in virus cases successfully stops it [without another full lockdown], markets will gain confidence that every country can do it.”

JPMorgan strategist Mislav Matejka said the Brexit risk to the pound — down about 4 per cent against the US dollar this month but up as much as 1.4 per cent on Monday — made British stocks more attractive to foreign buyers and that FTSE 100 valuations were at “record cheap levels”. Sterling added to Monday’s gains, up 0.3 per cent at $1.2864.

UK mortgage approvals hit a 13-year high in August, supported by the government’s stamp duty holiday and resumed consumer spending. But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said approvals “won’t be sustained at August’s level for long”.

Economic sentiment in the eurozone in September beat expectations, according to a survey by the European Commission’s Directorate‑General for Economic and Financial Affairs. But Germany’s Ifo Institute and Switzerland’s Kof forecast jointly that economic growth in the region would slow to 2.2 per cent in the fourth quarter “following a massive recovery [of 8.2 per cent] in the third quarter”.

Futures contracts point to losses on Wall Street when the market opens later, with the tech-heavy Nasdaq 100 expected to drop 0.2 per cent and the benchmark S&P 500 forecast to slip 0.1 per cent.

Investors remain cautious ahead of the US presidential election in November and will be watching the first election debate later on Tuesday between incumbent Donald Trump and Joe Biden, his Democrat rival.

Uncertainty about when further US fiscal stimulus might come has also weighed on markets, with many investors expecting that a package will not be approved by legislators until after the election. On Monday Democrats announced a $2.2tn coronavirus economic relief bill in a bid to reach a compromise with Republicans after weeks of wrangling to renew jobless benefits that expired about two months ago.

Economic demand worries weighed on oil prices. Brent crude, the international marker, was down 0.8 per cent at just above $42 a barrel.

Shares across much of Asia also reversed some of their overnight gains, with Tokyo’s Topix closing down 0.2 per cent and Hong Kong’s Hang Seng falling 0.9 per cent. South Korea’s Kospi and China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks both pared earlier gains to rise 0.9 per cent and 0.2 per cent respectively.

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