The euro weakened against the dollar on Thursday as economic data pointed to a heightened recessionary outlook in Europe, while Wall Street stocks ended higher after another volatile session.
US stocks weathered a midday slump as Federal Reserve Chair Jerome Powell downplayed the idea that government pandemic assistance was the key driver of US inflation while continuing a tough one on a second day of hearings on Capitol Hill Response to inflation promised.
But LBBW’s Karl Haeling said markets had “significantly shifted rate hike expectations” last week as recession chatter picked up. Investors now assume that the United States will essentially be done with rate hikes in 2022, not 2023.
The broad S&P 500 closed up 1 percent.
Meanwhile, economic growth in the euro zone collapsed in June, a key survey showed, as high prices thwarted the strong recovery from the deep lows of the coronavirus pandemic.
The closely watched monthly S&P Global Purchasing Managers’ Index fell to 51.9 from 54.8 in May. A number above 50 indicates growth.
PMI data also showed that UK private sector business activity is at its lowest level in more than a year on the back of decades of inflation.
“Recent PMI numbers from France and Germany have weighed on the euro as economic activity slowed more than expected in June, raising concerns that both countries are heading for recession,” said market analyst Michael Hewson of CMC Markets.
“While ECB (European Central Bank) policymakers continue to insist that recession is not their baseline scenario, all the evidence points to exactly that,” he added.
European stocks also fell, with London ending the day down 1.0 percent and Paris down 0.6 percent. Frankfurt plummeted 1.8 percent after Germany raised its alert level on natural gas supplies, bringing it one step closer to rationing.
Government bond yields also fell, another indication that investors are becoming more concerned about the prospect of a recession, offsetting some of the financial damage to governments from rising interest rates.
Commentators have been warning for some time that the global economy could be headed for slower growth as global interest rates have been raised sharply to cool inflation.
The prospect of a slowdown in the global economy continued to weigh on oil prices as traders worried about weakening demand.
Brent and WTI, the international and US benchmarks, have slumped over the past week, even with sanctions on Russian crude exports and China’s gradual reopening of lockdowns.
Crude oil sales were helped on Wednesday by data suggesting a rise in US inventories.
– Key figures at 1530 GMT –
Euro/Dollar: DOWN at $1.0526 from $1.0566 late Wednesday
Pound/dollar: DOWN at $1.2259 from $1.2266
Euro/Pound: DOWN at 85.80p from 86.14p
Dollar/Yen: DOWN at 134.94 yen from 136.26 yen
New York – Dow: up 0.6 percent at 30,677.36 (close)
New York – S&P 500: up 1.0 percent at 3,795.73 (close)
New York – Nasdaq: up 1.6 percent at 11,232.19 (close)
London – FTSE 100: 1.0 percent down at 7,020.45 (close)
Frankfurt – DAX: 1.8 percent down at 12,912.59 (closing price)
Paris – CAC 40: DOWN 0.6 percent at 5,883.33 (close)
EURO STOXX 50: down 0.8 percent at 3,436.29 (close)
Tokyo – Nikkei 225: up 0.1 percent at 26,171.25 (close)
Hong Kong – Hang Seng Index: up 1.3 percent to 21,273.87 (close)
Shanghai – Composite: up 1.6 percent at 3,320.15 (close)
North Sea Brent Crude: FALSE, up 1.5 percent at $110.05 a barrel
West Texas Intermediate: FALSE, up 1.8 percent at $104.27 a barrel
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