Stock markets in Europe turned positive again on Friday at the end of a choppy week, as investors turned their attention to second-quarter earnings to gauge how companies are weathering the impact of rising prices.
The euro came under pressure after a key survey suggested the single currency area could be on the brink of recession on falling demand and rising costs.
A higher-than-expected interest rate hike by the European Central Bank was not able to lighten the mood in the long term, since the political turbulence in Italy is clouding the prospects.
Still, stock prices in Europe showed modest gains after a mixed performance in Asia, with London’s FTSE 100 up 0.2 percent and both Frankfurt’s DAX and Paris’ CAC 40 up 0.3 percent.
Economic activity in the euro zone slumped in July, the closely-watched Purchasing Managers’ Index (PMI) showed, with a sharp drop in output and post-lockdown consumer spending stymied by high prices.
The barometer fell to 49.4 from 52.0 in June, below the 50-point mark indicating growth and the lowest level in 17 months.
The data “points to a 0.5 percent to 1.0 percent contraction in gross domestic product early in the third quarter and supports our view that the eurozone economy is headed for a technical recession in the fourth quarter,” said Melanie Debono, economist at Pantheon Macroeconomics.
Andrew Kenningham, economist at Capital Economics, agreed.
“The euro zone is on the brink of recession. The ECB needs to follow yesterday’s historic rate hike with a few more in the coming months, even if it will worsen the downturn,” he said.
It’s been a roller coaster week as investors have tried to assess the outlook – corporate earnings have been relatively positive so far but mixed economic data and geopolitical events are weighing on sentiment.
Earlier, markets in Asia had started positively but lost some of their luster as the day progressed.
Tokyo, Hong Kong, Mumbai, Taipei, Singapore, Manila and Jakarta all posted gains but fell short of their highs, while Sydney was flat and Shanghai, Wellington and Seoul fell.
OANDA analyst Jeffrey Halley said a Federal Reserve meeting next week would be closely watched by markets.
“The statement will be critical and, depending on how it plays out, could halt what I see as a bear market rally,” he said in a note.
“Inflation remains and will remain stubbornly high, there are many geopolitical risks, global growth is slowing and recession risks are rising. I can’t imagine this being a productive environment for stocks ahead of the other big tech quarterly earnings reports.”
– Key figures at 1030 GMT –
London – FTSE 100: up 0.2 percent to 7,287.81 points
Frankfurt – DAX: Plus 0.3 percent at 13,285.91
Paris CAC 40: up 0.3 percent to 6,218.04
EUROSTOXX 50: up 0.3 percent to 3,605.98
Tokyo – Nikkei 225: up 0.4 percent at 27,914.66 (close)
Hong Kong – Hang Seng Index: up 0.2 percent at 20,609.14 (close)
Shanghai – Composite: down 0.1 percent at 3,269.97 (close)
New York – Dow: up 0.5 percent at 32,036.90 (close)
Euro/Dollar: DOWN at $1.0158 from $1.0232 on Thursday
Pound/dollar: DOWN at $1.1946 from $1.2002
Euro/Pound: DOWN at 85.02p from 85.22p
Dollar/yen: up at 137.46 yen from 137.34 yen
West Texas Intermediate: FALSE, up 1.6 percent at $94.75 a barrel
North Sea Brent Crude: FALSE, up 1.5 percent at $97.99 a barrel
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