Gains in chipmakers helped to soothe investors after hawkish Federal Reserve statements heightened the prospect of a significant interest rate rise later this month, raising concerns about how much this might slow the economy.

The euro battled to stay above parity with the safe-haven dollar.

Sterling was barely altered after British Prime Minister Boris Johnson resigned after a succession of government resignations. The pound fell to two-year lows on Wednesday as political uncertainty mounted.

According to Berenberg senior economist Kallum Pickering, a new leader who is less antagonistic to the European Union might benefit the pound.

“Over time, less fraught and uncertain UK-EU relations may prove to be the catalyst for stronger business investment and a sustained appreciation in sterling towards fair value against the dollar,” Pickering said.

The London FTSE (.FTSE) blue chip index rose 0.9 percent.

Semiconductor companies climbed in Europe after Samsung reported its biggest second-quarter earnings in four years. Consistent US stock futures also boosted European equities.

S&P 500 futures were up 0.35 percent, predicting a solid start on Wall Street as investors tried to predict whether expected rate rises would cause a recession.

Minutes from the Fed’s June meeting, released on Wednesday, suggested that if high inflation persists, a 50 to 75 basis point raise is expected when the two-day meeting concludes on July 27.

The minutes caused eurozone yields to rise.

The STOXX (.STOXX) index of 600 European businesses rose 1.5 percent to 412 points, although it is still down around 16 percent from its six-month peak.

The MSCI global share index (.MIWD00000PUS) was up 0.5 percent after losing almost one-fifth of its value this year.

According to Kevin Thozet, an investment committee member at Carmignac asset management, economic indicators in the United States hint to slower growth but no impending recession.

“Markets are potentially exaggerating recession risk or recession coming very rapidly,” Thozet said, adding that investors were shifting their focus to utility-style firms like medicines, which are less vulnerable to downturns.

“We are collectively buying what we need more than what we want,” Thozet said.

Elsewhere in Europe, the euro attempted to recover from a near two-decade low versus the US dollar and avoid falling below parity for the first time since December 2002.

“The euro is in freefall and we have not heard any official from the European Central Bank commenting. It’s as if they are locked in a bunker,” Thozet said.

“It’s not just a question of recession, it’s a question of how dark it gets in Europe,” said Chris Weston, director of research at Melbourne brokerage Pepperstone.

Despite record high inflation in the eurozone, the ECB has yet to begin hiking interest rates, unlike the Bank of England and the Federal Reserve, although the central bank is likely to raise rates by 25 basis points later this month.

“They could be hiking by 50 basis points and potentially they should,” Thozet added.

Source: Reuters


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