Chipmakers Revive Stocks as Euro Struggles After Freefall

By Huw Jones

LONDON (Reuters) – Chipmakers revived stock markets on Thursday, helping to sooth investor worries over a potentially rapid recession because of looming rate hikes, while the euro struggled near a 20-year parity with the safe-haven dollar.

Sterling rose 0.6% after reports that Britain’s Prime Minister Boris Johnson will resign following a string of ministerial resignations, after plumbing 2-year lows on Wednesday amid political uncertainties. The FTSE blue chip index in London gained 0.9%.

Crude oil fluctuated on either side of $100 a barrel as tight supplies and worries over demand jostled for market attention.

Semiconductor firms rose in Europe after South Korea’s Samsung posted its best second quarter profit in four years. Steady U.S. stock futures also bolstered European shares.

The STOXX index of 600 European companies up 1.2% at 412 points, still down about 16% from its record high six months ago.

The MSCI global share index was up 0.4%, having lost about a fifth of its value so far this year.

Kevin Thozet, investment committee member at Carmignac asset management, said U.S. economic data was pointing towards slower economic growth, though not imminent recession.

“Markets are potentially exaggerating recession risk or recession coming very rapidly,” Thozet said, adding that investors were pivoting towards utility-style companies like pharmaceuticals, which are less sensitive to downturns.

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

Elsewhere in Europe, the euro sought to claw back from its near two-decade trough against the greenback.[FRX/]

“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,” added Chris Weston, head of research at brokerage Pepperstone in Melbourne.

Unlike the Bank of England and the Federal Reserve, the ECB has yet to begin raising interest rates despite record high inflation in the euro zone, but the central bank is expected to increase rates by 25 basis points later this month.

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

DUET OF FED SPEAKERS

S&P 500 futures were up 0.4%, indicating a steady start on Wall Street later in the session.

Benchmark U.S. 10-year yields were last at 2.942%, up slightly on that day after having fallen from a more than 11-year high of 3.498% on June 14th.

The yield curve, measured by the gap between two and 10-year U.S bond yields, continued to push further into inverted territory, a sign that bond markets suspect aggressive rate hikes to tame inflation.

“The coincidence of fairly hot job market data and far more resilient ISM services … further underpins the point that the Fed is unlikely to step down the pace and intensity of tightening,” said Mizuho economist Vishnu Varathan.

“The next litmus test for the direction in yields … will be the speeches by Bullard and Waller – who should shed more light into the thinking of the hawkish camp within the (Fed),” said NatWest Markets’ rates strategist Jan Nevruzi.

“Are they leaning into the recessionary fears or continuing to press on that the Fed has to go above neutral as quickly as possible and contain inflation no matter the cost to growth?”

James Bullard, the St Louis Fed President, and Fed Governor Christopher Waller are both due to speak at 1700 GMT, though Friday’s U.S payrolls data is also keenly awaited.

Asian stocks managed gradual gains, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 1% from a two-month low.

Japan’s Nikkei closed up 1.47%, while South Korea’s KOSPI index gained 1.8%, its best day in nearly two weeks, with Samsung Electronics one of the biggest movers after reporting earnings guidance that suggested a rebound for its chip business.

The Australia and New Zealand dollars scraped themselves from two-year lows, gaining 0.51% and 0.54%, respectively.

Brent crude futures dipped below $100 a barrel early in the Asia session but recovered and were last at $101.23, up 0.5% on the day but down almost 10% for the week so far.

Shanghai copper steadied but has lost 20% in a month as investors worry about demand for the industrial metal.

(Reporting by Tom Westbrook in Singapore and Sam Byford in Tokyo; Editing by Edmund Klamann and Kim Coghill)