Chipmakers revive stocks as euro struggles after freefall

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 per cent 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 per cent.

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 US stock futures also bolstered European shares.

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

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

Kevin Thozet, investment committee member at Carmignac asset management, said US 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.

“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 per cent, indicating a steady start on Wall Street later in the session.

Benchmark US 10-year yields were last at 2.942 per cent, up slightly on that day after having fallen from a more than 11-year high of 3.498 per cent 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.