Global stocks climb on recession watch; pound gains on Johnson exit

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A woman uses a trolley as she shops at a grocery store in East London, in the Eastern Cape province, South Africa, on Thursday. Reuters

Stock markets recovered further on Thursday as investors weighed recession risks, while the pound rallied on the resignation of Britain’s scandal-hit Prime Minister Boris Johnson as leader of the Conservative party.

Elsewhere, oil prices climbed with both main contracts back over $100 per barrel, and the euro remained around 20-year lows versus the dollar.

“Stocks bounce as pressure points ease,” said independent markets analyst Stephen Innes.

The Federal Reserve on Wednesday stressed its readiness to continue hiking US interest rates to tackle soaring inflation.

Minutes of their last meeting made clear that officials did not plan to let up in efforts this year to try to cool prices.

Inflation stands at the highest levels since the early 1980s both in the United States and Britain, where attention Thursday was firmly on political upheaval gripping the nation.

The pound rallied against the dollar and euro on Johnson’s resignation as Conservative party leader — paving the way for a successor to replace him as prime minister.

London-StockPhoto used for illustrative purpose.

Gains by London’s blue-chip FTSE 100 stock index accelerated following Johnson’s announcement, standing up 1.3 percent in afternoon trading. Dozens of ministers have quit his scandal-hit government since Tuesday, including former finance chief Rishi Sunak.

“The pound is pushing higher, hitting session highs inching closer back up to… $1.20, a critical support level it broke below this week amid the political and economic uncertainty,” said Victoria Scholar, head of investment at Interactive Investor.

“The currency market is relieved that Johnson is finally resigning, removing some of the political uncertainty that was priced into the pound and paving the way for a new prime minister,” she added.

Berenberg Bank Senior Economist Kallum Pickering said that “the UK economy and its financial markets look set to benefit from more stable leadership.”

The euro meanwhile remained under $1.02 — a level it slumped under this week on its way to hitting a 20-year low.

The European single currency is being hammered by growing fears of a recession for the eurozone and the likelihood of more aggressive US interest-rate hikes.

In afternoon trading, Paris stocks were up 1.5 per cent and Frankfurt rose 1.7 per cent. Wall Street stocks rose at the opening bell, with the Dow adding 0.7 per cent.

Wall-street-750Photo used for illustrative purpose.

Wall Street pointed higher on Thursday ahead of two days of US employment data that could offer hints as to how employers are managing spiraling costs and rising interest rates with the Federal Reserve pursuing an aggressive push to reign in inflation.

Futures for the Dow Jones industrials rose 0.5% and futures for the S&P 500 gained 0.4%. Lower oil prices have eased inflation anxiety somewhat.

Shares in Europe ticked higher on a day that British Prime Minister Boris Johnson announced that he was resigning amid a flood of resignations from his Conservative Party’s members.

Oil prices edged up but remain below $100 per barrel.

Investors worry aggressive U.S. and European rate hikes to contain prices rises that are running at a four-decade high might depress global economic activity.

“Stocks rose because runaway commodity and oil prices are sinking,” said Stephen Innes of SPI Asset Management. “Both are the critical targets Fed policy is engineered to tame; hence, inflation expectation is coming under control.”

On Thursday, the Labour Department releases its weekly jobless claims report, which generally tracks the number of U.S. layoffs. On Friday comes the more detailed June jobs report, which will give investors a more granular look at how certain sectors of the economy are handling four-decade high inflation and rapidly rising interest rates.

The job market has remained very strong in the aftermath of the coronavirus outbreak, but there have been some signs that the landscape may grow more challenging.

On Wednesday, the Labour Department reported that US employers advertised fewer jobs in May amid signs that the economy is weakening, though the overall demand for workers remained strong.

In midday trading, the FTSE 100 in London gained 1.3%, the DAX in Frankfurt added 1.6% and the CAC 40 in Paris advanced 1.5%.

In Asia, the Shanghai Composite Index rose 0.3% to 3,364.40 and the Nikkei 225 in Tokyo gained 1.5% to 26,490.53. The Hang Seng in Hong Kong closed 0.3% higher at 21,643.58 after spending much of the day in negative territory.

The Kospi in Seoul climbed 1.8% to 2,334.27 and Sydney’s S&P-ASX 200 was up 0.8% at 6,648.00.

India’s Sensex advanced 0.7% to 54,107.97. New Zealand declined while Southeast Asian markets advanced.

On Wednesday, the Fed released notes from latest meeting saying “an even more restrictive stance could be appropriate” to get inflation back to its 2% target. Fed officials acknowledged that could weaken the economy.

Agencies

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