NEW YORK (AFP) – Stocks on Wall Street shrugged off early weakness to start the second half of 2022 on a strong note on Friday, but record euro zone inflation underscored the potential for further turbulence to come.
New York stocks spent much of the morning in the red, absorbing an industry survey showing slowing growth in the manufacturing sector.
But United States (US) markets reversed course in the final hours of trading, rallying over Independence Day weekend on hopes of a better second half.
Investors are coming off the worst six-month start to the year for the S&P 500 since 1970.
Earlier, shares in Paris and Frankfurt ended the day with small gains despite news of record inflation in the euro zone which bolstered expectations of an interest rate hike from the European Central Bank ( ECB) later this month.
The European Union’s (EU) data agency Eurostat said annual consumer price inflation in the 19 countries that use the euro rose to 8.6% in June, against the previous record high of 8.1% in May.
“With eurozone inflation now becoming more broad-based, the outlook for the eurozone for the rest of 2022 continues to look bleak,” warned Center for Economics and Business Research economist Pushpin Singh.
“This comes amid a growing possibility of a serious gas crisis in Europe, with Russia using gas exports as a way to counter sanctions,” he added.
The ECB said last month that it would make its first interest rate hike in more than a decade in July to fight inflation. With the war in Ukraine showing no signs of ending – keeping energy costs high – borrowing costs are expected to continue to rise and push economies into recession.
Comments from top finance chiefs, including Federal Reserve boss Jerome Powell, suggest they are ready to endure the pain of a contraction as long as they can rein in prices – which are rising at their fastest pace in 40 years on both sides of the Atlantic.
“Investors know inflation is high and likely to rise,” City Index analyst Fiona Cincotta told AFP.
“Instead, the market obsession is shifting from inflation to recession fears. Given the sharp decline in stock prices this week, much of the bad news is priced in for now, until it starts again next week,” she added.
The dollar, a safe-haven currency, rose against the pound and the euro on rising expectations of a recession.
Oil rebounded on tight supplies despite lingering recession fears.