European stocks rallied on Wednesday, pushed up by a sharp rise in the shares of Just Eat Takeaway after Amazon agreed to take a stake in the company’s Grubhub arm, and by stronger than expected German industrial data.
The regional Stoxx Europe 600 index bounced back from steep declines in the previous session to rise 1.5 per cent by the late morning. Germany’s Dax added 1.4 per cent, while London’s FTSE 100 gained 1.6 per cent.
The Stoxx had closed 2.1 per cent lower on Tuesday, hit by worries about a looming economic slowdown and the possibility of Norwegian gas supplies being curbed by a workers’ strike. Norway’s government intervened late on Tuesday to end the action.
The market moves on Wednesday came as Just Eat Takeaway and Amazon announced a commercial agreement in the US, whereby Amazon agreed to take a 2 per cent stake in Just Eat’s US business Grubhub, granting Amazon Prime members access to the food delivery platform. Shares in Just Eat, which has a market capitalisation of €3bn, rose 17 per cent.
Helping to bolster sentiment after the previous day’s sell-off, fresh data showed that German industrial orders unexpectedly rose 0.1 per cent in May following a drop of 1.8 per cent in April. Economists polled by Reuters had forecast a decline of 0.6 per cent.
But Sharon Bell, senior European equity strategist at Goldman Sachs, warned that “more consistent data shows Germany is weakening into that modest downturn”, adding that recent swings show “volatility of markets is high at the moment: there’s lack of confidence [among investors] in terms of what positions to take”.
In Asian equity markets, Hong Kong’s Hang Seng lost 1.2 per cent as new Covid-19 outbreaks compounded recession fears.
US government debt markets were steadier on Wednesday, but yields on two-year Treasury bonds continued to trade above those on 10-year notes after inverting for the third time this year on Tuesday. So-called inversions, when yields on 10-year Treasury notes slump below those of their shorter-dated counterparts, have preceded every US recession in the past half-decade.
In a further indication of recession fears, the dollar surged to a new 20-year high on Tuesday as the euro dropped. The dollar index, which measures the US currency against a basket of six others, added 0.2 per cent in late-morning European dealings.
Expectations of an economic slowdown pushed Wall Street’s tech-heavy Nasdaq Composite higher on Tuesday, leading it to close up 1.7 per cent as investors ploughed into companies such as Amazon and Facebook owner Meta which are typically expected to sustain earnings growth during times of market stress.
Aggressive monetary policy tightening has hammered the valuations of tech companies this year, with the prospect of higher interest rates biting into their projected cash flows and earnings.
But, helping those groups, fears of a slowdown have in recent weeks brought down investors’ expectations of how far the US Federal Reserve will raise interest rates. Markets are now pricing in a benchmark rate of 3.3 per cent by February 2023, down from expectations of 3.9 per cent just over three weeks ago.
Futures contracts tracking the US’s S&P 500 added 0.1 per cent on Wednesday morning, as did those tracking the Nasdaq 100. Details of the Fed’s latest monetary policy meeting, due to be released later on Wednesday, may give further clues about the extent to which the central bank is willing to tighten against a backdrop of economic gloom.
In commodities markets, Brent crude rose 1.1 per cent to $103.91 per barrel, after the international oil benchmark fell almost 10 per cent on Tuesday. West Texas Intermediate, the US marker, rose 0.2 per cent to $99.72, having slipped below $100 on Tuesday for the first time since May.
The pound lost 0.1 per cent against the dollar on Wednesday after Rishi Sunak resigned as UK chancellor on Tuesday and Nadhim Zahawi was appointed as his replacement.
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