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Europe is on the brink of economic recession

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US headed for a soft landing – What currency and stock movements and economic indicators show

Στο χελλος οικονομικ orς yφεσης η Ευρoπη

Over the past two weeks, the euro has weakened against the dollar, while the surprise rally in European group stocks this year has stalled.

Investors and market traders are increasingly betting that Europe will fall into a painful recession, just as they believe the US economy is headed for a soft landing. In an article by the Financial Times, it is also pointed out that the euro has weakened against the dollar in the last two weeks, while the sudden rise in the shares of European groups this year has been stopped. And German government bonds – a preferred folding option in times of nervousness – are gaining in price. The changes show a growing belief among fund managers that economic indicators in the Eurozone are weakening due to higher borrowing costs, while the US has shown resilience despite the most restrictive interest rate environment in 22 years. “We've seen a lot of rate hikes in the US, but demand and growth are strong,” said Aro Emami Nijad, portfolio manager at Fidelity International. “The growth momentum of the European economy is anemic, we believe that the ECB has made a policy mistake and will recognize it slowly,” he added, referring to the idea that the ECB has raised borrowing costs too much and will be forced to cut them.

Official data last week showed the U.S. economy grew at an annual rate of 2.4 percent in the second quarter, well above what economists had forecast, while a measure of inflation, tracked by the U.S. Federal Reserve, fell more than expected in June, reinforcing expectations that it will soon break the cycle of increases. Meanwhile, Europe is teetering on the brink of recession, with service price inflation in the Eurozone reaching a record 5.6% in July. Analysts have pointed out that interest rate hikes have been less successful in reducing inflation in Europe than in the US, because a greater proportion of inflation has been due to the damage caused to food and energy supplies by Russia's invasion of Ukraine.

In the first half of this year, European stock markets boomed, confounding investors who had almost universally expected a downturn. By contrast, a relatively mild winter and the easing of the energy crisis in the region helped Europe avoid a major shock, which helped push the pan-European STOXX Europe 600 index 8.5% higher in the first six months of the year. Those gains have been reversed midway through the announcement of disappointing second-quarter results. Companies in the Stoxx 600, finally, are likely to have their biggest drop in quarterly earnings since the early stages of the pandemic, posting a 17% per-share drop in the second quarter, more than double the loss from US rivals and the broader index. S&P 500.

Source: www.kathimerini.com.cy

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