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Wall Street rally boosts FTSE 100 and European stocks

·3-min read
The FTSE 100 reversed losses in afternoon trade. Photo: Vuk Valcic/SOPA Images/LightRocket via Getty
The FTSE 100 reversed losses in afternoon trade. Photo: Vuk Valcic/SOPA Images/LightRocket via Getty

European stocks were in the green on Tuesday as a rally on Wall Street boosted markets despite concerns over growth, further interest rate rises, China's renewed COVID outbreak and Europe's energy shortage.

The FTSE 100 (^FTSE) reversed losses at close, up 0.2% in London. In Paris, the CAC (^FCHI) rose 0.8% on the day and the DAX (^GDAXI) edged 0.4% higher in Frankfurt.

"This cocktail of worries is preventing the markets from making any tangible progress. Dire retail sales data for June raises the spectre of recession in the UK as cost of living pressures continue to bear down on household finances," Danni Hewson, financial analyst at AJ Bell said.

It comes as the latest analysis from the British Retail Consortium (BRC) and KPMG showed sales decreased by 1% last month, compared to an increase of 10.4% in June 2021 — the third fall in a row as the cost of living takes its toll on consumers.

Sales volumes dropped at a rate not seen since the depths of the pandemic, according to BRC-KPMG.

The figures aren't adjusted for inflation, meaning there could be a much larger fall in the actual number of products being sold.

Food sales were up in the quarter to the end of June, but non-food sales dropped 4.2% as consumers cut back on discretionary items.

Read more: Cost of living weighs on UK retail sales as reign in spending

Monday's comments from Bank of England governor Andrew Bailey did little to ease fears about a recession and rampant inflation. Bailey said that interest rate rises will hit 40% of UK mortgages in the next 12 months.

The pound (GBPUSD=X) fell 0.5%, or half a cent to $1.1835 against a strengthening US dollar. Sterling edged 0.2% lower to €1.18 against the euro (GBPEUR=X).

Meanwhile, the common currency suffered a brutal decline as Russia's energy cuts threaten to push the eurozone into recession. The euro (EURUSD=X) hit dollar parity on Tuesday, sinking to a 20-year low. It was up 0.1% to $1.005 at the time of writing.

"Dollar domination continues to remain a key thematic for markets, with EURUSD touching parity for the first time since 2002," Joshua Mahony, senior market analyst at online trading platform said.

"Haven demand, the greater impact of the Russian war on Europe, and growing interest rate differentials provide plenty of reasons to expect EURUSD to break lower in a meaningful manner."

Across the Atlantic, US benchmarks defied a wider downturn, rallying at the open ahead of Wednesday's June consumer price inflation data and corporate earnings reports.

Wall Street’s S&P 500 (^GSPC) advanced 4.28 points, or 0.1%, to 3859.31. The tech-heavy Nasdaq (^IXIC) was 0.1% higher, while the Dow Jones (^DJI) added 0.4% at London's close.

Asian stocks tumbled overnight as China's renewed COVID outbreak and subsequent lockdowns weighed.

The Nikkei (^N225) was down 1.8% in Japan, while the Hang Seng (^HSI) fell 1.3% in Hong Kong and the Shanghai Composite (000001.SS) dropped 1%.

Watch: How does inflation affect interest rates?