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Europe shares rebound from lows, euro set for best month in a decade

GDP in the bloc shrank by 12.1% from the previous quarter; inflation unexpectedly ticks up

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The European bloc's economic contraction coincided with novel coronavirus lockdowns, which in many euro zone countries began to ease only in May.

London

EUROPEAN shares recovered from their lowest levels in a month on Friday, as investors looked past a severe economic contraction in the euro zone and on to company earnings. Meanwhile, the euro reached its highest in more than two years, set for its best month in a decade.

The euro zone's economy recorded its deepest contraction on record in the second quarter, preliminary estimates showed, but inflation unexpectedly ticked up in July.

Gross domestic product (GDP) in the bloc shrank by 12.1 per cent from the previous quarter, the European Union's statistics office, Eurostat, said in its flash estimates. The decline coincided with novel coronavirus lockdowns, which in many euro zone countries began to ease only in May.

The pan-European STOXX 600 rose 0.6 per cent, though it was on course to end the month flat or lower. Technology shares led the rally, rising over 2 per cent after Wall Street's tech giants, Apple, Amazon and Facebook, reported forecast-beating results overnight.

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MSCI's All Country World Index, which tracks shares across 49 countries, was down 0.04 per cent on the day.

"Germany's (-10.1 per cent) and France's ( -13.8 per cent) numbers have already shaped expectations around the magnitude of the Q2 slump in the aggregated euro zone economy," ING strategists said in a note to clients. "Markets will therefore focus on assessing the slowdown in the Italian and Spanish economies, which were among the first and worst-hit countries in the pandemic."

They added the euro could hit US$1.20 within the next few days. The single currency passed US$1.19 on Friday, though it fell back below the handle by midday in London.

The US dollar was set for its worst month in a decade against a basket of currencies, as abysmal economic data for the second quarter and rising global Covid-19 cases darkened the mood. The US dollar index gained 0.2 per cent on Friday to 93.011. Expectation that the US Federal Reserve will maintain its ultra-loose monetary policy for years have contributed to a depressed greenback.

US GDP plunged 32.9 per cent in the second quarter, the biggest decline on record. Jobless claims rose last week, another sign the economic recovery has slowed.

Those figures overshadowed positive manufacturing data from China and Japan. China's official Purchasing Manager's Index data showed that factory activity grew in July for a fifth straight month and at a faster pace, defying expectations of a slowdown. Japan's industrial output snapped four months of declines in June.

Earlier in Asia, shares turned lower on Friday amid the economic data from the US and rising global Covid-19 cases. After rising in early trade, MSCI's broadest index of Asian shares outside Japan turned lower. It was last down 0.3 per cent.

Australian shares were down 2.04 per cent and Seoul's Kospi ticked 0.64 per cent lower. Japan's Nikkei dropped 2.82 per cent as a stronger yen weighed on exporters.

Chinese blue chips were last up 0.35 per cent in a session that swung repeatedly between gains and losses.

Futures continued to point to a higher open on Wall Street on Friday. Apple, Amazon, Facebook and Alphabet reported quarterly earnings on the same day for the first time ever, all topping Wall Street estimates.

"All of them punched the lights out with respect to their earnings numbers," said National Australia Bank strategist Ray Attrill.

E-mini futures for the S&P 500 rose 0.2 per cent and Nasdaq futures gained over 1 per cent.

US stock markets, oil prices and the greenback slid on Thursday as the data underscored the economic impact of Covid-19 and US President Donald Trump raised the possibility of delaying the November election.

On Wall Street, the Dow Jones Industrial Average fell 0.85 per cent, the S&P 500 lost 0.38 per cent and the Nasdaq Composite added 0.43 per cent.

Crude oil recovered from an overnight slump, with global benchmark Brent crude rising

0.7 per cent to 43.25 a barrel. US light crude added 0.5 per cent to US$40.21 per barrel.

US benchmark 10-year Treasury notes yielded 0.5363 per cent. The two-year yield touched 0.1152 per cent compared with a US close of 0.121 per cent.

Italian 10-year bond yields were set for their biggest monthly drop since January on Friday, boosted by the recovery fund agreed by the European Union last week. REUTERS

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