European markets recover as inflation, energy, euro worries ease

ROME, Oct. 7 (Xinhua) -- European markets broadly recovered from recent declines this week as the euro changed tack and gained ground against the U.S. dollar. Analysts say that diminishing concerns over the challenges currently facing European markets, such as inflation and energy worries, have been priced into valuations.

Though major European Union (EU) stock exchanges -- Frankfurt, Madrid, Milan, and Paris -- were down in trading Friday, they were all in positive territory for the week. These were the first broad weekly gains for the main EU exchanges in a month.

The euro, meanwhile, has clawed back some of the territory it lost in recent weeks. Early in the week, the euro briefly traded at parity with the greenback for the first time since Sept. 20, though it gave back some gains to end the week at 1.024 per U.S. dollar. As recently as Sept. 28, it took 1.05 euros to buy 1 U.S. dollar.

Ludovic Subran, chief economist with insurer Allianz, said in a televised interview Thursday that the European Central Bank has quietly "been taking steps to shore up the value of the euro against the dollar and other currencies," and avoid what he called "negative supply shocks" due to a weakening currency.

Bond yields in the major European Union states dropped at the start of the week, before climbing over the final two sessions of the week to end more or less flat compared to a week ago. Bond yields are a reflection of investor nervousness about the economic prospects of a country.

The stock exchanges, the euro currency, and bond yields have been hit in recent weeks by rising prices, fears of energy shortages related to the conflict between Russia and Ukraine, and worries about the political unity of the 27-nation bloc after recent elections in Sweden and Italy.

While inflation remains high -- the consumer price index for the eurozone rose 10.0 percent in September compared to a year earlier -- analysts said other negative economic factors had either diminished or had been built into investor calculations.

"Fears of an energy crisis (in Europe) have diminished to a large degree as countries have been able to build up natural gas reserves," ABS Securities political risk researcher Gian Franco Gallo told Xinhua. "More support for the euro is important. Inflation is high and it will probably slow but remain high through the end of the year." However, he added that this is not sending out the same economic shockwaves as when prices first climbed at the start of the Ukraine conflict.

The economic news from Europe is mixed. Both Germany and Italy, the European Union's largest and third largest economies respectively, indicated this week that they could slide into technical recession next year, a status that reflects back-to-back economic quarters of negative economic growth.

In France, the second largest economy in Europe, the Central Reserve Bank said in mid-September there was a risk of recession, but it has not yet predicted that this will happen.