European markets rebound as UK economic growth slows

·3-min read
LONDON, ENGLAND - MAY 19: Guests enjoy their meals at the Tang restaurant within the Shangri-La Hotel at The Shard on May 19, 2021 in London, England. From May 17, a wide raft of changes have been made to the lockdown restrictions, including allowing people in groups of up to 30 to meet outdoors, hotels can accept guests, and pubs, bars, cafes and restaurants can serve customers indoors. (Photo by Leon Neal/Getty Images)
It was the fourth month of growth in a row, but GDP is still 3.1% below its pre-pandemic level in February 2020, according to the Office for National Statistics (ONS). Photo: Leon Neal/Getty Images

European stock markets pushed higher on Friday, rebounding from a sharp sell-off on Thursday.

In London, the FTSE 100 (^FTSE) closed up 1.3%, despite a rise in the pound, while the CAC (^FCHI) jumped 2% and the DAX (^GDAXI) was 1.7% higher.

The recovery for the FTSE was tempered by a substantial slowdown in the UK’s economic recovery in May. UK gross domestic product (GDP) increased just 0.8%, fresh data showed, falling short of the 1.7% expected by economists. It marked a significant slowdown compared to April’s 2.3% gain.

The service sector grew by 0.9% but manufacturing contracted 0.1% as car factories suffered from the global shortage of semiconductors. Construction output fell 0.8%.

Although May marked the fourth month in a row of GDP growth, the economy remains still 3.1% smaller than prior to the pandemic.

“Today’s data serves as a further reminder that the UK economy is not out of the woods just yet,” Ian Warwick, managing partner at Deepbridge Capital, said. “We are however clearly moving in the right direction.”

Read more: UK's economic rebound slowed in May, carmakers hit by chip shortage

Across the pond, the S&P 500 (^GSPC) climbed 1% and the Nasdaq (^IXIC) rose 0.8% as tech stocks lagged. The Dow Jones (^DJI) jumped more than 1.3%, with recovery stocks back in demand.

It came as 10-year US Treasury yields retreated following eight days of gains. Treasuries had been spurred higher by fears of variant infections slowing the world's economic recovery, as well as the risk of higher inflation. The yield is now on track for one of its biggest weekly slides since June 2020.

“Investors looking for negatives will sometimes find them and the current lack of conviction is weighing on markets generally," said Richard Hunter, head of markets at Interactive Investor.

"A move towards haven assets such as bonds has further depressed yields, suggesting that some believe that lower economic growth is on the horizon. This is largely driven by the dual concerns of the impact of the COVID-19 variant in some populous areas of the globe, alongside the inevitable Federal Reserve tapering of bond buying."

Watch: Wall Street spooked by spreading Delta variant

Asian markets were mixed on Friday, with some stocks extending Thursday’s losses and others staging a minor recovery.

The Nikkei (^N225) fell 0.6%, falling for a third consecutive session after Japan decided to ban fans from most Olympic events. Tokyo will be hosting the pandemic-postponed Games during a state of emergency, which has heightened fears over the spread of COVID-19 infections. 

South Korea also announced tougher restrictions in Seoul earlier on Friday and the KOSPI (^KS11) dropped 1%.

Chinese stocks were mixed overnight as data showed the country's annual factory gate inflation remained uncomfortably high, which underlined growing strains on the economy.

The Hang Seng (^HSI) ended 0.9% higher, while the Shanghai Composite (000001.SS) dipped 0.04%.

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