On Friday, retail and automakers’ stocks were leading a rebound in the European stock market, after a rout of two days that saw investors coming to terms with recession risks, the political turmoil in Italy, and expectations about the interest rate hike of the US Federal Reserve.

Italian markets

There was a 1.8% gain in Italian markets, as they bounced off lows of more than two and a half years that they had reached in the last session. Investors were keeping their eye on further updates about the political turmoil that is currently brewing in Italy.

On Thursday, Italian Prime Minister Mario Darghi tendered his resignation, but the country’s president, Sergo Mattarella turned it down and asked him to speak to the parliament in the coming week. Market analysts said that there was not a lot of data that could explain the rally.

They said that it could possibly be because of a combination of small reasons, like the resignation of the Italian premier not being accepted and the possibility of the Fed only hiking rates by 75 basis points instead of 100. They said that given the volatility of the markets, this shift in sentiment could not be considered completely positive.

Index performance

The benchmark European STOXX 600 index advanced 1.8% for the day after it had suffered losses of 2.6% in the previous two sessions. This was because of worries that there could be a bigger-than-expected rate hike by the US Federal Reserve due to hot inflation data.

However, these worries were put to rest when two Fed policymakers, who are regarded as the most hawkish, said that they did not intend to go beyond a 75 basis points increase. The week saw a 0.8% decline in the STOXX 600 index because of fears about an energy supply crisis happening in Europe due to the Russia and Ukraine conflict.

Global recession worries

Investors have been left worrying about a global recession because of the aggressive measures taken by central banks for controlling the surging inflation. Worries were exacerbated because of grim GDP data from China on Friday, as the country’s economy showed the impact of COVID-19 lockdowns.

As for the European economy, its biggest gas pipeline called Nord Stream 1 is scheduled for reopening after annual maintenance on July 21st. investors are worried that Russia may decide to keep it closed. Apart from that, the European Central Bank is also slated to increase its interest rates by 25 basis points on July 21st.

But, some analysts are pricing in a small possibility of a 50 basis points increase because of the worsening performance of the euro against the US dollar. As far as stocks are concerned, there was a 3.5% gain in Volkswagen after the Chinese unit remained committed to doubling sales of its electric vehicles despite COVID curbs.

There was also a rise in shares of other car manufacturers including Renault, Porsche Automobil, and Mercedes-Benz which rose between 4.3% and 6.9%.