European equities closed lower on Friday as bond yields rose on inflation expectations that were pushed up by strong US payrolls data, although the STOXX 600 marked a weekly gain on strength in growth-sensitive sectors.
The pan-European STOXX 600 dropped 0.8 percent on the day, with shares of travel and financial services firms leading losses.
However, the index rose 0.9 percent for the week, as optimism over an eventual economic recovery this year saw investors pile into sectors most likely to benefit from a bounceback. Automobile stocks outpaced their regional peers with a 4.9 percent jump.
US Federal Reserve Chairman Jerome Powell on Thursday said a recent spike in US Treasury yields did not warrant intervention by the central bank to bring them down.
US and European bond yields pushed higher after his statements, while US yields were also supported by stronger-than-expected payrolls data, which pushed up inflation expectations.
However, analyst expectations for eurozone growth are much tamer this year, with some even welcoming the rise in local bond yields as a sign of reflation.
“In the US, improving growth expectations are raising the term premium and justifying at least some of the higher pressure on yields. However, the situation in the European area [EA] is very different,” analysts at TS Lombard wrote in a note.
“The US Congress is about to pass a large fiscal stimulus package, while EA governments struggle to commit to higher spending ... slack in EA economies is expected to persist at least until mid-2022, in contrast with the US,” they wrote.
Still, rising inflation expectations this year have pushed up yields and pressured high-growth tech companies and steady dividend-paying sectors, such as utilities and healthcare, in the past few weeks.
Technology was the weakest-performing European sector for the second week in a row, while utilities and healthcare also lagged.
Data showed that orders for German-made goods rose by twice as much as expected in January as robust foreign demand more than offset domestic weakness.
Analysts expect overseas demand to support the eurozone manufacturing sector this year.
Oil stocks rose 0.7 percent, supported by crude prices rising to near 14-month highs after OPEC and its allies agreed not to increase supply next month.
Among individual movers, London Stock Exchange Group dropped to the bottom of the STOXX 600 as analysts scrutinized the costs for integrating data and analytics company Refinitiv.
French aircraft manufacturer Dassault Aviation SA fell 3 percent after recording a drop in quarterly adjusted operating income.
London’s FTSE 100 ended down on Friday, but the blue-chip index logged its best weekly gain in nearly two months as investors bet on an eventual reopening and recovery of the economy as COVID-19 vaccinations gained momentum.
The index ended 0.3 percent down, up 2.3 percent weekly, with industrials and consumer discretionary stocks, including Melrose Industries PLC, BAE Systems PLC, International Consolidated Airlines Group and Ashtead Group weighing the most.
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