Losses in technology stocks dragged European shares down on Friday, after red-hot US inflation drove up bond yields, although a positive earnings season and strong commodity prices helped the STOXX 600 log its first weekly gain this year.
The pan-European STOXX 600 index closed 0.59 percent lower at 469.57, but added 1.61 percent for the week, its best weekly showing since late December last year.
Tech stocks fell 2.2 percent, the most among their peers on Friday. The sector, along with utilities, was among the worst performers this week, under pressure from elevated debt yields.
Bond yields spiked after data showed that US inflation jumped this month, while hawkish comments from US Federal Reserve officials also raised expectations for a sharp rate hike next month.
“Strong quarterly earnings in Europe could dampen the sell-off, but until fears about a more aggressive response from the FOMC [US Federal Open Market Committee] dissipate, markets will remain under pressure,” Equiti Capital head macro economist Stuart Cole said.
However, “the Fed will do everything it can to avoid spooking the market ... akin to what we saw last month, and that means treading carefully,” Cole added.
European bond yields retreated after sharp gains on Thursday.
European Central Bank (ECB) President Christine Lagarde said that raising the ECB’s main interest rate now would not bring down record-high eurozone inflation and only hurt the economy.
Meanwhile, the German Association of German Chambers of Industry and Commerce on Friday cut its growth forecast for this year for Europe’s biggest economy to 3 percent from the 3.6 percent it had predicted in October last year, due to rising energy prices, raw material shortages and a lack of skilled workers.
Travel and leisure stocks were the best performers this week, up 7.4 percent on optimism about the easing of mask mandates in some US states.
Heavyweight mining stocks were also among the top performers this week, as expectations of improving demand in China drove up commodity prices.
In the UK, the blue-chip FTSE 100 slipped 0.15 percent to 7,661.02, but gained 1.92 percent from a week earlier.
The FTSE 100 has outperformed the STOXX 600 index this year, thanks to its heavy weighting toward banking and commodity stocks.
Britain’s economy shrank by a less-than-expected 0.2 percent in December, suggesting that — despite setbacks caused by the Omicron variant of SARS-CoV-2 — GDP grew well across the fourth quarter, data showed.
“The last month of the year wasn’t all doom and gloom ... and looking over the last quarter as a whole, there’s plenty to be positive about,” AJ Bell financial analyst Danni Hewson said.
The question now is whether this year would see the UK shake off December’s blip or whether supply constraints and rising prices would keep a lid on household consumption, which has been a key factor in GDP growth, Hewson added.
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