European shares on Friday fell, wiping out earlier gains, after US jobs data supported the case for the US Federal Reserve’s aggressive policy tightening and investors raised their bets on European Central Bank (ECB) rate hikes following robust inflation numbers this week.
The pan-European STOXX 600 index fell 0.26 percent to 440.09, with volumes expected to be subdued due to holidays in the UK and China. It ended the tumultuous week 0.87 percent lower.
The rate-sensitive information technology sector led losses on the STOXX 600, while the auto sector declined 1.6 percent as France’s Faurecia SE slid 6.8 percent.
The auto parts supplier said it launched a 705 million euro (US$755.69 million) capital increase to fund its acquisition of German rival Hella KGaA Hueck & Co.
Investors ramped up their bets on ECB interest rate rises this year, and priced in a bigger, 50 basis-point hike at one of the bank’s policy meetings by October, following data this week showing record high inflation in the eurozone.
“In view of the dramatic inflation trend and the fact that the ECB is so clearly ‘behind the curve,’ compared with the Fed, the ECB’s language should tend to become more hawkish,” Commerzbank AG analysts wrote in a note.
Data on Friday showed US employers hired more workers than expected last month and maintained a fairly strong pace of wage increases, signs of labor market strength that would keep the Fed on an aggressive monetary policy tightening path.
European equity markets started the week on a better footing after China eased some COVID-19 restrictions and revealed more stimulus, but the optimism was swiftly undone by data that pointed to economies tipping into recession.
In France, growth in business activity in the country’s dominant services sector weakened last month compared with April, according to a survey. Germany’s services sector also showed signs of slowing growth.
The EU’s partial ban on Russian oil imports, in retaliation for its invasion of Ukraine, also drove fears of inflation rising further.
“A recession, if any, will not occur this year, but most probably in 2023. That said, we expect the market to discount more properly a lower momentum in the economy,” Generali Investments equity strategists said.
Additional reporting by staff writer
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