European shares notched up their best week in two months on Friday as concerns over an energy supply crunch eased, bringing some calm to investors worried about a big rise in interest rates and a political crisis in Italy.
The pan-European STOXX 600 closed 0.3 percent up at its highest level since June 10, while for the week it jumped nearly 2.9 percent.
While Russian gas flows to Europe resumed after a scheduled maintenance outage, market participants fretted as eurozone business activity unexpectedly shrank this month, due to a downturn in manufacturing and a near-stalling of service sector growth.
The data came a day after the European Central Bank (ECB) delivered an aggressive 50-basis-point rate hike, its first increase by in 11 years to combat soaring inflation.
The data prompted traders to reprice their interest rate expectations as they now expect 105 basis points of ECB rate hikes by December, down from about 120 basis points before the data, Refinitiv data showed.
ECB policymaker Peter Kazimir on Friday said the central bank might raise interest rates by 25 or 50 basis points in September.
“We retain a cautious view on European stocks as the ECB treads a fine line between fighting inflation and avoiding recession,” UBS Global Wealth Management chief investment officer Mark Haefele said.
“The abandonment of forward guidance will likely spur rate volatility ahead of the next ECB meetings, as investors are left to speculate about the size of future hikes,” he said.
Gains on Friday were led by sectors that are more resilient to uncertainty such as real estate, up 4.3 percent, followed by utilities, and food and beverages stocks.
Economy-linked stocks, such as banks, dropped 1.2 percent, while rising oil prices lifted heavyweight energy stocks 1.2 percent.
After a volatile session following the resignation of Italian Prime Minister Mario Draghi on Thursday, Italian shares inched up 0.1 percent as the country prepared for a snap national election on Sept. 25.
Fears of rising borrowing costs sparking a recession, a weak euro and the Ukraine war have pushed the STOXX 600 down 12.7 percent for the year. All eyes are now on the second-quarter reporting season for clues on the health of corporate Europe.
In earnings reports, Danske Bank A/S fell 2.2 percent as it axed dividends, while Swiss elevator and escalator manufacturer Schindler Holding Ltd slipped 3.9 percent after cutting its revenue guidance for this year.
Just Eat Takeaway.com NV jumped 13.8 percent after the online takeaway food company’s German rival Delivery Hero SE forecast a smaller loss as it shifted its focus to profitability.
Aluminium-maker Norsk Hydro ASA gained 6.4 percent after proposing an extra dividend and offering share buybacks.
Uniper SE plunged 28.9 percent after the German government stepped in to rescue the gas importer with a 15 billion euro (US$15.28 billion) bailout.
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