European shares slid on Friday, ending the week sharply lower after major central banks flagged further rate hikes, while economic activity data from the eurozone failed to assuage concerns of a looming recession.
The Europe-wide STOXX 600 index closed 1.2 percent lower at 424.74 on Friday, ending the week with a loss of 3.28 percent.
The index posted its steepest one-day drop since May in the previous session after the European Central Bank (ECB) joined the US Federal Reserve in saying that monetary policy would continue to tighten even at a risk to the economy.
ECB President Christine Lagarde on Thursday said that there would likely be more 50 basis-point rate hikes for a period of time, and that the central bank was not “pivoting” yet.
The hawkish messages dealt a blow to markets, which had rallied in the past few weeks on hopes that signs of cooling inflation would pave the way for major central banks to soon end their aggressive rate-hike trajectory.
“Beyond the inflationary pressures, there is a growth issue at stake,” said Giuseppe Sette, president of AI investment platform Toggle.
“There is a very clear emerging consensus that the risk of recession is a concrete risk for next year. If we have a severe recession next year, earnings are going to fall and valuations are going to be unsustainable,” Sette said.
Investment bank JPMorgan Chase & Co on Thursday ramped up its forecast for how high eurozone interest rates would go to 3.25 percent from 2.5 percent.
Italian ministers lashed out at the ECB, saying its decision to hike borrowing costs raised the financial pressure on one of the eurozone’s most indebted countries.
Italy’s FTSE MIB Index slipped 0.16 percent to 23,688.16 on Friday, down 2.43 percent from a week earlier and extending its losses for a third straight week.
Adding to slowdown concerns, data on Friday showed that eurozone business activity this month shrank at the slowest pace in four months, but remained in contraction for a sixth straight month.
The UK’s blue-chip FTSE 100 fell 1.27 percent to a one-month closing low of 7,332.12 after British retail sales fell unexpectedly last month as high borrowing costs eat into household finances. It posted a weekly decline of 1.93 percent.
Eurozone borrowing costs on Friday rose as investors raised their forecasts on bond yields after the ECB’s commentary.
Healthcare stocks weighed on the STOXX 600, with pharmaceutical companies such as Bayer AG and AstraZeneca falling 3.8 percent and 1.8 percent respectively.
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