European shares dropped on Friday, pressured by a jump in yields as investors grappled with the prospect of a prolonged period of interest rate hikes by top central banks, while London’s FTSE 100 Index also closed lower.
The pan-European STOXX 600 closed down 0.96 percent at 457.89, and fell 0.62 percent for the week, its first weekly decline in three weeks.
The blue-chip FTSE 100 shed 0.36 percent to 7,882.45, backing off from record highs reached on Thursday, and posted a weekly fall of 0.24 percent.
European shares have gained nearly 8 percent so far this year, following a 13 percent slump last year, thanks to recent signs of economic resilience, backed by robust earnings and hopes of a moderation in policy tightening.
However, a chorus of US Federal Reserve and European Central Bank (ECB) policymakers in the past few days have pushed back against market expectations that the rate hiking cycle was close to an end, with ECB executive board member Isabel Schnabel being the latest to talk about the need for more tightening. Officials from the Bank of England appeared split about the need for further rate hikes.
All eyes are on US consumer price index (CPI) data for last month, which are expected this week and would be crucial in shaping market expectations of future interest rate hikes.
Photo: Reuters
“Markets are fearing higher interest rates and [it’s] going to be a push and pull until the US CPI data on Tuesday,” HYCM chief market analyst Giles Coghlan said.
Coghlan also said that a US consumer sentiment survey showing an increase in one-year inflation expectations for this month has exacerbated jitters around interest rate hikes.
Britain’s economy showed zero growth in the final three months of last year, data showed, meaning it narrowly avoided entering a recession, in line with what most economists were anticipating.
“The UK has escaped recession by the skin of its teeth,” Raymond James Investment Services Ltd European strategist Jeremy Batstone-Carr said.
“However, whether we are officially in recession will not make much difference to most people — it will simply feel like a continuation of the present sluggishness and cost-of-living woes,” he said.
The domestic-oriented FTSE 250 Index closed 1.22 percent lower at 20,030.07. It was down 2.74 percent for the week, its steepest weekly loss in more than four months.
German government bond yields rose on Friday, heading for the largest weekly rise of the year.
Travel and leisure stocks, and retailers, were the worst performers among STOXX 600 sector indices, down 3.9 percent and 3.5 percent respectively.
Adidas AG fell 10.9 percent, logging its steepest drop in nearly three years after the sportswear maker warned it could plunge to a loss this year for the first time in three decades. The company’s peer Puma SE also fell 4.6 percent.
Swedish defense equipment maker Saab AB soared 11.8 percent to top the STOXX 600 after reporting a rise in fourth-quarter operating profit.
More than half of the 93 STOXX 600 companies that have reported earnings so far have beaten market expectations, Refinitiv data showed.
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