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European shares end lower, but mark first positive week this year

Tech leads European stock sell-off on bets of aggressive Fed rate hikes
Tech leads European stock sell-off on bets of aggressive Fed rate hikes   -   Copyright  Thomson Reuters 2022
By Reuters

By Anisha Sircar and Ambar Warrick

-Losses in technology stocks dragged down European shares on Friday after red-hot U.S. 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 0.6% lower, but added 1.6% this week, its best since late-December.

Tech stocks fell 2.2%, 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 U.S. inflation jumped in January, while hawkish comments from Fed officials also raised expectations for a sharp rate hike in March.

“Strong quarterly earnings in Europe could dampen the sell-off, but until fears about a more aggressive response from the FOMC dissipate, markets will remain under pressure,” said Stuart Cole, head macro economist at Equiti Capital.

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. ECB President Christine Lagarde said raising the ECB’s main interest rate now would not bring down record-high euro zone inflation and only hurt the economy.

Meanwhile, Germany’s Chambers of Industry and Commerce Friday cut its 2022 growth forecast for Europe’s biggest economy to 3.0% from the 3.6% it had predicted in October due to rising energy prices, raw material shortages and the lack of skilled workers.

Travel and leisure stocks were the best performers this week, up 7.4% on optimism over easing mask mandates in some U.S. states.

Heavyweight mining stocks were also among the top performers this week, as expectations of improving demand in China drove up commodity prices.

Among stocks, carmaker Volvo Cars slipped 4.7% after posting earnings below expectations, pressured by global supply shortages.

State-controlled French power company EDF slipped 2.4% after cutting its estimate for its French nuclear output in 2023 from 340–370 TWh to 300-330 TWh.

Among a few bright spots, Mercedes-Benz Cars and Vans advanced 6.7% after saying it expects an adjusted return on sales of 12.7% in 2021.

BMW rose 2.7% after it said it will pay 3.7 billion euros ($4.2 billion) to take majority control of its Chinese joint venture.

French TV group TF1 climbed 1.9% after announcing a 14.2% rise in full-year advertising revenue, citing a robust recovery in advertising spend.