Europe: Shares post biggest weekly fall of 2023 as rate hike fears return

EUROPEAN shares slid on Friday (Feb 24) to end the week lower as a slew of US economic data fed into fears that central banks are far from finished hiking rates.

The Stoxx 600 index fell 1 per cent, reversing early gains, after US inflation data came in hotter than expected and added to worries that the Federal Reserve might have to keep interest rates higher for longer in the world’s largest economy.

“The Fed has much more work to do, and even if they only raise rates a couple more times, it is extremely unlikely that they will be cutting rates this year – as was consensus and in market-based pricing as recently as a few weeks ago,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

Euro zone government bond yields rebounded to around their highest levels in more than a decade, while trader forecasts for the peak in European interest rates rose again to around 3.8 per cent after the US data.

The pan-European index ended the week 1.4 per cent lower, with mining stocks leading declines as metal prices eased on lacklustre demand in top consumer China and a stronger dollar.

Data earlier in the day from Germany showed Europe’s biggest economy contracted in the fourth quarter of 2022 as inflation and an energy crisis took a toll on household consumption and capital investment.

Still, a GfK institute survey signalled that German consumer sentiment is set to improve for a fifth consecutive month in March as energy prices drop.

“Every day, there seems to be just enough contradictory economic data to keep us all guessing about exactly which box those central bankers will check when it comes to their next rates meeting,” said Danni Hewson, head of financial analysis at AJ Bell.

In earnings-driven news, Compagnie de Saint-Gobain gained 4.8 per cent after the construction materials company posted record annual revenue that exceeded analysts’ expectations on strong growth in all its regions on Thursday.

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IAG announces acquisition of Air Europa for 500 million euros

Radiation therapy equipment Elekta jumped 9.2 per cent to the top of the Stoxx 600 after its third-quarter earnings beat expectations.

German chemicals giant BASF SE fell 7.9 per cent as it flagged a decline in annual earnings and said it plans to cut 2,600 jobs and halt buybacks.

Travel & leisure stocks slid 3.0 per cent, dragged down by British Airways-owner IAG.

IAG agreed to pay 400 million euros (S$570.3 million) to Spain’s Globalia for the remaining 80 per cent of Spain-based Air Europa it did not already own, and predicted its first annual profit since the pandemic. Its shares fell 6.5 per cent. REUTERS