Energy, tech stocks drag European shares as rate-hike worries resurface

By Shreyashi Sanyal and Amruta Khandekar

FILE PHOTO: German share price index DAX graph is pictured at the stock exchange in Frankfurt

© Thomson Reuters
FILE PHOTO: German share price index DAX graph is pictured at the stock exchange in Frankfurt

(Reuters) -European shares on Friday retreated further from one-year highs touched earlier in the week as energy and technology stocks spearheaded losses on mounting concerns that the Federal Reserve would stick to its monetary tightening trajectory for longer.

The pan-European STOXX 600 index closed down 0.2%, after having touched its highest level in a year in the previous session on a boost from French blue-chip shares.

Recent data from the United States, including a hotter-than-expected January producer prices report, have added to a growing pile of evidence that the Federal Reserve’s aggressive rate hikes have not yet cooled the economy to the central bank’s satisfaction.

Goldman Sachs and Bank of America said they expect the U.S. Federal Reserve to raise interest rates three more times this year by a quarter percentage point each, given persistent inflation.

“Markets are trying to work out what to do because now it looks like they (the Fed) are going to have to raise interest rates higher than previously expected,” said Giles Coghlan, chief market analyst at HYCM.

Energy firms fell 1.9% to spearhead declines on the STOXX 600 as crude prices dropped on concerns of more U.S. rate hikes weighing on demand. [O/R]

Rate-sensitive technology shares <.SX8P>, followed suit with declines of 1.7%.

Limiting losses on the STOXX 600, were shares of ‘defensive’ firms, with the healthcare, utilities and telecom subindexes rising between 0.6% and 0.8%.

France’s CAC 40 index fell 0.3%, but hovered near record high levels hit in the previous session while Germany’s DAX index shed 0.3%.

German producer prices rose more than expected in January, though the rate of increase eased for the fourth month in a row, data showed on Friday.

Still, the broader STOXX 600 logged weekly gains of 1.4% on a boost from upbeat earnings, improving eurozone economic outlook, with certain consumer discretionary stocks, including big luxury names benefiting from the reopening in China.

The European Central Bank interest rates are likely to reach their peak over the summer and a rate cut this year is out of the question, French ECB policymaker Francois Villeroy de Galhau said on Friday.

Mercedes-Benz Group rose 2.8%, after beating analysts’ estimate for quarterly earnings, though the premium car maker warned of lower earnings this year amid economic uncertainty.

Shares of Sika AG gained 4.9% after the Swiss chemicals company’s 2023 guidance beat analysts’ expectations.

UK lender NatWest shares sank 6.9% after the bank warned that rising interest rates might not deliver the long-lasting earnings investors hoped for.

(Reporting by Shreyashi Sanyal and Amruta Khandekar in Bengaluru; Editing by Sherry Jacob-Phillips, Dhanya Ann Thoppil and Diane Craft)