European markets end week sharply lower after hawkish interest rate messages

European shares slid on Friday, ending the week sharply lower after major central banks flagged further rate hikes, while economic activity data from the euro zone failed to assuage concerns of a looming recession.

The hawkish messages from the European Central Bank (ECB), the Bank of England and the US Federal Reserve earlier in the week dealt a blow to markets, which had rallied in recent weeks on hopes that signs of cooling inflation would pave the way for major central banks to end their aggressive rate-hike trajectory soon.

Dublin

The Iseq closed flat, but technically in the green, as financial stocks climbed sharply and traded briskly. Bank of Ireland surged almost 7 per cent to €8.41 after it significantly upgraded its guidance for net interest income in 2022 following the ECB’s latest interest rate increase. The bank said it expects its net interest income to be 10 per cent higher than in 2021, up from its previous forecast of 6-7 per cent higher.

AIB, which upgraded its profitability target earlier this month, is also expected to benefit from the ECB’s string of four rate hikes. Its stock rose 5.4 per cent on Friday, finishing just below €3.34.

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Elsewhere, CRH slipped 0.9 per cent to €36.29, Kingspan fell 2.3 per cent to €50.40 and Ryanair slid 1.8 per cent to €12.68.

London

Britain’s blue-chip index posted its biggest weekly loss in over two months on Friday as weak domestic retail sales data and hawkish rhetoric from major central banks fuelled recession worries.

The FTSE 100 fell 1.3 per cent to a one-month closing low, pulled lower by oil and gas and healthcare sectors.

Data on Friday showed British retail sales slid unexpectedly in November, while another set suggested the downturn across most businesses eased slightly in December.

The UK’s mid-cap FTSE 250 shed 1.6 per cent to touch a five-week low and is down over 20 per cent so far this year.

Home builders dropped 2.7 per cent after mortgage lender Halifax said it expected British house prices to fall next year by about 8 per cent. Games Workshop soared 16.1 per cent after ecommerce giant Amazon agreed to produce film and television content with the British game operator.

Europe

The Europe-wide Stoxx 600 index closed 1.2 per cent lower on Friday, ending the week with a loss of nearly 3.3 per cent.

Italian ministers lashed out at the ECB as its decision to hike borrowing costs raised the financial pressure on one of the euro zone’s most indebted countries. Italy’s FTSE MIB slipped 0.2 per cent by close, extending losses for third straight week.

Adding to slowdown concerns, data on Friday showed euro zone business activity in December shrank at the slowest pace in four months, but remained in contraction for the sixth straight month.

Healthcare stocks weighed on the Stoxx 600, with pharma giant Bayer falling 3.8 per cent.

Industrials slid 4.8 per cent, extending losses for their third straight day, followed by rate-sensitive technology stocks. The telecom sector fell 2.5 per cent, dragged down by a 6.5 per cent drop in shares of Tele2 AB after Citigroup cut the operator’s price target.

US

Wall Street’s main stock indexes extended losses as fears of a looming recession sparked by the Fed’s relentless battle against inflation hammered sentiment.

A fresh report showed that US business activity contracted further in December as new orders slumped to their lowest level in just over 2½ years, but softening demand helped to significantly cool inflation.

Meta Platforms jumped 3.7 per cent after analysts at JP Morgan upgraded the stock to “overweight” from “neutral”, while Adobe gained 3.3 per cent after the Photoshop maker forecast first-quarter profit above expectations.

Meanwhile, General Motors lost 3.9 per cent after its robotaxi unit Cruise faced a safety investigation by US auto safety regulators. – Additional reporting: Reuters