On Friday, European shares closed flat, and a sell-off in the commodities-linked and semiconductor stocks was balanced off by a gain in defensives. Meanwhile, investors were preparing for a planned hike in the interest rates by the European Central Bank (ECB) this month, which will be its first in more than a decade.

The inflation data

On Friday, data showed that inflation in the eurozone was higher than expected and had reached another record high in the month of June. This further strengthened the possibility that the ECB will hike the interest rate, as it is apparent that inflation may not hit its peak for months.

Investors have been worrying about the impact on economic growth because of the aggressive hikes in the interest rates by central banks in order to curb inflation. There was a 1.4% decline in the STOXX 600 index this week and it has already seen a decline of 16% for the year so far. This is primarily because risk appetite was curbed due to the Russia and Ukraine war, the slowdown in the Russian economy, and the stubborn inflation.

Market analysts said that it was time for ECB to become more aggressive in order to combat inflation.

The STOXX 600 index

A day earlier, the pan-European STOXX 600 index had marked its worst quarter after early 2020 when there had been a sell-off in the market due to the pandemic. The Wall Street session had also been a dour one. However, the continent-wide index also saw its session losses come down by 1%. Most of the bourses in Europe closed the day in positive territory.

Market analysts said that after the steep losses seen on Thursday, the markets could be experiencing what is known as a dead cat bounce on Friday, which probably has nothing to do with the inflation data.

Individual performances

Memory chipmaker in the US, Micron Technology warned that the business outlook would be weaker-than-expected for the year. This resulted in a fall in Infineon, the chipmaker in Germany, STMicroelectronics, the Franco-Italian firm, and ASML, the Dutch maker of semiconductor equipment. They all declined between 2.9% and 5.4%.

There was a 2.0% fall in the technology index in Europe. A 2.5% drop was recorded in miners, while gas and oil companies also declined as commodity prices slid because of worries about economic growth. The biggest gains were recorded in the utility sector, as it climbed by 3.1% with Uniper making a recovery after it had plunged on Thursday by more than 14%.

This was after the company had reached out to the German government for assistance because of the losses it is incurring due to Russian gas restrictions. There were gains recorded in some other defensive sectors as well, including telecoms, consumer staple stocks and healthcare. This was in light of investors trying to hedge because of worries of recession, as data showed that factory activity in Italy and Spain had declined. A 4.1% gain in Sodexo was recorded after the third-quarter revenue of the French catering group turned out to be better than expected.

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