On Friday, European shares declined and wiped out the gains made earlier, as strong jobs data in the US erased all hopes of the Federal Reserve slowing down their aggressive monetary policy. It also prompted investors to raise their bets about a hike in interest rates by the European Central Bank (ECB), as inflation numbers remained strong this week. There was a 0.3% decline in the STOXX 600 index and holidays in China and Britain are expected to keep trading volumes low. The pan-European index is expected to finish the week lower by 0.9%.

Losses on the STOXX 600 were led by the information technology sector, which has always been rate sensitive. There was also a 1.6% decline in the auto sector, as Faurecia in France saw its value wiped out by 6.8%. According to the auto parts supplier, they had launched a capital increase worth 705 million euro, or $758 million, for funding its acquisition of Hella, a German competitor. This week, data showed that inflation in the euro zone had reached record highs. This drove investors into pricing in a rate hike by the ECB of as much as 50-basis points this year in October when the bank is expected to have its policy meeting.

Market analysts said that taking into account the high inflation numbers and the fact that the ECB is already behind, as opposed to the Federal Reserve, it is expected that the central bank would adopt a more hawkish stance. On Friday, data showed that more workers were hired by employers in the United States in the month of May than had been expected. Furthermore, there was also a strong increase in wages, which indicates that the labor market is strengthening. This is likely to urge the Federal Reserve to further tighten the monetary policy, something it has already been doing quite aggressively.

The equity markets in Europe had a strong start to the week, after China’s announcement of more stimulus and easing of some COVID-19 restrictions. However, all of the gains were undone with data that shows that world economies could be moving towards a recession. The services sector is a dominant one in France and business activity growth weakened in the space in May as opposed to April. The services sector in Germany was also exhibiting signs of a slowdown in growth. The partial ban of the European Union on oil imports from Russia also increased fears of more inflation.

Market strategists said that even if a recession does not happen this year, it is likely to happen next year. As far as stocks are concerned, there was a 2.0% rally in Leonardo from Italy after Rheinmetall from Germany offered for a minority stake in the cannon maker unit known as OTO Melara. Sources close to the matter disclosed that Rheinmetall is interested in a 49% stake and it has made an offer of about 190 to 210 million euros in OTO Melara, which is around $203.91 to $225.37 million.

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