On Friday, European shares closed higher after reaching session lows, as a stronger-than-expected US jobs report strengthened the possibility of another big hike in the interest rate by the US Federal Reserve.

Gains in the market

There was a 0.5% increase in the pan-European STOXX 600 index, which saw it end the week higher by 2.5%. The biggest sector gains were recorded by automakers and they gave the German DAX its biggest boost. The index ended the day higher by 1.3% and was leading amongst its peers in the region.

Earlier this week, the DAX had reached its lowest value seen since November 2020, but Friday’s session was its third consecutive high one. The announcement of the stronger-than-expected US nonfarm payrolls data drove traders to price in bets of another 75 basis points increase by the Fed in July. This prompted a 0.6% fall in the STOXX 600 index for the day.

Market analysts said that the possibility of a rate hike was higher because of the better-than-expected US jobs data, but the focus would now move to corporate earnings.

Market analysis

It is expected that there would be a 19.2% increase in the second-quarter earnings of STOXX 600 companies. It is expected that every sector would see a 2.0% increase in earnings, with the exception of energy.

This year, there has been a great deal of volatility in the stock market, as investors are debating if the market valuations are attractive enough for investment. The sell-off in the market had occurred over concerns that the aggressive tightening by global central banks for curbing inflation could eventually result in an economic recession.

On Thursday, the minutes of the meeting of the European Central Bank in June were disclosed. They showed that officials were debating a larger hike in the interest rates for July. It is expected that the ECB would hike its interest rate for the first time this month in more than 10 years.

Analysts asserted that they do not expect the relief in equities to last for long, particularly because the monetary policy would tighten rapidly, not only in the United States but also in Europe. Moreover, trouble in Europe is rising because of its dependence on gas from Russia. The pressure is driving the euro towards parity against the greenback.

If these problems continue and the Russian-Ukraine conflict does not end, it is expected that the European economy could be driven into recession faster than the US, as the latter seems to be more resilient and is not slowing down at the same pace.

Single stocks

As far as individual stocks are concerned, there was a 6.1% drop in TAG Immobilien, after the real estate group of Germany stated that it would refinance its latest acquisition by raising 200 million euros.

There was also a 4.1% gain in shares of Leonardo after it was able to match a bid for a tender for building a national cloud infrastructure that its rival had made.

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