European stocks record their best week in two months

European stocks recorded their best week in two months on Friday as worries about an energy supply crisis eased, bringing some calm to investors worried about a sharp rise in interest rates and a political crisis in Italy.

The pan-European STOXX 600 closed 0.3% higher at its highest level since June 10, while for the week it jumped nearly 2.9%.

As Russian gas flows to Europe have resumed after a planned maintenance outage, market participants have been concerned about the unexpected contraction in trading activity in the euro zone this month, due to a slowdown in the manufacturing industry and a virtual stall in the growth of the service sector.

The data came a day after the European Central Bank (ECB) announced an aggressive 50 basis point rate hike, its first hike in 11 years to tackle soaring inflation.

The data prompted traders to reevaluate their interest rate expectations as they now expect 105 basis points of ECB rate hikes by December, up from around 120 basis points before the data. , according to data from Refinitiv.

ECB policymaker Peter Kazimir said on Friday that the central bank could raise interest rates by 25 or 50 basis points in September.

“We remain cautious on European equities as the ECB hesitates between fighting inflation and avoiding recession,” said Mark Haefele, chief investment officer of UBS Global Wealth Management.

“The abandonment of forward guidance will likely boost rate volatility ahead of upcoming ECB meetings as investors are expected to speculate on the scale of future hikes,” he said.

Friday’s gains were led by sectors more resilient to uncertainty such as real estate, up 4.3%, followed by utilities and food and beverage stocks.

Economy-related stocks, such as banks, fell 1.2%, while rising oil prices sent heavy energy stocks up 1.2%.

After a volatile session following the resignation of Italian Prime Minister Mario Draghi on Thursday, Italian stocks rose 0.1% as the country prepared for a snap national election on September 25.

Fears of rising borrowing costs triggering a recession, a weak euro and war in Ukraine sent the STOXX 600 down 12.7% on the year. All eyes are now on the second quarter reporting season for clues about the health of European businesses.

In earnings reports, Danske Bank A/S fell 2.2% as it cut its dividends, while Swiss elevator and escalator maker Schindler Holding Ltd fell 3.9% after cutting its revenue forecast for this year.

Just Eat Takeaway.com NV jumped 13.8% after the online takeaway company’s German rival, Delivery Hero SE, forecast a smaller loss as it focused on profitability.

Aluminum maker Norsk Hydro ASA gained 6.4% after offering an additional dividend and offering share buybacks.

Uniper SE plunged 28.9% after the German government stepped in to rescue the gas importer with a 15 billion euro ($15.28 billion) rescue package.

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