European shares rebound after a challenging week, ending on a positive note.

European shares managed to recover slightly on Friday after experiencing their worst week in nearly four months. Various factors, including slowing U.S. job growth and company updates influenced the market.

Key Highlights

• STOXX 600 experiences a 3.1% decline for the week
• June U.S. job growth shows signs of cooling
• OSB Group faces drop following trading update
• Coca-Cola experiences a surge after raising FY profit outlook

Introduction

European shares managed to secure gains on Friday, providing some relief after a difficult week for investors. Concerns regarding interest rate hikes by the Federal Reserve were alleviated due to data indicating a slowdown in U.S. job growth. However, despite this positive development, the STOXX 600 index still recorded its worst weekly performance in almost four months.

Market Performance and Weekly Losses

The STOXX 600 (.STOXX) saw a modest rise of 0.1% by 1615 GMT, turning positive during the session following the release of data that revealed the addition of the fewest jobs to the U.S. economy in 2-1/2 years throughout June. Nevertheless, the consistently strong wage growth in the U.S. signaled that labor market conditions remain tight, reinforcing expectations of an interest rate hike by the Fed later this month.

Traders continue to anticipate a rise in the Fed's benchmark interest rate to a range of 5.25% to 5.5% this month, yet there is skepticism regarding further hikes beyond that point. Candice Tse, the global head of strategic advisory solutions at Goldman Sachs Asset Management, stated, "This doesn't change our view that the Fed is poised to continue its hiking cycle this month. The U.S. economy is still growing below potential, inflation continues to decline, but still remains above the Fed's 2% target, keeping the Fed on track for another 25 bps hike."

Sector Performance and Stock Movements

European equities encountered significant challenges this week as central banks delivered hawkish messages, leading to increased yields and fueling investor concerns about prolonged high-interest rates. Additionally, worrisome economic data from the eurozone and China contributed to fears of a global economic slowdown.

The STOXX 600 experienced a notable decline of 3.1% for the week, marking its poorest performance since mid-March. Among the sectors, the chemicals sector (.SX4P) witnessed the most substantial gains, with a rise of 1.6%. Conversely, the construction & materials (.SXOP), healthcare (.SXDP), and travel & leisure (.SXTP) sectors suffered declines of over 4% each for the week. The defensive real estate sector (.SX86P) remained the sole gainer, recording a 0.4% rise.

Notable company movements included Coca-Cola HBC AG, which saw a jump of 5.1% after raising its profit expectations for 2023. Clariant is also rose by 4.9% despite weaker sales and a less optimistic outlook for the current financial year in its preliminary second-quarter results.

The top loser on the STOXX 600, OSB Group (OSBO.L), suffered a significant plunge of 28.8%, reaching its lowest point since November 2020. This decline was triggered by the British lender's announcement of an estimated £180 million ($229.4 million) impact due to customers refinancing their mortgages earlier than anticipated.

Economic Data and ECB President's Comments

Earlier in the day, German industrial production reported a 0.2% decline in May compared to the previous month, contrary to the predictions of analysts polled by Reuters, who expected output to remain stagnant.

Later in the day, comments from European Central Bank President Christine Lagarde were expected to be monitored closely, as they could impact market dynamics.

In summary, European shares managed to rebound modestly after a challenging week, driven by factors such as U.S. job growth, company updates, and economic data. Despite the overall recovery, market participants remained cautious due to lingering concerns regarding central bank policies and global economic slowdown fears.