European shares mark strong end to week, but recession worries remain

By Devik Jain and Susan Mathew

(Reuters) -European shares ended higher on Friday, recovering after hitting session lows following bumper U.S. jobs data that strengthened the case for another big interest rate hike by the Federal Reserve.

The continent-wide STOXX 600 index closed up 0.5%, ending the week up 2.5%.

Automakers were the biggest sectoral gainers, and provided the biggest boost to Germany's DAX which closed up 1.3% to lead gains among regional peers.

The DAX marked its third session higher as it recovered from its lowest since November 2020 hit earlier this week.

The STOXX 600 had fallen up to 0.6% on the day after U.S. nonfarm payrolls data for June came in much higher than expected, prompting traders to firm up bets for a 75 basis points hike by the Fed this month.

"Better-than-expected jobs data raised the likeliness of a bumper rate hike this month, but... it seems the focus will instead shift to corporate earnings," said Joshua Mahony, senior market analyst at online trading platform IG.

Second quarter earnings for companies on the STOXX 600 are expected to increase 19.2% from a year ago, according to Refinitiv. Excluding the energy sector, earnings are expected to increase 2.0%.

Stocks have remained volatile this year as investors debate if market valuations have turned attractive after a sharp sell-off on concerns central bank tightening to tame inflation could trigger a recession.

Minutes of the European Central Bank's June meeting showed on Thursday that policymakers debated flagging a larger interest rate hike for July. The bank is expected to deliver its first rate hike in over a decade this month.

"I certainly don't think that equities in the near term will have much relief especially when you consider how rapidly monetary policy is going to be tightening not just in the U.S, but in Europe as well," said Michael Brown, head of market intelligence at Caxton.

The euro has been sliding towards parity on the dollar as investors fretted about an energy shock in Europe due to its dependence on Russian gas. [FRX/]

Among single stocks, TAG Immobilien slumped 6.1% after the German real estate group said it was raising 200 million euros ($201.80 million) to refinance its latest acquisition in Poland.

Shares of Leonardo gained 4.1% after the Italian defence group in a consortium including Telecom Italia exercised a pre-emption right allowing it to match a rival bid in the tender to set up a national cloud infrastructure.

(Reporting by Devik Jain in Bengaluru; Editing by Rashmi Aich, Sherry Jacob-Phillips and Jonathan Oatis)