European shares extend gains on financials but track weekly fall

By Shristi Achar A

(Reuters) -European shares edged higher on Friday, lifted by financials, but the benchmark index remained on course for a weekly decline following tempered rate-cut expectations.

The pan-European STOXX 600 index was up 0.2% as of 1319 GMT, extending gains from the previous session.

Banks rose 0.5%, powered by a 3.2% jump in KBC Group after Morgan Stanley upgraded the Belgian integrated bank-insurance group to “overweight” from “equal-weight”.

Sweden’s Avanza jumped 2.6% and was among top performers on the index, after the financial services provider beat fourth-quarter market expectations.

Still, the benchmark index was on course for a weekly loss of around 1%, after hawkish remarks from European Central Bank policymakers prompted traders to rethink expectations for interest rate cuts. [0#ECBWATCH]

“The outlook for inflation is maybe a bit more sticky than perhaps we all hoped at the end of 2023, which doesn’t come as a huge surprise,” said James Baxter, founder of Tideway Wealth.

“So it was just a rather exuberant rally in bonds and drop in yields, which is now reversing and that’s taking some of the edge off the market rally.”

However, J.P.Morgan brought forward its first rate-cut expectations by the ECB to June from September, but said it remained “cautious” about inflation and wage growth trends.

On the data front, German producer prices fell more than expected in December, decreasing 8.6% year-on-year, although the blue-chip DAX 40 index was up 0.3%.

Separately, British retail sales suffered the biggest drop in almost three years during December, stoking concerns of a recession. The FTSE 100 index, however, advanced 0.4%.

Ericsson and Nokia were laggards, down 3.2% and 2.6%, respectively. Barclays downgraded the telecom equipment providers, warning of a slowdown in 5G roll out in India.

Technology stocks advanced for a second session, up 0.9%. Berenberg said it liked Europe’s technology, media and telecom sector and signalled an upside in 2024 from a macro rebound, generative artificial intelligence, and structural growth.

Among other major movers, Teleperformance gained 7.7% after Stifel upgraded the teleservices firm’s to “buy” from “hold”.

Temenos rose 3.2% after the Swiss banking software firm’s fourth-quarter and annual results beat estimates, with the stock hitting its highest level in more than a year.

(Reporting by Shristi Achar A in Bengaluru; Editing by Sriraj Kalluvila)