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European shares set for weekly loss as recession concerns mount

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European shares slid on Friday and were set to post losses for the week after major central banks flagged further rate hikes, while economic activity data from the euro zone failed to assuage concerns of a looming recession.

The Europe-wide STOXX 600 index was down 0.8% at a fresh one-month low of 426.45, as of 0930 GMT, and poised for a weekly loss of nearly 3%.

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The index posted its steepest one-day drop since May in the previous session after the European Central Bank (ECB) joined the U.S. Federal Reserve in saying monetary policy will continue to tighten even at a risk to the economy.

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ECB President Christine Lagarde said there would likely be more 50-basis-point rate hikes for a period of time and that the central bank was not “pivoting” yet.

The hawkish messages dealt a blow to markets, which had rallied in recent weeks on hopes that signs of cooling inflation would pave the way for major central banks to end their aggressive rate-hike trajectory soon.

“Beyond the inflationary pressures, there is a growth issue at stake,” said Giuseppe Sette, president of AI investment platform Toggle.

“There is a very clear emerging consensus that the risk of recession is a concrete risk for next year. If we have a severe recession next year, earnings are going to fall and valuations are going to be unsustainable.”

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Investment bank JPMorgan ramped up its forecast on Thursday for how high euro zone interest rates will go to 3.25% from 2.50%.

Adding to slowdown concerns, data on Friday showed euro zone business activity in December shrank at the slowest pace in four months, but remained in contraction for the sixth straight month.

UK’s blue-chip FTSE 100 fell 0.4% after British retail sales fell unexpectedly in November as high borrowing costs eat into household finances.

Euro zone borrowing costs rose on Friday as investors raised their forecasts on bond yields after the ECB’s commentary.

On the STOXX 600, real estate stocks led the losses, falling 2%, followed by rate-sensitive technology stocks.

The telecom sector fell 1.4%, dragged down by a 4.5% drop in shares of Tele2 AB after Citigroup cut the operator’s price target.

Shares of Games Workshop Group Plc jumped 14.7% to the top of the STOXX 600 after the British game developer entered an agreement with e-commerce giant Amazon. (Reporting by Amruta Khandekar; Editing by Savio D’Souza and Sherry Jacob-Phillips)

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