Rate-hike fears continue to weigh on European shares

European Central Bank is expected to hike its key lending rate by 50 basis points, or half a percentage point, next week

The European Central Bank is expected to hike its key lending rate by 50 basis points.

European shares ended lower, with property stocks leading the falls, as investors grew increasingly worried about the prospects of interest rates remaining higher for longer.

The real estate sector dropped by more than 3% to a more-than two-month low. 

"It's fairly obvious that real estate companies would come under pressure in a higher interest-rate environment and comments definitely got people thinking in a different light about companies and their ability to handle economic uncertainties," said Steve Sosnick, chief strategist at Interactive Brokers.

Across the Atlantic, Wall Street gained ground as economic data hinted at signs of cracks in the tight US labour market ahead of key non-farm payrolls data later on Friday, indicating that the US Federal Reserve's restrictive monetary policy is beginning to work as intended. 

All eyes will be on the European Central Bank next week, when it is expected to hike its key lending rate by 50 basis points, or half a percentage point, amid numerous policymakers calling for the central bank to keep hiking rates in subsequent meetings.

Meanwhile, France's inflation peak will come in the first half of this year, French European Central Bank policymaker Francois Villeroy de Galhau said, adding that inflation across the eurozone was still too high and remained the top priority for monetary policy.

"I can't comment on interest rates, but what is very important is the inflation expectations", Mr Villeroy said. 

"The peak will come this semester, and then inflation will halve by the end of the year."

France's inflation peak will come in the first half of this year, says French European Central Bank policymaker Francois Villeroy de Galhau. Picture: 

Central bankers were determined to bring inflation back towards the 2% target between end-2024 and end-2025, Mr Villeroy said, adding they would do "whatever it takes" to reach that goal, echoing remarks made by ECB chief Christine Lagarde earlier this week.

Several policymakers have warned recently that ECB rate hikes need to continue until core inflation turns around and starts falling towards the ECB's 2% target. 

Separately, the ECB said it plans to test the cyber resilience of the eurozone's top banks after a sharp rise in cyberattacks, including after Russia's invasion of Ukraine, ECB supervisory chief Andrea Enria told a Lithuanian newspaper.

"Next year we are launching a thematic stress test on cyber resilience, which will try to test how banks are able to respond to and recover from a successful cyberattack," Mr Enria said. 

The ECB has long been warning banks to be alert for cyberattacks from Russia after the European Union passed a long series of sanctions against Moscow over its invasion of Ukraine.

"There has been a significant increase in cyberattacks," Mr Enria said. "We cannot apportion this to any specific source, but it is a fact that the number of these attacks has increased since the war started."

Mr Enria said that part of the problem is that banks are outsourcing some of their critical IT infrastructure to outside providers or other entities in their group. 

However, banks can be cut off from counterparties quickly, including through sanctions, leaving them vulnerable. Results of the test are due around the middle of 2024, he said.

• Reuters