European shares fell on Monday, as investors braced for interest rate decisions from the U.S. and European central banks later this week, while rising COVID-19 infections in China after restrictions were eased also weighed on sentiment.
The continent-wide STOXX 600 index (.STOXX) was down 0.7% at 0857 GMT, deepening losses from earlier in the session.
The index posted its first weekly drop in eight last week as fears of an impending global recession due to aggressive rate hikes from major central banks countered optimism around the loosening of strict COVID-19 curbs in China.
The coming days will be a major test for markets that have been pinning their hopes on central banks scaling back the pace and size of rate hikes, though the strength in U.S. economic data last week cooled some of those expectations.
With recent signs of easing inflationary pressures in the euro zone, the European Central Bank is expected to deliver a dialled-down 50 basis points (bps) rate hike on Dec. 15, a day after the Federal Reserve's interest rate announcement.
The markets are still relying on this narrative that inflation will cool, the central banks will be able to slow down, pause interest rate increases," said Russ Mould, investment director at AJ Bell.
"But the numbers remain mixed, so it's perhaps not quite as clear cut as the markets would like it to be."
With surging COVID-19 cases in China spurring concerns about a disruption to the country's economic activity, industrials (.SXNP) and some China-exposed luxury firms such as LVMH (LVMH.PA) and Kering SA (PRTP.PA) were among the biggest drags on the STOXX 600. Shares of London Stock Exchange (LSEG.L) rose 3.9% after Microsoft (MSFT.O) agreed to buy an equity stake of about 4% in the UK bourse operator as part of a broader deal to migrate its data to the cloud.
