German share price index DAX graph is pictured at the stock exchange in Frankfurt
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, January 19, 2023. Reuters

European shares fell on Monday, as cautious investors anticipated a slew of interest rate hikes by prominent central banks this week, with shares of rate-sensitive sectors including technology among the major laggards.

The pan-European STOXX 600 was down 0.6% at 0955 GMT. However, optimism around better-than-feared corporate earnings and economic resiliency have set the benchmark index on track for a monthly gain of 6.3%, after losing nearly 13% in 2022.

"This week could well be the pin that pops this month's rally and injects a dose of realism into market expectations," said Michael Hewson, chief market analyst at CMC Markets UK.

Money market bets show that the U.S. Federal Reserve is set to raise its policy rate by 25 basis points (bps) to 4.50%-4.75% on Wednesday, while the European Central Bank (ECB) and the Bank of England (BoE) are seen raising rates by 50 bps each to 2.50% and 4.0%, respectively, on Thursday.

Europe's technology index was the top decliner among sectors, down 2.1%, with chipmakers ASML Holding NV and ASM International N.V. leading declines.

"There is a slowdown in the chip demand... and worry that the whole slowing demand is going to be reflected in earnings after a great rally at the end of last year and at the beginning of January," Swissquote Bank senior analyst Ipek Ozkardeskaya said.

Philips soared 6%, after the Dutch health technology company reported better-than-expected fourth-quarter core profit and said it will scrap another 6,000 jobs worldwide to restore its profitability.

Earnings for STOXX 600 companies have likely jumped around 10% in the fourth quarter, down from 14.5% seen at the start of January, while revenue growth is seen largely muted, Refinitiv data showed.

On the other hand, German renewable firm PNE AG slid 16.2%, after Morgan Stanley's infrastructure investment arm informed PNE AG's board that it is no longer pursuing talks with potential buyers of Photon's PNE stake.

The German economy unexpectedly fell in the fourth quarter, a sign that Europe's largest economy may be entering a much-predicted recession as an effect of the Ukraine war. The German DAX was down 0.6%.

Investors will also keep an eye out for the Euro zone's consumer confidence for January and Belgium's fourth-quarter gross domestic product.