Europe: Stocks retreat at close as weak US payrolls stoke slowdown fears

[BENGALURU] European stocks surrendered early gains to finish lower on Friday (Sep 5), dragged by energy and financial shares, as investors turned cautious after softer-than-expected US payrolls data heightened concerns about cracks in the world’s largest economy.

The pan-European Stoxx 600 ended 0.16 per cent lower at 549.21, with the energy index weighing heavily with a 1.8 per cent drop as it mirrored lower oil prices on growing expectations of higher supply.

US job growth weakened sharply in August, confirming that labour market conditions were softening and sealing the case for an interest rate cut from the US Federal Reserve this month.

“There are definitely signs of it cracking, and that’s what’s unnerving the market,” Fiona Cincotta, senior market analyst at City Index, said.

“Initially, the focus was on the Federal Reserve rate cut expectations, and that seems to have turned away to worries about what this means for the US economy, whether the Fed is actually now behind the curve.”

According to the CME Group’s FedWatch tool, traders are widely expecting at least three US rate cuts by the end of this year.

Concerns about a slowing US economy also weighed on Wall Street, with its main indexes trading lower.

Back in Europe, regional banks came under pressure, falling 1.3 per cent. Bank shares often fall on rate-cut hopes as lower interest rates compress net interest margins, hitting their profits and squeezing loan demand.

Insurance fell 0.6 per cent, while financial services lost 0.3 per cent.

Euro zone government bond yields fell, with Germany’s 10-year bond yield down 6.1 bps to 2.661 per cent, a three-week low, lagging a bigger drop in its US counterpart following the jobs data.

The real estate sector, sensitive to interest rates, jumped 1.6 per cent to limit the overall decline in the Stoxx 600 index, which, after Friday’s moves, ended the week with marginal losses.

Energy was the biggest loser for the week, down 3.2 per cent, while healthcare and media remained the biggest gainers, up 1.2 per cent each this week.

On Friday, Hexagon jumped about 7.4 per cent after the Swedish industrial technology group agreed to sell its design & engineering business to Cadence for 2.7 billion euros (S$4 billion).

Temenos tanked 16 per cent to the bottom of the benchmark index after the banking software group parted ways with its CEO, Jean-Pierre Brulard.

Moves in the bond market will be in focus next week after a sell-off earlier on Tuesday, amid concerns over government fiscal stability across developed markets.

The next test will be a French confidence vote on Monday, where Prime Minister Francois Bayrou’s minority coalition government appears at risk of collapsing – a scenario that could trigger a rating downgrade and raise the risk of forced selling of France’s already pressured bonds.

French stocks have underperformed the benchmark index so far this year. The country’s credit was downgraded by Moody’s after its previous government collapsed last year.

On the data front, German industrial orders unexpectedly fell in July due to a drop in large-scale orders.

Euro zone gross domestic product increased by 0.1 per cent in the second quarter compared with the previous three months, while the bloc’s employment rose by 0.1 per cent quarter on quarter and by 0.6 per cent year on year in the second quarter.

Orsted gained 2.7 per cent after shareholders voted for a proposed US$9.4 billion rights issue. REUTERS