European stock market penalized by mixed data on US employment and the economy

by Diana Mandia

(Reuters) – European stocks ended lower on Friday as weaker-than-expected euro zone growth and a decline in German industrial production revived economic fears and investors digested mixed U.S. jobs data.

In Paris, the CAC 40 lost 1.07% to 7,352.30 points. In Frankfurt, the Dax fell by 1.48% and in London, the FTSE 100 dropped 0.73%.

The EuroStoxx 50 index fell by 1.60%, the FTSEurofirst 300 by 1.07% and the Stoxx 600 by 1.07%.

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Over the week, the Stoxx 600 fell by 3.52% and the CAC 40 by 3.65%.

The mood was gloomy on equity markets on Friday, with euro zone economic growth revised down, German industrial production falling and mixed U.S. jobs data struggling to digest, while investors’ attention turned to central bankers’ meetings in the next two weeks.

In Germany, industrial production was much weaker than expected in July, due in particular to difficulties in the automobile sector, raising fears of a further contraction in Europe’s largest economy in the third quarter and, consequently, a recession, characterised by two consecutive quarters of contraction.

“Trends in manufacturing, imports and exports still appear recessionary, highlighting the risk that the economy is now slipping into a technical recession,” said Melanie Debono, an analyst at Pantheon Macroeconomics.

Across the eurozone as a whole, the economy grew in the second quarter at a slower pace than previously announced, by 0.2% compared to an initial estimate of 0.3%, according to data published Friday by Eurostat.

The European Central Bank is expected to cut rates by 25 basis points next week, its second cut since June, but the outlook beyond that date is less clear.

In the United States, data on the labor market, eagerly awaited after a recent series of disappointing figures, did not dispel the uncertainty around the extent of the Federal Reserve’s interest rate cut in September: the economy created 142,000 jobs in August, less than expected, but the unemployment rate fell to 4.2%, against 4.3% in July.

“The market is really struggling with this situation… it’s in the middle of what could be used as a rationale for a 25 or 50 basis point rate cut,” said TD Securities analyst Gennadiy Goldberg.

New York Federal Reserve President John Williams said Friday that a more balanced economy had opened the door to lower rates, while suggesting he felt no pressure to cut borrowing costs quickly.

After a brief spike in bets on a 50-basis-point Fed rate cut in September, traders are now betting 53% on a more cautious 25-point cut, compared with 47% on a 50-point cut, according to CME Group’s FedWatch tool.

VALUES

In stocks, Elis, which confirmed Friday that it had approached Vestis, the former uniform rental division of Aramark, with a view to a potential acquisition, fell by more than 15%.

Artificial heart maker Carmat fell 3.3% after cutting its full-year revenue targets.

Elsewhere in Europe, Volvo Cars fell 5.7%, penalized by its latest announcements on its margin outlook and by the abandonment of its objective of switching to all-electric by 2030.

A WALL STREET

At the time of the European closing, the New York Stock Exchange is down sharply: the Dow Jones is down 0.85%, the Standard & Poor’s 500 is down 1.52% and the Nasdaq Composite is down 2.32%, weighed down by technology, while the employment report was not enough to dispel the uncertainty surrounding the expected reduction in interest rates by the Fed.

In stocks, Broadcom fell more than 9% after the chipmaker reported a quarterly revenue forecast that missed estimates. Super Micro Computer lost more than 7% after JP Morgan downgraded its rating to neutral from overweight.

TODAY’S INDICATORS

In France, industrial production fell by 0.5% over one month in July, according to preliminary data published on Friday by INSEE.

CHANGES

Foreign exchange markets were volatile on Friday after mixed US jobs data.

At the time of the closing in Europe, the dollar gained 0.05% against a basket of reference currencies and the euro lost 0.22% to 1.1086 dollars.

RATE

Eurozone bond yields also had a volatile session on Friday.

The yield on the 10-year German Bund fell 4.3 basis points to 2.1650%, while the two-year yield dropped 7.3 basis points to 2.2230%.

In the United States, the yield on ten-year Treasuries lost 5.3 basis points to 3.6798% and the two-year yield dropped 8.9 basis points to 3.6627%.

OIL

Oil prices retreated to a heavy weekly loss after data showed U.S. employment rose less than expected in August, with concerns about demand outweighing a delay in supply increases from OPEC+ producers.

Brent fell 1.8% to $71.38 per barrel and US light crude (West Texas Intermediate, WTI) fell 1.89% to $67.84.

(Written by Diana Mandiá)