European stocks retreat at close as weak US payrolls stoke slowdown

FRANKFURT: European stocks surrendered early gains to finish lower on Friday, 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 percent lower at 541.21, with the energy index weighing heavily with a 1.8 percent drop as it mirrored lower oil prices on growing expectations of higher supply.

US job growth weakened sharply in August, confirming that labor market conditions were softening and sealing the case for an interest rate cut from the 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 percent. 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 percent, while financial services lost 0.3 percent. Euro zone government bond yields fell, with Germany’s 10-year bond yield down 6.1 bps to 2.661 percent, 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 percent 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 percent, while healthcare and media remained the biggest gainers, up 1.2 percent each this week.

On Friday, Hexagon jumped about 7.4 percent after the Swedish industrial technology group agreed to sell its design & engineering business to Cadence for 2.7 billion euros (USD3.16 billion).