European stocks turn higher ahead of US jobs data

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European stocks made cautious gains on Friday, retracing some of the heavy losses from the previous session, as investors turned to US jobs data to offer further clues on interest rates.

The pan-European Stoxx 600 added 0.1 per cent, led higher by gains in basic materials stock. France’s Cac 40 rose 0.5 per cent and Germany’s Dax added 0.6 per cent. London’s FTSE 100 was the only faller in the region, having dropped 0.3 per cent.

Europe’s blue-chip stocks were given a boost after Luis de Guindos, vice-president of the European Central Bank, said that underlying inflation in the eurozone had shown signs of easing, raising hopes that the central bank’s policy tightening campaign was nearing its target.

However, he added that the job of the ECB “is not yet done”, despite rates having gone up by 4 percentage points since July last year.

A day earlier, stocks across the US, Europe and Asia slid in a broad-based sell-off, as fresh jobs data pointed to a resilient US labour market and reinforced the likelihood that the Federal Reserve will resume interest rate rises at its next meeting in July. 

Minutes from the central bank’s previous policy meeting, released earlier in the week, signalled that officials intend to persevere with their historic tightening campaign until US inflation returns to its 2 per cent target, despite having paused their programme in June.

Investors will pay close attention to US payrolls data released later in the day, with economists polled by Reuters forecasting that the pace of hiring slowed in June, adding 225,000 jobs. However, the median forecast has underestimated jobs data for 14 consecutive months. 

“The labour market data is likely to become much more important than inflation data going forward . . . the main question for the central banks and markets would be when the economy is starting to show reasonable signs of a slowdown”, said Mohit Kumar, chief Europe financial economist at Jefferies.

Contracts tracking Wall Street’s benchmark S&P 500 fell 0.1 per cent and those tracking the tech-heavy Nasdaq 100 lost 0.2 per cent ahead of the New York open. 

The yield on the policy-sensitive two-year Treasury note was flat at 5 per cent, a day after US borrowing costs hit a 16-year high. The yield on the benchmark 10-year note rose 0.02 percentage points to 4.1 per cent, remaining near its highest levels since early March. Bond yields rise as prices fall.

Asian equities extended declines from the previous day, with Hong Kong’s Hang Seng shedding 0.9 per cent, and China’s CSI 300 down 0.4 per cent. Japan’s Topix declined 1 per cent. 

Adding to investors’ woes, the Hang Seng Mainland Bank index declined 1.2 per cent, edging towards its lowest point since November 2022. The sector, which had already suffered amid a weakening economy, declined further after Goldman Sachs earlier in the week downgraded some of its top lenders.