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European stocks remained in decline by midday on Friday as market anxiety grew ahead of the crucial US non-farm payrolls report and following disappointing economic data from the eurozone and Germany.
The benchmark Stoxx 600 index and France’s CAC 40 both dropped by 0.4%, while Germany’s DAX saw a 0.6% decrease. The downturn was partly attributed to pre-report jitters regarding the US job figures and recent economic data that failed to inspire confidence.
Russ Mould, investment director at AJ Bell, noted that the release of new US employment data could significantly influence global stock markets. The potential for economic weakness in the US has already caused substantial market volatility in recent months, and further negative data could exacerbate market fluctuations.
Futures markets indicated a weak start for Wall Street, with predictions of a 1.2% drop in the Nasdaq. This anticipated decline, combined with a rise in gold prices and an increase in the Vix index—a measure of market volatility—suggests that investors are highly apprehensive. The Federal Reserve closely monitors employment trends when making interest rate decisions, and job data also holds political significance in the US presidential race. The Democrats are emphasizing a strong economy, and any slowdown could amplify criticisms from political opponents.
In July, the US added fewer jobs than anticipated, with 114,000 new positions compared to expectations of 160,000 for August. The unemployment rate is projected to fall from 4.3% to 4.2%. Revisions to past job data could signal a slowdown or recession, adding to market uncertainties.
On the European front, German industrial production fell by 2.4% month-on-month in July, significantly below the expected 0.3% decline. Production levels were 2.2% lower than the average for the second quarter and 9.5% below the peak reached in February 2023. Carsten Brzeski, global head of macro at ING, described the data as a setback, suggesting that the industrial sector may face a prolonged period of stagnation or contraction.
Eurostat figures also revealed that the eurozone economy grew marginally in the second quarter, with seasonally-adjusted GDP increasing by just 0.2%. This was below the initial estimate of 0.3% and the first quarter's growth rate. Employment data showed a modest increase, with the number of employed individuals rising by 0.2% in the eurozone and 0.1% in the wider EU.
In corporate news, Rolls-Royce experienced further declines following the European air regulator’s decision to inspect the company’s Trent XWB-97 engines in light of a recent incident involving Cathay Pacific.
