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European stocks opened lower on Friday as market participants grew uneasy ahead of the critical US non-farm payrolls report, compounded by disappointing economic data from Germany. By 0840 BST, the Stoxx 600 index and France's CAC 40 had both declined by 0.6%, while Germany's DAX was down 0.7%.
Richard Hunter, head of markets at Interactive Investor, commented on the market sentiment, noting that uncertainty had intensified in anticipation of the US employment data. He stated, "Market participants have been on edge leading up to the non-farm payrolls report, and now the moment of truth has arrived." He pointed out that recent economic figures have sent mixed signals, with private payrolls showing the slowest growth in over three years, while weekly unemployment claims decreased compared to the previous week.
The employment report, scheduled for release later in the day, is seen as a crucial indicator of whether the Federal Reserve's soft landing strategy is still viable or if the risk of a recession is growing. Last month's payrolls data led to significant market volatility, and similar reactions could be seen following today's report.
Adding to the negative sentiment, German industrial production figures were weaker than anticipated. Data from Destatis revealed that production fell by 2.4% in July, compared to expectations of a 0.3% decline. This left production 2.2% below its average level for the second quarter and 9.5% below the most recent peak in February 2023.
Franziska Palmas, senior Europe economist at Capital Economics, remarked that the sharp drop in German industrial production highlights the ongoing struggles of the sector. She warned that the German economy, which contracted in the second quarter, could be at risk of slipping into a technical recession in the third quarter if the industrial downturn continues.
Additional data releases were still expected, with the eurozone's second-quarter GDP and employment change figures scheduled for 1000 BST.
Meanwhile, on the corporate front, Rolls-Royce (LSE:RR) shares saw further losses after news that the European Union Aviation Safety Agency had ordered visual inspections on some Rolls-Royce A350-1000 engines. This followed an incident earlier in the week involving Cathay Pacific, which has added pressure on the company's stock.
