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European shares have worst day in a month as investors digest mixed US data

Published 09/06/2024, 03:26 AM
Updated 09/06/2024, 01:00 PM
© Reuters. The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 5, 2024.     REUTERS/Staff
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By Shubham Batra and Lisa Pauline Mattackal

(Reuters) -European shares fell for a fifth straight session on Friday in their worst day since early August, after a widely anticipated U.S. jobs report offered mixed signals on the size of a potential Federal Reserve rate cut later this month.

The pan-European STOXX 600 index fell 1%. The index also snapped a four-week winning streak, losing 2.5% in its worst weekly performance since the week ending Aug. 2.

Data showed U.S. employment increased less than expected in August, potentially decreasing the chance that the Fed might opt for a 50-basis-point (bp) - rather than a 25-bp - rate cut this month, though the unemployment rate slipped.

Investors saw just a 23% chance of a 50 bp rate cut as of 1611 GMT, though pricing briefly rose above 51% after the data, according to the CME's FedWatch tool.

"Over the next couple of weeks ... markets (will) continue to trade choppy, and volatility (will) remain high because it is genuinely a coin flip in the markets as to what's going to happen at that next Fed meeting," said Michael Brown, senior research strategist at Pepperstone.

In Europe, all major country indexes fell around 1%, with Germany's DAX index dropping 1.6% to a two-week low after data showed the country's industrial production fell by 2.4% in July, compared with analysts' prediction of a 0.3% drop.

The technology, basic materials, and energy sectors were the biggest drag on the STOXX 600, all falling over 2%. Chip stocks weighed on the tech sector, tracking declines in U.S. peers after tepid results from Broadcom (NASDAQ:AVGO).

Declines in oil and metal prices weighed on commodity stocks, while the rate-sensitive bank sector fell 1.8%. On a brighter note, the rate-sensitive real estate sector rose 0.6% to its highest since August 2022.

Also on the data front, euro zone GDP growth was revised to 0.2% for the second quarter from an earlier estimate of 0.3% growth.

Next week, the European Central Bank is widely expected to ease rates by 25 bps. European markets, however, are likely to take their cues from overseas, with U.S. inflation data expected to be the biggest mover.

"The Fed is absolutely the main driving force at the moment, with markets having already discounted that policy path for the ECB while you've got a very uncertain outlook for the Fed," Brown said.

© Reuters. The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 5, 2024.     REUTERS/Staff

Among individual stocks, Volvo (OTC:VLVLY) Cars dropped 5.7%. The Swedish automaker slashed its margin and revenue ambitions for a second time in a year on Thursday at its capital market day.

Poland's InPost jumped 11.7% to the top of the STOXX 600, as it reported a 29% surge in second quarter earnings.

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