European Stock Selloff Deepens as Weak US Data Fuels Tech Slump

(Bloomberg) — European stocks extended their slide as a weaker-than-expected US jobs report fanned concerns over economic growth and exacerbated a rout in tech shares.

The Stoxx 600 Index was 2.3% lower by 3 p.m. in London, the most in over a year. Investors took shelter in defensive stocks, with utilities and some pharmaceuticals outperforming, including AstraZeneca Plc and Sanofi SA.

Tech shares led the declines, with the technology subindex down as much as 6%, its biggest drop since Jan. 2022. The sector lost ground even before the US jobs print as Intel Corp.’s plan to reduce capital expenditure weighed heavily on European peers. In the US, the Nasdaq 100 index shed 2.8%.

Swiss stocks underperformed as trading resumed after a local holiday on Thursday, with heavyweight UBS Group AG down 8.3%, while France’s CAC 40 hit the lowest since November.

Data showed 114,000 US jobs were added in July, well below estimates, and the unemployment rate unexpectedly climbed for a fourth month to 4.3%, renewing concerns that the economy is slowing. The figures follow Thursday’s data showing US manufacturing activity shrank in July by the most in eight months. Federal Reserve officials signaled this week that they are on course to cut rates in September and the readings have prompted traders to ramp up policy-easing bets.

“Today’s figures may stir anxieties that central bankers haven’t moved fast enough to cut rates, nudging the jobs market into a downward spiral,” said Richard Flynn, managing director at Charles Schwab UK. “The Fed’s lengthy hiking campaign is so close to achieving its objective for inflation – let’s hope that success on that front doesn’t cause the labor market to tumble.” 

Meanwhile, European earnings continued to roll in, with IAG SA rallying after the airline operator’s second-quarter earnings beat estimates, and Axa SA boosted by a beat on underlying profit and the sale of its asset management unit to BNP Paribas SA.

The main regional benchmark is set for a weekly decline, as it heads into what has typically been the weakest season of the year —  August and September have typically been the worst months for the index.

Here is what market participants are saying about the latest data:

Alexandre Baradez, chief market analyst at IG in Paris:

“What’s crazy is that what is happening across markets in reaction to the US data is exactly what Powell had flagged on Wednesday. In hindsight, Wednesday was the day the pivot occurred and that’s what is being priced across markets at the moment, notably on US treasuries and on stocks. The question of a 50 basis-point cut in September may quickly become a real issue.”

Patrick Armstrong, chief investment officer at Plurimi Wealth LLP:

“The weak jobs numbers and jump in unemployment have pushed the Sahm rule to now indicate a looming recession. The employment market has clearly weakened throughout the third quarter. This softness will definitely support the September cut Powell has indicated is on the cards. Inflationary pressures will continue to subside in the coming months, but we expect pro-growth policies to be promised by both the Republican and Democrat parties, which should buoy markets into year end.”

Richard Flynn, Managing Director at Charles Schwab UK:

“Today’s weak jobs report indicates that demand for labor is losing pace. The recent loosening in the jobs market has been a positive indicator for inflation prospects, as too much activity can be a precursor to demand-side pressure on prices. Since inflation figures have come into shooting distance of the Fed’s target, however, the balance of risks has begun to change. Today’s figures may stir anxieties that central bankers haven’t moved fast enough to cut rates, nudging the jobs market into a downward spiral. The Fed’s lengthy hiking campaign is so close to achieving its objective for inflation – let’s hope that success on that front doesn’t cause the labor market to tumble.”

Janet Mui, head of market analysis at RBC Brewin Dolphin:

“US jobs report disappointed on most fronts, re-igniting concerns on a potential recession and supporting the Federal Reserve to start cutting rates in September. Taken together with the higher jobless claims, contraction in manufacturing hiring survey and July’s jobs report, it is extremely likely that the Fed will start cutting interest rates next month and there is expectation that it may need to cut more aggressively than previously penciled in.”

Ben Seager-Scott, chief investment officer at Forvis Mazars:

“I think it is too easy to draw a doomsday scenario from a handful of pretty volatile readings and to my mind this sets the stage for potential opportunities if markets overdo it on the downside. Market participants are already starting to talk about the Fed, and other central banks, being behind the curve, and, as we saw at the start of the year, if markets start pricing in steeper interest rate cuts, that could actually trigger quite a rapid rebound.”

For more on equity markets:

• BOE Stokes Bull Case for UK Equities With Rate Cut: Taking Stock
• M&A Watch Europe: BNP Paribas Talks With Axa; Ocado Bond Sale
• M&A Watch Europe: BNP Paribas Talks With Axa; Ocado Bond Sale
• US Stock Futures Fall, as Tech Extends Drop Amid Macro Concerns
• Bounceback Barclays: The London Rush

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–With assistance from Paul Jarvis, Julien Ponthus, Allegra Catelli, Joel Leon, Farah Elbahrawy and Joe Easton.

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