European stocks 'bent' on tech sector 'brutal hammering' after weaker-than-expected US jobs data
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European stock markets “bent” on the “savage hammering” received by the technology sector, in the wake of weaker-than-expected US employment data that showed the US economy continues to lose ground.
< p>The technology and financial services industry suffered the biggest blow. In this environment, investors turned to the safety of government bonds on both sides of the Atlantic.
The pan-European STOXX 600 stock index closed down 2.7% at 497.85, hitting a three-month low.
Most of the sub-indexes also ended lower, with technology falling 6.1 %, in the biggest daily plunge since October 2020, following the US market sell-off.
International stock markets were spooked by US jobs data which showed the jobless rate jumped to 4.3% from 4.1% in June, heightening concerns that the labor market is deteriorating and leaving the economy vulnerable to a recession. In July, the US economy created 114,000 new jobs, lower than June's 179,000 and lower than the 175,000 expected by economists.
“This is very negative news for the market. However, stock liquidations should be considered normal given the high valuations in many market sectors. It's a very good reminder to investors to focus on corporate profitability in the second quarter,” said Lara Castleton, head of portfolio at Janus Henderson Investors.
The STOXX VIX index that tracks fear and volatility in the European market it reached a high of 24.52 units.
The financial services sector lost 5.2% of its value, while banks sank 4.3%, extending their losses from the previous session, as the sector was hit by a series of disappointing corporate results in anticipation of easing monetary policy. Lower interest rates are weighing on interest margins, a key source of income for banks.
Among individual indices, the DAX in Frankfurt fell 2.33% to 17,661.22, the CAC 40 in Paris lost 1.61% to 7,251.80 and the FTSE 100 in London fell 1.31 % at 8,174.71 units. In the region, Italy's FTSE MIB fell by 2.55% to 32,018.82 points and Spain's IBEX 35 by 1.67% to 10,672.90 points.
Asian stock markets were also in deep red, with the Nikkei index in Tokyo recorded losses close to 6%. Wall Street is also suffering heavy losses at this time, with the Dow Jones losing more than 700 points and the Nasdaq falling more than 2%. In fact, for the time being, the high-tech index entered correction territory, falling 10% from its all-time high about a month ago.
Turn to safety
German government bond yields fell to their lowest level in more than a year in the wake of US jobs data.
The 10-year yield edged to its lowest level since January at 2.14%, while the 2-year edged down 12 basis points to 2.32%, the lowest level since March 2023. Yields closed the week lower 24 basis points, the biggest decline since mid-June.
On the other side of the Atlantic, the yield on the US 10-year closed at 3.82% in the session.
Torsten Schlock, chief economist at Apollo Global Management, expects the Fed to cut interest rates in September, having previously thought it would keep them unchanged until the end of 2024.
However, concerns about the global economy led the most risky government bonds underperformed against core ones, with French and Italian spreads over German widening to 146 (month high) and 78 basis points respectively.
The Italian 10-year yield limited by only two basis points to 3.62%, while the French by four basis points to 2.95%.
In the Greek market, the 10-year yield fell further to 3.27% with the spread at 115 basis points, while in the five-year period it fell to 2.64%. The volume of transactions on HDAT was limited to just 15 million euros.
