European stocks rally as unexpected U.S. job loss drives out rapid rate hike hopes

Investing.com -- European equities ended higher on Friday to post their best weekly performance since late June, as a shock contraction in U.S. nonfarm payrolls signaled a cooling American labor market and effectively eliminated near-term Federal Reserve rate-hike fears. 

The pan-European Stoxx Europe 600 Index advanced 0.3% to close at 660.26 points. Most major indexes across the continent saw a solid green day. Germany’s DAX climbed 0.8%, France’s CAC 40 added 0.2%, London’s FTSE 100 gained 0.3%, Italy’s FTSE MIB improved 0.1%, and Spain’s IBEX 35 settled marginally higher.

On a weekly basis, it was gains across the board. Germany was up 2.8%, France 2.4%, London 0.3%, Italy 3%, and Spain 2%.

Across the Atlantic, Wall Street surged as traders aggressively recalibrated interest rate expectations.

According to Labor Department data released Friday, the U.S. economy unexpectedly shed 23,000 jobs in July - falling far short of consensus expectations for an 85,000 gain. While the unemployment rate ticked down slightly to 4.1% from 4.2%, the contraction in overall employment reinforced growing evidence that high borrowing costs and lingering energy market friction are weighing on business activity.

The weak labor reading triggered a swift unwind of hawkish Fed bets. Money markets, which had priced in nearly an even chance of a 25-basis-point rate hike at the Fed’s Sept. 16 meeting, moved towards pricing in a longer-pause. Sovereign bond yields fell globally, providing a fresh liquidity tailwind for equity desks.

The macro-fueled rally helped European benchmarks build on an already formidable weekly performance, anchored by a standout second-quarter reporting season across pharmaceuticals, industrial infrastructure, and defense.

Aggregate STOXX 600 earnings are now tracking 21% year-over-year growth, giving fundamental support to valuations lingering near all-time peaks.

Single-stock movers added momentum to the benchmark’s advance:

Kingspan Group Plc: Surged 15.8% to top the index after raising its full-year profit outlook, citing unrelenting structural demand for energy-efficient data center insulation linked to the artificial intelligence boom.

Genmab A/S: Jumped nearly 10% after the Danish biotech firm boosted its full-year revenue and profit guidance, dragging peer healthcare heavyweights Novo Nordisk A/S,Abivax SA, and Zealand Pharma A/S up between 3% and 5%.

Genel Energy Plc: Gained 12% after the oil exploration firm formally rejected an unsolicited takeover approach, deeming it undervalue.

The risk-on sentiment effectively overshadowed resurfacing geopolitical concerns in the Middle East. Traders had shown earlier caution following reports that Iranian lawmakers are evaluating a bill to bar U.S. and Israeli vessels from transiting the Strait of Hormuz.

However, the prospect of lower global borrowing costs proved to be the dominant market driver, keeping equity desks firmly in buy mode heading into the weekend.

Anuron Mitra contributed to this article