Europe midday: Sell-off continues as focus turns to oil prices, US jobs

(Sharecast News) - A continued rise in oil prices and jitters about the Federal Reserve's short-term path for monetary policy caused a sell-off across European markets on Friday, pushing the Stoxx 600 index to a two-week low. Europe's Stoxx 600 index was down 1.1% at 505.32 by 1240 CEST - it hasn't closed below this level since 18 March - with heavy losses of around 1.4-1.6% seen across Spain, Italy, France and Germany, slightly offset by a 0.9% decline in the UK.

Brent crude was up 0.4% at $91.01 a barrel in morning trade, having risen 5% over past five days and 10% over the past month, on the back of escalating tensions in the Middle East along with forecasts for improving demand in the US and China. Heightened oil prices were dampening sentiment on global stock markets given their potential to put reignite inflationary pressures worldwide.

US stock futures were pointing to a small rebound on Wall Street after benchmarks suffered losses of around 1.2-1.4% on Thursday, with the Dow suffering its worst four-day losing streak since October, on the back of hawkish comments from several Fed members. Investors are concerned that recent resilient economic data could delay a potential interest-rate cut by the central bank.

"Markets continue to price a June rate cut but those expectations are gradually fading, with yesterday's surge in energy prices sparking fresh concerns that inflation pressures will hinder the Fed's ability to cut rates," said Joshua Mahony, chief market analyst at IG.

Traders were looking ahead of the all-important US non-farm payrolls report due out at 1330 CEST, which is expected to show that 200,000 jobs were added in March, down from 275,000 in February, with the unemployment rate holding at 3.9%.

"Should the Fed decide to sit on its hands and do nothing, there remains a big risk that the US stock market could experience a wobble. It's enjoyed quite a run since last October and a shift in the narrative could cause investors to lock in some of those gains," said Russ Mould, investment director at AJ Bell.

Back on this side of the Pond, data out on Thursday morning mostly missed expectations. German factory orders rose by just 0.2% in February, missing estimates for a 0.8% jump but recovering from January's revised 11.4% tumble - the steepest fall since April 2020. The HCOB eurozone construction PMI unexpectedly dropped to 42.4 in March, down from a reading of 42.9 in February. Meanwhile, eurozone retail sales were shown to have fallen 0.5% in February after staying flat for the month of January, which was revised down from a 0.1% gain. The consensus estimate was for a fall of 0.4%.

Market movers

Delivery Hero was in the doldrums, pulling back after a strong gain the previous session after activist investor Sachem Head took a 3.6% stake in the food delivery firm. Sector peers Ocado and HelloFresh were also performing badly.

Airlines were under the weather as oil prices continued to rise, with Deutsche Lufthansa, Air France-KLM and IAG falling. In contrast, oil majors Total, BP and Shell were outperforming, with Shell given an extra boost after the company raised its production guidance for the first quarter.

Banking stocks were also out of favour, with the Stoxx Europe 600 Banks Index falling 1.6%. Barclays, Banca Monte dei Paschi di Siena, Banco Santander, UBS and Commerzbank were notable fallers.