(Bloomberg) — European stocks pared their losses after the latest reading on the US labor market helped ease fears about a more pronounced slowdown in the world’s largest economy.
The Stoxx Europe 600 Index was 0.4% lower by 2:04 p.m. in London, after dropping as much as 1.2%. Real estate and media stocks fell the most, while health care shares gained slightly.
US initial jobless claims fell last week by the most in nearly a year, potentially alleviating some concerns that the labor market is cooling too fast following last week’s disappointing jobs report. The decline in initial applications may help reassure markets that the workforce is simply reverting to its pre-pandemic trend rather than rapidly deteriorating.
“It is difficult to read a significant message in this data — at least the latest number remains on par with the previous one, without inverting the trend of rising weekly jobless claims,” said Florian Ielpo, the head of macro research at Lombard Odier Asset Management.
Still, questions remained over whether a key unemployment-based US recession indicator — known as the Sahm rule — had been triggered, Ielpo said. “This unresolved Sahm rule puzzle could weigh negatively on market sentiment for a few more days.”
European stocks have had a choppy start to August, as worries about a US recession sparked a global market selloff. While Europe is seen as more insulated due to its high proportion of defensive stocks, the index is still down more than 4% this month.
Among companies reporting earnings Thursday, Siemens AG rose as investors focused on a strong performance by its software arm. Zurich Insurance Group AG lost ground as it reported increased losses at it property and casualty business. UK gambling company Entain Plc rallied after raising its full-year outlook, while insurer Allianz SE climbed after posting stronger earnings from life-health insurance and asset management.
Despite some high-profile misses this earnings season, the overall picture looks relatively upbeat, with earnings-per-share growth for the MSCI Europe index running at 2.4% so far, above the pre-season forecast of 0.4%. An earnings revisions index compiled by Citigroup Inc. has turned positive for the first time since early June.
“Positioning is now modest across equities and credit, which gives us confidence that the scope for further aggressive selloffs is limited,” said Mohit Kumar, chief economist for Europe at Jefferies International Ltd. Still, with geopolitical risks lingering in the background, he recommends trading with a light risk profile over the coming weeks.
Meanwhile, Morgan Stanley strategist Marina Zavolock said technical indicators are pointing to a tactical recovery in European stocks, although she expects trading to remain choppy until economic data signal a soft landing for the US economy.
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–With assistance from Michael Msika.
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