2-5-18 7:00 AM EST | Email Article

By Sara Sjolin, MarketWatch

Stoxx 600 set for lowest close since November

European stocks traded sharply lower on Monday, tracking a global selloff in equities that picked up speed on Friday, after a better-than-expected U.S. jobs report stoked fears about rising inflation and higher interest rates.

What are markets doing?

The Stoxx Europe 600 index lost 1.3% to 383.20, setting it on track for its lowest close since Nov. 15, according to FactSet data.

Germany's DAX 30 index dropped 0.8% to 12,687.15, while France's CAC 40 index fell 1% to 5,309.49. The U.K.'s FTSE 100 index gave up 1.3% to 7,350.08.

The euro was flat around $1.2457. The pound fell to $1.4094 from $1.4119 late Friday in New York, erasing an earlier gain after the U.K. services purchasing managers index for January fell to a 16-month low (https://www.markiteconomics.com/Survey/PressRelease.mvc/e345f5c3bc55418381350ff6bdd7a99e).

What is driving the markets?

Stocks globally have generally been falling recently, but losses picked up speed on Friday afternoon after the closely watched U.S. jobs report showed salaries rose faster than expected (http://www.marketwatch.com/story/us-adds-200000-jobs-worker-pay-rises-at-fastest-pace-since-2009-2018-02-02) in January. That wage growth -- at the fastest pace in more than eight years -- was seen as an indicator of rising inflation, fueling fears the Federal Reserve may raise interest rates faster than anticipated.

That speculation boosted bond yields, which in turn weighed on equities. Higher returns on debt securities typically make stocks, and other assets perceived as risky, less attractive to investors.

The S&P 500 index posted its biggest one-day percentage loss since September 2016 on Friday (http://www.marketwatch.com/story/dow-futures-tumble-more-than-250-points-on-jobs-day-2018-02-02), while the Dow Jones Industrial Average suffered its biggest decline since June 2016. U.S. stock futures continued lower on Monday (http://www.marketwatch.com/story/us-stocks-set-up-for-selloff-dow-futures-down-140-pts-2018-02-05), while Asia markets closed with sharp losses (http://www.marketwatch.com/story/asian-markets-pull-back-following-wall-streets-friday-flop-2018-02-04).

Investors were also following political developments in Berlin, where German Chancellor Angela Merkel's party and its former center-left partner on Sunday failed to meet a deadline on agreeing to form a coalition government. Talks are expected to continue on Monday, with a focus on public healthcare and labor market policies, which appear to be the final stumbling blocks.

What are strategists saying?

"The next day after an unusually big selloff is always a big test of a market's strength. A repeat of anything close to the 2% decline seen in U.S. indices on Friday could trigger a prolonged period of risk-off sentiment," said Jasper Lawler, head of research at London Capital Group, in a note.

What's new in economic data?

The final reading on the eurozone composite purchasing managers' index for January came in at 58.8. That compares with a preliminary reading of 58.6 and the 58.1 logged in December. The index, which tracks manufacturing and services activity, now stands at its highest level since June 2006. It has been signaling expansion in the eurozone economy for 55 consecutive months.

Which stocks are in focus?

Shares of Ryanair Holdings PLC (RYAAY) lost 2.7% after the discount airline struck a cautious tone for the summer season (http://www.marketwatch.com/story/ryanair-3q-profit-up-12-on-traffic-increase-2018-02-05), saying it expect ticket prices in fiscal 2018 to fall by at least 3%. Additionally, Ryanair's board approved a EUR750 million share buyback program.

Shares of Porsche Automobil Holding SE (PAH3.XE) fell 3.4%. The auto maker said on Monday it plans to double its investments (http://www.marketwatch.com/story/porsche-to-double-investment-in-hybrid-cars-evs-2018-02-05) in hybrid and fully electric vehicles by 2022.

Vodafone Group PLC (VOD.LN) (VOD.LN) lost 3% after the telecoms giant late Friday confirmed speculation it is in "early stage discussions" with Liberty Global about the possible takeover of come continental European assets.

Shares of Leonardo SpA (LDO.MI) fell 3% after UBS cut the aerospace and defense company to neutral from buy.

Randgold Resources Ltd. (RRS.LN) (RRS.LN) erased 2.4.% after the gold miner said fourth-quarter pretax profit fell 11% (http://www.marketwatch.com/story/randgold-4q-profit-falls-gold-output-sales-drop-2018-02-05).

GlaxoSmithKline PLC (GSK.LN) (GSK.LN)fell 1.8% and Reckitt Benckiser Group PLC (RB.LN) (RB.LN)lost 2.3% after a report from Bloomberg said they were the only companies to submit non-binding bids (http://www.marketwatch.com/story/gsk-reckitt-sole-bids-for-pfizer-unit-bloomberg-2018-02-05) for Pfizer's consumer business.


(END) Dow Jones Newswires

February 05, 2018 07:00 ET (12:00 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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