European stocks at record highs, weak U.S. payrolls hit tapering bets

The German share price index DAX graph is pictured at the stock exchange in Frankfurt
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, June 4, 2021. REUTERS/Staff

June 4, 2021

By Ambar Warrick and Sruthi Shankar

(Reuters) -European stocks ended at a record high on Friday as weak U.S. payrolls data pointed to lower chances of early policy tightening, while optimism over a euro zone economic recovery buoyed most sectors.

The pan-European STOXX 600 index rose 0.4% to a new closing high of 452.57, having earlier hit an all-time high of 452.71. It added 0.8% for the week.

Technology stocks rose 1.2% and were the best performers for the day, led by Austrian chipmaker AMS.

Shares of the firm rose 4.4% after it announced the sale of its North American digital systems business to U.S.-based Acquity Brands.

Global stocks rose after data showed U.S. non-farm payrolls rose less than expected in May, leading many to tone down expectations for hawkish signals from the Federal Reserve. [MKTS/GLOB]

The Fed has cited inflation and labour market health as two key factors necessary for it to tighten policy.

The data comes ahead of Fed and European Central Bank policy meetings next week, where investors will watch for hints on tapering their large bond purchase programmes.

Both banks are widely expected to leave policy unchanged.

“It is too soon for the ECB to begin even hinting at any form of monetary tightening, even with economic growth improving,” BCA Research analysts wrote in a note. “While headline inflation pushed above the central bank’s 2% target in May, core inflation only rose to 0.9%.”

Still, recent European data has shown the economy heating up rapidly after last year’s COVID-induced lull.

The dovish outlook on lending rates weighed on government bond yields, which in turn saw European bank stocks fall 0.9%.

The banking-heavy Spanish benchmark index also fell 0.6%.

European automobile stocks were the best performers this week, adding more than 5% as positive sales and production data from major American car makers Ford and General Motors boosted the sector.

Shares in British Airways-owner IAG, Wizz Air and easyJet slipped between 0.9% and 3.3% after Britain removed Portugal from its green list of quarantine-free travel destinations and added seven countries, including Egypt and Sri Lanka, to its “red list” which requires hotel quarantine on return to England.

Ryanair slipped 0.8% even as its chief executive officer forecast unrestricted movement between Europe and Britain from July onwards.

French media giant Vivendi, which owns Universal Music Group, slipped 0.3% after early gains on news billionaire William Ackman’s Pershing Square Tontine was in talks to buy 10% of the music label for around $4 billion.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Sriraj Kalluvila, Kirsten Donovan)