European shares retreat on recession fears; focus on U.S. jobs data

By Devik Jain

(Reuters) -European shares fell on Wednesday, snapping a three-day rally after data showed euro zone was unlikely to avoid a recession, with investor focus on U.S. labour market report for clues on further rate hikes by the Federal Reserve.

The pan-European STOXX 600 index was down 0.95% by 0824 GMT, after rallying more than 5% in the previous three sessions.

The index had logged its best one-day performance since mid-March on Tuesday after weaker U.S. manufacturing data, shrinking U.S. job openings and a smaller-than-expected rate hike from the Reserve Bank of Australia spurred hopes that central banks globally could shift to less-aggressive rate hikes in future.

All eyes are on U.S private payrolls numbers for September due at 1215 GMT and the closely watched nonfarm jobs report expected on Friday for further evidence on that narrative.

“(Today) is a realization that it’s still too early to conclude the pivot is coming,” said Azad Zangana­, senior European economist and strategist at Schroders.

“We are waiting for the nonfarm payrolls jobs data to give us a better idea of where we are at and whether the tightening that we have had so far is starting to have a material impact on the economic outlook.”

Latest data showed euro zone business activity contracted for a third month in September, dashing any hopes the currency union avoids recession.

“In Europe, it’s more of a question of where we are at now in the cycle. The ECB is raising rates quite aggressively and are expected to do so even if we enter a recession in the near-term because inflation is becoming more of an issue in Europe,” Zangana added.

The STOXX 600 index has fallen 18.2% so far this year as the region grapples with an energy crisis exacerbated by the Russia-Ukraine conflict and concerns about an economic downturn with aggressive policy moves by the U.S. Fed and other central banks to quell inflation.

All the STOXX 600’s sectoral indexes fell, with telecom, banks and automobiles down between 2% and 2.9%.

Among single stocks, Tesco dipped 2.5% after Britain’s biggest retailer expects its full-year core profit to be around the lower end of its previous forecast, saying there were significant uncertainties over the macro outlook.

Shares of Bachem Holding AG gained 4.1% as the biotech supplier floated plans to build a third site in Switzerland.

Carl Zeiss Meditec rose 2.3% after Berenberg upgraded the German medical tech company’s stock to “buy” from “hold”, citing likely annual sales beat and appealing valuation.

(Reporting by Devik Jain in Bengaluru; Editing by Subhranshu Sahu and Sherry Jacob-Phillips)