Europe: Losses deepen on growing bets for Fed rate hike

[LONDON] A third day of declines sent European stocks to a weekly drop after a US payrolls report did little to diminish prospects for a Federal Reserve rate rise this year.

The Stoxx Europe 600 Index fell 0.9 per cent at the close, as all industry groups except miners declined. US employers added 156,000 jobs in September, a Labor Department release showed.

While that missed the average economist forecast, it followed an increase in August that was more than previously estimated. Recent strong data have raised trader odds for another Fed hike, adding to worries about a tapering of European Central Bank stimulus.

The payrolls report "is not enough to change the prospect of a Fed hike - we also had a revision to the upside for the prior month," said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany. His firm oversees US$260 million.

"There's a limit to what central banks can do to help the economy and the markets need to start pricing in growth, and not the support."

Traders' bets for higher US borrowing costs in December have risen to 66 per cent, up from almost even odds last week. The probability of a November hike fell to 17 per cent, compared with 24 per cent before the jobs release.

The Stoxx 600 capped its fourth weekly decline in five, down 0.9 per cent, after a rally from a June low ended in early September. Investors withdrew money from the region's equity funds for a record 35th week, a report from Bank of America Merrill Lynch showed on Friday.

By contrast, a gain of 0.9 per cent in the FTSE 100 Index today put it within 1 per cent of its 2015 record close. Miners including BHP Billiton Ltd and Anglo American Plc gained at least 2.2 per cent after Bank of America recommended buying the shares, calling the sector "underowned".

Exporters in the UK benchmark rallied this week as updates about Brexit sent the pound tumbling. The currency earlier today plunged 6.1 per cent in about two minutes, a move that traders said was exacerbated by computer-initiated sell orders, before paring the drop.

Among stocks active on corporate news, Delta Lloyd NV added 3.4 per cent after rejecting NN Group NV's unsolicited 2.4 billion euro (S$3.7 billion) cash offer. Deutsche Bank AG's US-listed shares rose 1.8 per cent after the European market close after people familiar with the matter said Qatar's royal family is considering raising its stake in the lender to as much as 25 per cent.

E.ON SE rose 3.1 per cent in Germany after a report that Cevian Capital AB is evaluating buying a 10 per cent stake in the utility. Innogy SE, RWE AG's green energy business, traded 0.3 per cent above the issue price of its initial public offering. RWE slid 7.4 per cent.

UK homebuilders fell after Halifax said house-price growth weakened in September to its slowest pace in three years. Barratt Developments Plc and Bovis Homes Group Plc declined at least 4.5 per cent.

BLOOMBERG