European shares close at record high after softer US jobs data calms rate hike fears

EUROPEAN shares edged higher on Thursday (Jul 2) as gains across sectors countered a slide in AI-related stocks, while investors parsed through softer-than-expected US jobs data.

The pan-European Stoxx 600 index closed 1.4 per cent higher at a record peak.

US job growth slowed more than expected in June and payroll gains for the prior two months were revised lower, pointing to a cooling labour market and prompting markets to dial back expectations for a near-term rate hike from the US Fed.

Short-term interest-rate futures reflected about a 60 per cent chance of an interest rate hike from the US Federal Reserve, down from about 75 per cent before the report as traders scaled back bets.

“The fundamental strength of the US economy has prompted the Fed to adopt a more hawkish tone in recent weeks,” Lindsay James, investment strategist at Quilter, said.

“With price pressures easing and policy uncertainty likely to remain a feature of this administration, there is a possibility that those hikes may not materialise.”

Healthcare stocks led broader gains with a 3.3 per cent rise. Drugmaker Bayer gained 8.9 per cent after saying it was consolidating its US Roundup business in a new unit called Ruveon, following a major legal victory that blocked thousands of state-court lawsuits that claimed its weedkiller causes cancer.

Consumer-facing sectors followed with personal and household goods, and food and beverages rising 2 per cent and 2.2 per cent respectively. Defence stocks rallied with the broader aerospace and defence index up 3.1 per cent.

The technology index fell 2.1 per cent, the only sector in the red. Soitec dropped 4.2 per cent and Aixtron shed about 10 per cent to bottom the Stoxx 600 as AI-linked stocks retreated after sharp losses in Asia and on Wall Street overnight.

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“The question now is whether all the good news around that (AI) spending has already been priced into the suppliers. Those stocks have had a very strong run, that is why markets are starting to get a bit nervous,” Daniel Coatsworth, investment analyst at AJ Bell, said.

Data on Wednesday showed euro zone inflation rose less than expected in June, while European Central Bank President Christine Lagarde said risks to inflation and economic growth were now more balanced than a few weeks ago.

However, traders continue to expect the ECB to lift interest rates by at least another 25 basis points before 2026 ends, LSEG-compiled data showed.

Sodexo rose 7.4 per cent after the French food caterer raised its full-year organic revenue growth forecast, citing stronger-than-expected third-quarter performance.

Meanwhile, Goldman Sachs said the bigger drag on European Union growth is losing market share to China rather than a widening trade deficit with the Asian country. REUTERS