European stocks and US futures start September on the back foot

By Harry Robertson and Wayne Cole

LONDON/SYDNEY (Reuters) – Equity markets edged lower on Monday as investors braced for a data-packed week culminating in a U.S. jobs report that could decide whether a cut in the expected interest rate this month will be regular or very high.

Survey data released on Saturday showed that Chinese manufacturing activity fell to a six-month low in August, and data on Monday showed that euro zone factories were also still struggling.

Populist party wins in German state elections added a new layer of political uncertainty to European markets, while a holiday in the United States and Canada generated thin liquidity.

Europe’s STOXX 600 index fell 0.26 percent after hitting a record high on Friday. Germany’s DAX and Britain’s FTSE 100 fell 0.11% and 0.1% respectively.

“European stocks opened on a weaker base due to weaker economic data from China,” said Aneeka Gupta, equity strategist at WisdomTree. “Industrials and consumer discretionary led declines.”

The dollar index, which tracks the currency against six peers, eased very slightly to 101.73 after hitting a two-week high overnight. The US currency rose 0.5% against the yen to 146.95.

“We’re seeing natural caution at the start of a critical month for markets as the Fed prepares to begin its rate cut cycle,” said Ben Laidler, head of equity strategy at Bradesco BBI.

“Markets have rebounded dramatically since early August, but now face seasonally their weakest performing month of the year.”

Chinese shares lost 1.7 percent, led by property losses, after a survey showed home price growth slowed. Shares in New World Development, a major Hong Kong property developer, fell 14 percent after it reported a net loss.

U.S. S&P 500 futures fell 0.14 percent, while tech-heavy Nasdaq 100 futures were 0.13 percent lower. US stock markets will be closed on Labor Day Monday and Treasuries were not traded.

“We’re always a bit cautious when trading at any peak and when earnings expectations continue to be quite high especially in the US,” said Carl Hammer, head of asset allocation at lender SEB.

The big event of the week will be Friday’s US nonfarm payrolls report, which is expected to show the economy added 165,000 jobs in August, up from 114,000 in July.

Traders currently believe a September Federal Reserve rate cut is headed their way and see a 33% chance it could be a whopping 50 basis point cut, but that could change on Friday.

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July’s lackluster jobs report helped spark a selloff in global stocks in early August, though the S&P 500 has since rebounded, ending 0.4 percent off a record high.

Germany’s 10-year bond yield rose to its highest level in months at 2.338 percent and was last up 4 basis points, in line with those in the euro zone.

Pressure has mounted on German Chancellor Olaf Scholz after the far-right Alternative for Germany (AfD) won the first regional elections.

September has recently been a down month for stocks and bonds, analysts said, likely adding to Monday’s caution.

Deutsche Bank analysts said the S&P 500 and STOXX 600 have lost ground in each of the past four Septembers, while global bonds have declined in the past seven.

Also important this week will be US survey data, job openings figures, weekly jobless claims and the Fed’s beige paper on current economic conditions.

Oil prices rose after falling in recent days. Brent crude rose 0.29 percent to $77.14 a barrel, down more than 5 percent from a week earlier.

(Reporting by Harry Robertson in London and Wayne Cole in Sydney; Editing by Shri Navaratnam, Sam Holmes and Sharon Singleton)