European stocks rally as unexpected U.S. job loss drives out rapid rate hike hopes

European equities ended higher on Friday to post their best weekly performance since late June, as a shock contraction in U.S. nonfarm payrolls signaled a cooling American labor market and effectively eliminated near-term Federal Reserve rate-hike fears. 

The pan-European Stoxx Europe 600 Index advanced 0.3% to close at 660.26 points. Most major indexes across the continent saw a solid green day. Germany’s DAX climbed 0.8%, France’s CAC 40 added 0.2%, London’s FTSE 100 gained 0.3%, Italy’s FTSE MIB improved 0.1%, and Spain’s IBEX 35 settled marginally higher.

On a weekly basis, it was gains across the board. Germany was up 2.8%, France 2.4%, London 0.3%, Italy 3%, and Spain 2%.

Across the Atlantic, Wall Street surged as traders aggressively recalibrated interest rate expectations.

According to Labor Department data released Friday, the U.S. economy unexpectedly shed 23,000 jobs in July - falling far short of consensus expectations for an 85,000 gain. While the unemployment rate ticked down slightly to 4.1% from 4.2%, the contraction in overall employment reinforced growing evidence that high borrowing costs and lingering energy market friction are weighing on business activity.

The weak labor reading triggered a swift unwind of hawkish Fed bets. Money markets, which had priced in nearly an even chance of a 25-basis-point rate hike at the Fed’s Sept. 16 meeting, moved towards pricing in a longer-pause. Sovereign bond yields fell globally, providing a fresh liquidity tailwind for equity desks.