Europe close: Stocks pummeled as global carry trade continues to unwind

European shares were sharply lower again at the start of the week, although the selling did abate a bit and appeared to be centred on some of the most popular 'carry trades' globally, including US tech giant Nvidia shares or Bitcoin.

There were multiple triggers for the price moves, but the main factor was the release of another weaker-than-expected monthly US jobs report during the preceding session which had some economists calling for emergency Fed rate cuts.

The Stoxx 600 dropped 2.17%, alongside a 2.34% decline on Spain's Ibex 35, while France's Cac-40 slipped 1.42%.

"2024 has been a quiet year for markets in terms of actual volatility, so today’s slump in the US feels much worse than it actually is when put into context," said IG chief market analyst Chris Beauchamp.

"Already there are a number of commentators calling for emergency US rate cuts, but at the moment this is still a growth scare. If the latest job numbers are revised higher next month the picture may start to look very different. Besides, the Fed’s job isn’t to rescue investors from volatility."

Other factors weighing on markets included the renewed surge in Middle East tensions, as well as political uncertainty in the US, including candidates' policy agendas.

However, early in the afternoon it was reported that Iranian officials had signalled that they were not intent on provoking a war with Israel.

That pushed gold futures lower even as the euro was trading near the 1.10 mark against the US dollar.

Significantly, Japan's Nikkei-225 was crushed overnight, falling 12%, its worst showing in more than 35 years, as the global 'carry trade' continued unwinding.

In parallel, at one point the yen jumped around 3% versus the Greenback as speculators repurchased the currency.

On the macro front, S&P Global confirmed the preliminary reading on its euro area purchasing managers index for July of 51.9, which was down from 52.8 in June.