Europe open: Stocks drop ahead of Italy referendum; investors eye payrolls

European stocks fell in early trade as the oil rally stalled, with investors growing cautious ahead of this weekend’s referendum in Italy, as they looked ahead to the release of the nonfarm payrolls report later in the day.

At 0850 GMT, the benchmark Stoxx Europe 600 index and France’s CAC 40 were down 1%, while Germany’s DAX was 1.1% lower.

Meanwhile, Italy’s FTSE MIB was 1.1% weaker ahead of Sunday’s referendum on constitutional reform. Italians will be asked to decide whether to accept a package of constitutional reforms put forward by centre-left Prime Minister Matteo Renzi, who has said he would resign if the proposals are rejected.

Market participants are concerned that if the outcome is a 'no' vote, political uncertainty will ensue, making the task of sorting out non-performing loan issues at the country's bank's even more difficult.

In commodities, oil prices were little changed following the OPEC-fuelled rally. West Texas Intermediate was up 0.1% to $51.10 a barrel while Brent crude was 0.3% lower at $53.78.

Lee Wild, heady of equity strategy at stockbroker Interactive Investor, said: “Oil prices are down as euphoria around the landmark OPEC deal subsides. Traders also have one eye on Sunday's Italian referendum on PM Matteo Renzi's constitutional reform, and potentially incendiary elections in Austria. The other will be on monthly US jobs data this afternoon, although only a truly shocking set of numbers can prevent a rate hike in two weeks' time. Indications are that payrolls will be fine.”

In corporate news, Berkeley Group rallied after it reported a better-than-expected increase in first half earnings and revenue, boosted by continued strength in the London market.

GlaxoSmithKline edged lower after it said the Japanese government has approved its Relvar Ellipta drug for the use in patients with chronic bronchitis and pulmonary emphysema.

Eurozone producer prices are at 1000 GMT, while nonfarm payrolls and the unemployment rate are at 1330 GMT.

Societe Generale is expecting the payrolls to have increased by 165,000 in November, which it said would cement a rate hike in December.

“Leisure and hospitality and retail industries are likely to have rebounded, while manufacturing should continue shedding jobs. Average hourly earnings may have risen by 0.2% in November, sufficient to keep the year-on-year rate steady at 2.8% Lastly, the unemployment rate may have inched down to 4.8% from last month's 4.9% reading (4.876% un-rounded), while the workweek may have been little changed at 34.4 hours.”