Europe midday: Gains prove short-lived as stocks slip back into the red

At midday, the benchmark Stoxx 600 and Germany’s DAX were both down 0.2%, while France’s CAC 40 was off 0.6%.

Stocks had opened in the black after China’s Shanghai Composite rose just under 2% on Thursday as investors welcomed the suspension of the circuit breaker mechanism that hated trading twice this week. The mechanism was widely criticised by analysts for exaggerating declines as investors rushed to exit positions before getting locked in by the halts.

Sentiment was also boosted after the People’s Bank of China set a higher yuan fix and amid news that state-controlled funds had bought equities.

However, the gains proved short-lived as investors digested Eurozone data and looked to the all-important payrolls report, while worries about China remained.

“Although there is some relief that Chinese markets haven't tanked again especially after announcing ahead of today's trading session that circuit breakers are suspended for now, not everybody is convinced that Chinese stocks have bottomed especially as the PBoC still seems to be intervening,” said Markus Huber, senior analyst at Peregrine & Black.

In macroeconomic news, data released by Destatis showed German industrial production fell 0.3% in November from 0.5% in October, coming in well short of economists’ expectations for a 0.5% increase.

Meanwhile, production rose 0.1% from the same month the previous year, weaker than the 0.4% increase registered in October.

In separate data released on Friday, Destatis said seasonally-adjusted German exports rose 0.4% in November compared with a 1.3% drop in October, while imports were up 1.6% versus a 3.2% decline the previous month.

Exports were a touch below economists’ expectations but imports were a little better.

This narrowed the foreign trade surplus to €19.7bn from €20.5bn.

On the year, exports increased by 7.7% from 3.2% the previous month, while imports were up 5.3% compared with 3%.

Elsewhere, figures showed French industrial production fell 0.9% in November from the previous month, which was steeper than the 0.4% drop expected by economists.

Nonfarm payrolls at 1330 GMT will be the highlight.

“After a strong ADP reading on Wednesday it wouldn't be too much of a surprise if today's US job number will exceed expectations,” said Huber.

“However in light of very sluggish growth in the Eurozone and renewed turmoil in China with plenty of uncertainty making the rounds where the world's second largest economy is concerned, a strong number doesn't automatically mean that the Fed will pull the trigger at their next meeting.

“Instead stock markets might actually welcome a strong figure with many companies hoping that a strengthening US economy might just balance out or at least lessen the fall-out from a slowing Chinese economy.”

At 1500 GMT, US wholesale inventories and job openings are due.

In corporate news, TNT Express and FedEx were in focus after saying they have been given unconditional approval from the European Commission for their proposed merger.

In London, BHP Billiton pushed higher after saying the amount of mining waste spilled as a result of a dam burst at its Samarco joint venture iron ore mine in Brazil last November was a lot less than previously thought.

Supermarket retailer Tesco was the star performer on the FTSE 100 after Barclays upgraded the stock to ‘overweight’ from ‘equalweight’.