Europe open: Stocks drop as investors eye payrolls report, German data disappoints

At 0840 BST, the benchmark Stoxx 600 index and France’s CAC 40 were both down 0.6%, while Germany’s DAX was 0.7% lower.

Richard Hunter, head of markets at Interactive Investor, said: "Investors have been skittish in the lead up to the non-farm payrolls report, and the day of reckoning has finally arrived.

"Surrounding economic data has given mixed signals, with private payrolls numbers yesterday showing the weakest growth for over three years, whereas weekly unemployment claims fell from the previous week.

"As such, there is extra emphasis as if it were needed on today’s employment report, which will walk the fine line between whether the fabled soft landing is on track, or whether the Federal Reserve has missed the boat with a potential recession in sight. Nerves will be further tested with memories of the reaction to last month’s report, which prompted a bout of market turbulence."

The non-farm payrolls report for August is due at 1330 BST, along with the unemployment rate and average earnings.

Disappointing German industrial production figures also dented the mood. Data released earlier by Destatis showed that production fell by 2.4% on the month in July, versus expectations for a 0.3% decline.

This left production 2.2% lower than its average level in the second and 9.5% below the its most recent peak reached in February 2023.

Franziska Palmas, senior Europe economist at Capital Economics, said: "The big drop in German industrial production in July adds to the sense that the sector is facing a deep crisis and that, having contracted in Q2, the German economy may fall back into a technical recession in Q3."

Still to come, eurozone second-quarter GDP and employment change are due at 1000 BST.

On the corporate front, Rolls-Royce lost ground again as it emerged that the European Union Aviation Safety Agency has ordered visual checks on some RR A350-1000 engines following this week’s Cathay Pacific incident.