Europe close: Stocks dip, euro continues to gain strength

European markets finished the week on a down note as the single currency continued gaining altitude with disappointing data from France and Germany pulling the Continent’s benchmark indices lower.

The pan-European Stoxx 600 index was off by 0.52% at 368.80 with Germany’s DAX declining 0.48% to 13,033.2, although it had come off its worst levels of the session, while France’s CAC eased back 0.26% to 5,002.94.

The euro, sterling and yen gained against the US dollar after Thursday’s address from Federal Reserve chief Jerome Powell, who said that the US central bank would launch a new monetary policy framework that will likely see interest rates in the US remain low for longer.

Powell said the Fed would now accept inflation "moderately" above its 2% target.

"​​​​​​​Western markets are ending the week on a somewhat indecisive tone, with weakness for the likes of the FTSE 100 and DAX counterbalanced by US gains as the Dow, S&P 500, and Nasdaq look set for a positive session," comment IG's Josh Mahony.

German consumer sentiment suffered a setback as rising coronavirus infections and fears of renewed restrictions to thwart the virus dampened spirits.

The GfK consumer confidence index fell to -1.8 for September from a revised -0.2 for August. The preliminary September figure halted three months of gains.

Economic expectations and willingness to buy showed small gains but household income expectations fell sharply in Europe's biggest economy. The indicator fell by 5.8 points to 12.8 – a loss of 37 points compared to the previous year.

In France, the INSEE statistical agency reported soaring household savings and plunging businesses profits in the second quarter during a coronavirus lockdown. The domestic economy contracted 13.8% in the three months to June 30.

The household savings rate hit a record 27.4% of disposable income, while consumer spending slumped 16.4% in the quarter as most shops, cafes and hotels closed from mid-March to May 11.

Companies saw their profit margins fall to 26%, the lowest since the end of 1983, INSEE said.

In corporate news, shares in industrial engineering group Thyssenkrupp fell after the stock was downgraded to ‘underweight’ from ‘equalweight’ by Morgan Stanley.

State-owned Italian bank Monte Dei Paschi di Siena rose 2.7% as it received conditional approval from the European Central Bank for plan to rectify its bad loan book.

Other banks also rose , driven by a rise in yields on US and European government bonds. Shares in BNP Paribas, HSBC and Banco Santander were all higher.

Norwegian Air slumped 9.2% after the budget carrier said it still needs more cash in order to survive the impact of the Covid-19 pandemic as it reported a heavy first-half loss.

Shares in German drugs company Bayer AG retreated after the company said there were “bumps” in sealing its $11bn settlement of thousands of US lawsuits over its Roundup weed killer after a US judge cast doubt on the progress of the agreement.