Europe close: Stocks ended on the back foot as jitters rise over Italian referendum

European stocks closed in the red as excitement over the OPEC deal tapered off and nerves grew ahead of the upcoming Italian referendum, together with a mixed US non farm payrolls report.

The benchmark Stoxx Europe 600 index fell 0.44% with France’s CAC 40 down 0.70% and Germany’s DAX losing 0.20%.

Meanwhile, Italy’s FTSE MIB was flat 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.

Oil prices edged higher with West Texas Intermediate was up 0.47% at $51.30 a barrel while Brent crude edged higher by 0.22% to $54.07.

Accendo Markets's Mike van Dulken said: “It's all about European politics with Sunday's Italian referendum likely impacting both domestic and Eurozone banks come Monday. To add fuel to the fire, we creep towards OPEC's meeting with Russia to confirm production cut cooperation and an ECB policy update on Thursday that could see QE extended by 6 months.”

Markets appear to be positioned for a ‘no’ vote in Italy’s referendum on constitutional reform on Sunday, HSBC said, with banks there underperforming their European peers by 9% and the European stock market by 11% over the past month.

The bank reckons a ‘yes’ outcome would prompt a 5-10% rally in the Italian equity market in the short term, while a ‘no’ vote might trigger a 5% to 10% correction if Prime Minister Matteo Renzi remains and a 10% to 20% correction if he goes.

On the data front, Eurozone producer prices rose more than expected in October, according to the latest figures from Eurostat.

Producer prices increased 0.8% from September compared to expectations for a 0.2% jump.

In the US, non-farm payrolls showed that the economy added 178,000 new jobs in November, more than the 142,000 jobs created the previous month. The gain was not a far cry from the 180,000 consensus forecast.

The unemployment rate fell to 4.6% from 4.9% in October, which was the lowest level since 2007, while the labour force participation rate slipped to 62.7% from 62.8%. Hourly earnings were down 0.1%, weaker than 0.2% expected.

IG market analyst Joshua Mahony said: “Today’s US jobs report marks the final piece in the jigsaw for the Fed, who are widely expected to raise rates later this month. With market expectations of a rate rise currently at 100%, it was always going to need something pretty cataclysmic to shake that confidence. With payrolls largely in line and unemployment tumbling to a nine- year low, it seems a rate rise is nailed on when the committee meet in two weeks’ time.”

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.