Europe close: Stocks gain as weak US jobs report boosts Fed rate cut expectations

European stocks ended in the green on Friday as a disappointing non-farm payrolls report fuelled hopes of a rate cut by the US Federal Reserve, helping to offset some weak German data.

The benchmark Stoxx Europe 600 index closed up 0.9% at 377.48, Germany's DAX rose 0.8% to 12,045.38 and France's CAC 40 was 1.6% firmer at 5,364.05.

Figures released by the US Department of Labor earlier showed that non-farm payrolls rose by 75,000 in May, falling short of the consensus forecast for a rise of 190,000. Meanwhile, gains for the previous two months were revised down by a combined 75,000.

Average hourly earnings also missed economists' forecasts, with the year-on-year rate of increase slipping from 3.2% to 3.1%.

Chris Beauchamp, chief market analyst at IG, said: "Investors continue to pile into equities, with the jobs report and subsequent stock rally capping a very good week for equity markets. The headline figure provided reason for concern, although it was still higher than the ADP shocker of earlier in the week, but it is still towards the lower bound of results, which usually tend to oscillate between 100K and 300K.

"This number won’t spook the Fed into cutting rates any time soon, but it perhaps gets filed away in ‘things to monitor’, along with the slight drop in wage growth. Having recouped some of May’s losses, equities look primed for more upside, especially if some of the money that has gushed out of equity funds over the past few weeks starts to come back. Investors once again look to have panicked too early, taking flight at a perfectly normal pullback, and one that came right after a relentless 20% rally in the first four months of the year."

Investor sentiment was also underpinned by news that the US government was granting Chinese exporters two more weeks to get their products into the US before lifting tariffs on those items. However, the White House also said that the 5% tariffs on Mexican imports were still due to go ahead on Monday.

On the economic front, investors were digesting more weak data out of Germany.

Figures released by Destatis showed German industrial production fell much more sharply than expected in April.

Industrial production slumped 1.9% on the month in April compared to a 0.5% increase the month before and versus expectations for a 0.4% decline. On the year, industrial output was 1.8% lower versus a 0.9% drop in March and expectations of a 1.7% fall.

Claus Vistesen at Pantheon Macroeconomics said a setback had been expected given the "strong" output seen over the first quarter.

But Vistesen added: "It is too soon to say anything conclusive about the second quarter as a whole, but we fear that production will fall outright on the quarter, dragging GDP growth down after an otherwise solid start of the year."

In other German news, the Bundesbank slashed its forecast for economic growth in 2019 to 0.6%, forecasting a downturn in factory production on the back of lower exports. Its new projection was down from the 1.6% pace of expansion of which it had predicted in December.

Germany's central bank expected a moderate rebound in GDP growth in 2020 to reach 1.2%, but lowered its forecast for CPI inflation next year from 1.8% to 1.5%.

In corporate news, a trading halt was imposed on shares of Mediaset's Spanish-listed subsidiary after speculation that its parent company was looking at how to integrate further sent them soaring. Mediaset reportedly denied having any plans that might result bid for full control of the unit.

Elsewhere, Sanofi rallied after the French drug giant managed to pinch rival Novartis executive Paul Hudson as its new chief.