Energy stocks boost European shares ahead of ECB minutes

By Anisha Sircar

(Reuters) -European shares firmed on Thursday on a boost from oil stocks ahead of minutes from the last policy meeting of the bloc’s central bank, although gains were capped on mounting concerns of a recession induced by an energy crisis.

The pan-European STOXX 600 rose 0.6% in early trade to 434.5, eyeing its best day in more than two weeks. Gains were broad-based, with energy shares jumping 1.1% to near 12-week highs as crude prices rose on mounting supply concerns. [O/R]

Germany’s DAX rose 0.6%. Data showed Germany’s economy expanded by 0.1% in the second quarter, beating expectations, while a separate survey showed business morale fell in August as uncertainty among companies remained high and the economy was set to shrink in the third quarter.

The benchmark STOXX index has lost about 11% this year as markets assess the impact of rapidly rising interest rates and raging inflation on consumer spending and company earnings amid the energy crisis.

“Our year-end target for the STOXX 600 is 410, but the downside risks are growing with higher natural gas prices and increased probability that Europe will fall into a recession,” said Sutanya Chedda, an equity strategist at UBS.

A Reuters poll is indicating that the STOXX 600 may fall to 425 points by year-end.

Russia will halt natural gas supplies to Europe via Nord Stream 1 for three days from Aug. 31, piling pressure on the region as it seeks to refuel ahead of winter.

Focus is also on minutes from the ECB’s July policy meeting, where it raised interest rates by a larger-than-expected 50 basis points.

“In light of significant inflation pressure, the ECB will deliver another relatively large interest rate step in September, but in October and December, we would expect the ECB to return to more moderate steps of 25 bps,” said Reinhard Cluse, chief European economist at UBS.

Money markets are now pricing in 100 bps of ECB rate hikes by October. A 50 bps hike is fully priced in for September, plus a small probability of a 75 bps move. [GVD/EUR]

Among individual stocks, Novartis rose 0.6% on plans to spin off the Swiss group’s generics unit Sandoz.

Norwegian Air Shuttle fell 7.3% following downbeat second-quarter numbers, while Finnish utility Fortum shed 2.8% after posting a second-quarter net loss of 7.4 billion euros ($7.4 billion), hit by losses at its German subsidiary Uniper.

(Reporting by Anisha Sircar in Bengaluru; Editing by Krishna Chandra Eluri and Anil D’Silva)