Energy supply crunch, COVID woes weigh on European stocks

By Susan Mathew

(Reuters) – European shares fell on Monday, gripped by investor concerns over energy supply crunch, while fresh COVID-19 cases in China and the discovery of a new coronavirus variant dented commodity-linked stocks.

Nord Stream I, the biggest single pipeline carrying Russian gas to Germany, starts annual maintenance on Monday. Flows are expected to stop for 10 days, but markets fear the shut-down might be extended due to war in Ukraine and could disrupt plans to fill storage for winter.

The pan-European STOXX 600 index broke a three-day winning streak to drop 0.8%, after posting its best week in seven on Friday.

Investors are worried about the effects on industries across the board, Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said, adding that if emergency plans implemented by the government include rationing, then they would really hurt growth within economies highly reliant on exports from Russia.

A complete halt of Nord Stream I would keep European gas prices higher for longer, piling pressure on the European Central Bank, which is set to increase its key interest rate later this month for the first time in more than a decade.

Uniper, among the first to flag a hit from falling Russian supplies, fell 7.6% as a dispute between Germany and Finland over the cost of rescuing the gas importer flared.

All major European sectors were in red, led by a 2.5% fall in miners as metal and iron ore ore prices slumped on worries about rising COVID-19 cases in Shanghai leading to more curbs.

Luxury stocks, which derive a chunk of their demand from China, slipped with LVMH losing 1.9%. [MET/L] [IRONORE/]

Markets have had a tough couple of weeks on recession worries, and the euro approaching parity with the dollar adds to investor worries about the hit to earnings. [FRX/]

Investor will be watching U.S. June inflation data due on Wednesday, after stronger-than-expected jobs data last week firmed the case for another 75-basis-point hike by the Federal Reserve this month.

“All we need now is a strong U.S. CPI print, and a 75bps hike from the FOMC later this month will be seen as the most likely outcome, very much reinforcing the fear that bringing inflation back to target will trump any concerns about slowing growth,” said Stuart Cole, senior macro strategist at Equiti Capital.

Among earnings, shares of Danske Bank and Wizz Air slipped 4% each after dour forecasts.

(Reporting by Susan Mathew in Bengaluru; Editing by Sherry Jacob-Phillips)