European shares slip on fears of energy supply shortage

By Susan Mathew

(Reuters) -European shares fell for a second session on Tuesday, hit by worries about an energy supply crunch, while rising COVID-19 cases in China exacerbated fears of a global recession.

The pan-European STOXX 600 index fell 0.4%, with healthcare, technology and luxury stocks weighing the most. Real-estate stocks slid 1.5%.

Worries are high that a maintenance shutdown of the Nord Stream 1 pipeline from Russia to Germany could get extended due to the Russia-Ukraine war, affecting the region’s energy supplies.

Investors are concerned about Russian President Vladimir Putin potentially weaponizing gas in retaliation to Western sanctions over its invasion of Ukraine, said Andrea Cicione, head of strategy at TS Lombard.

“This could get worse and people kind of expect it, but it’s not fully in the price yet,” he said.

European gas prices would then remain higher for longer, adding to eurozone inflation already at record highs, and piling more pressure on the European Central Bank, which is expected to hike interest rate by at least 25 basis points this month.

Meanwhile, miners dipped 0.8% as several Chinese cities imposed fresh COVID-19 curbs to rein in new infections, in what could be another hit to economic growth in the world’s second-biggest economy and top metal consumer.

The STOXX 600 has fallen in five out of the last six months on recession fears. Asset manager BlackRock said on Monday it has reduced its exposure to developed market equities as it expects volatility amid central banks’ attempts to temper inflation.

In the United States, June inflation data is expected to come in hot on Wednesday, strengthening bets of another 75 bps interest rate hike later this month.

Oil stocks eked out small gains despite falling crude prices. “Energy still remains a popular hedge against geopolitical uncertainty,” said UBS in a note. [O/R]

“We expect commodity prices to stay high. Amid the ongoing war in Ukraine, the sector also acts as a hedge against sanctions constraining supply availability across different commodities.”

Among individual stocks, power giant EDF jumped 5.3%, after sources said the French government is poised to pay more than 8 billion euros ($8.05 billion) to bring the company back under full state control.

Swedish cloud communications company Sinch slumped 19.9% extending declines after a short-seller report.

Italy’s Saipem plummeted after the energy services group said investors had subscribed for only around 70% of the new shares it was issuing in a 2 billion euro cash call.

(Reporting by Susan Mathew in Bengaluru; Editing by Rashmi Aich and Arun Koyyur)