European shares struggle for direction as crisis in Ukraine deepens

By Susan Mathew

(Reuters) – European shares were flat on Friday and were set to end the week lower, as the escalating Russia-Ukraine conflict kept investors cautious heading into the weekend.

Declines in financial and energy stocks countered gains in technology <.SX8P> and defensive sectors, leaving the pan-European STOXX 600 index 0.05% lower, in what could be its third straight session in the red.

After two weeks of gains, the STOXX 600 was set close about 0.4% lower this week, as lofty energy prices from sanctions on Russia fanned inflation fears and stoked worries about slowing economic growth.

“We saw quite a significant rally in stocks in the middle of the Ukrainian war. What we’re seeing now really is that the market is losing a little bit of that confidence again,” said Elwin de Groot, senior market economist at Rabobank.

German business morale deteriorated in March due to worsening supply chain issues resulting from high petrol prices as well as driver shortages, but the country is not facing a recession in the first quarter due to the Ukraine war, the Ifo institute said on Friday.

London’s energy heavy FTSE 100 underperformed, down 0.3%, as a slide in crude prices weighed on oil and gas shares, which have been very well-bid since the war. [O/R] [.L]

The West imposed more sanctions on Russia on Thursday, and Washington was planning a response in the event that Moscow uses nuclear weapons as it struggles to fight Ukraine’s defences with the war entering a second month.

The day’s moves tipped the STOXX 600 into the red for March, in what could be its third straight month in negative territory.

“Equities are seen as a relatively good hedge in case of inflation, but the type of inflation that we’re currently seeing is a supply shock, which is unlike the demand destruction caused by COVID-19,” said de Groot.

“In a broad sense, you can question whether companies can sail through this without any damage.”

Chipmakers gained, with Infineon and STMicroelectronics up 2.9% and 1.9%, respectively.

Moody’s said on Thursday it does not foresee additional disruptions in semiconductor manufacturing due to Ukraine producing less neon gas.

Telecom Italia, which is reported to be receiving a bid for some assets from private equity firm CVC amid a takeover bid from KKR, rose 2.7%

Generali jumped 1%, lifted by a new plan for the insurer that targets higher growth.

(Reporting by Susan Mathew in Bengaluru; Editing by Sriraj Kalluvila and Maju Samuel)