FX.co ★ Energy crisis causes fall of European stocks

On Wednesday, key European stock indices declined after a dramatic rise the day before. Negative investor sentiment is caused by frightening prospects of the energy crisis amid the permanent increase in gas prices. Moreover, stock market participants still fear that the euro zone economy may enter a recession due to continuing skyrocketing inflation.

At the time of writing, the STOXX Europe 600 index of Europe's leading companies fell by 1.15% to 409.60 points.

The French CAC 40 lost 0.41%, the German DAX decreased by 0.49%, and the British FTSE 100 declined by 0.65%.

Top gainers and losers

The shares of Spanish energy company Repsol S.A. fell by 1.9%. Earlier, the media had published the news that the company was selling 25% of its oil and gas exploration and production business to investment US firm EIG Global Energy Partners. The amount of the deal is estimated at $4.8 billion.

The stocks of Finnish air carrier Finnair Oyj rose by 0.4%. The day before, the company announced a new strategy to combat profitability problems by cutting costs and reducing the number of its crew.

The market capitalization of Ubisoft Entertainment S.A., a French company specializing in the development of computer games, collapsed by 8.6%. The news that Chinese private investment company Tencent Holdings Ltd. bought a minority stake in the holding company which controls the publisher of the famous Assassin's Creed series of video games became the key reason for decline in shares. Ubisoft Entertainment executives said that Tencent Holdings Ltd. purchased a 49.9% stake in Guillemot Brothers Ltd, the holding company of the Guillemot family who founded Ubisoft in 1986.

German electricity producer Uniper's stocks were down 6.3%. Germany's largest gas importer has been hard hit due to the Kremlin's decision to cut supplies of raw materials to Europe.

Shares of German supplier of equipment for the energy industry Siemens Energy AG declined by 5.9%. They remained at a 52-week low by the time of writing. Previously, Gazprom blamed Siemens for its inability to repair faults on its Trent 60 gas compressor unit and for halting exports of Russian gas to the eurozone.

Market sentiment

On Wednesday, European investors are focused on the permanently worsening crisis on the global energy markets. Since the start of the week, gas prices have been under pressure due to disruptions in logistical chains from Russia to Europe.

In late August, global gas prices soared above $3,500 per 1,000 cubic meters, hitting new historical records several times. The reason for this dramatic rise was Gazprom's announcement that one of major gas pipelines to Europe Nord Stream would shut down for three days to perform maintenance.

However, the scheduled maintenance work did not end. Meanwhile, Russia canceled the deadline for resuming gas supplies through the pipeline. Gazprom attributed this fact to malfunctions on the Trent 60 gas compressor unit due to oil leak.

Currently, the Nord Stream pipeline has been operating at only 20% of its capacity and its recent shutdown has raised fears about Europe's energy supply ahead of winter.

Experts believe that permanently rising energy prices will further fuel inflation in the eurozone, which is already rapidly approaching double digits.

On Wednesday, European investors focused on Germany's statistics. According to the Federal Statistical Office, the volume of industrial production in Germany reduced by 0.3% month-on-month in July as compared to June.

Moreover, experts awaited a 0.5% decline in July. According to the revised data, the volume of industrial production in Germany grew by 0.4% in June. A significant growth of industrial production in the country is still limited by high shortages of raw materials and disruptions in supply chains. At the same time, the school vacations in Germany started late in 2022. It means that the traditional summer production decline was smaller than expected.

Additional eurozone data will be released on Wednesday evening. Therefore, later the news about the amount of gross domestic product (GDP) for April-June in the EU countries will come. It is expected that the final figure will show deterioration of the economic situation in the euro area.

This week, eurozone stock market participants are focused on the European Central Bank's meeting scheduled for Thursday. The regulator's board of governors will likely raise the interest rate for the second time at the upcoming meeting to prevent economic conditions from further deterioration. Notably, as part of its July meeting, the central bank raised its benchmark rate by 50 basis points for the first time since 2011.

Previous trading results

On Tuesday, European stock indices rose dramatically. The main reason for positive market sentiment was Germany's strong corporate indicators.

Consequently, the STOXX Europe 600 index of Europe's leading companies increased by 0,24% up to 414,38 points. At the same time, the shares of German food delivery service Delivery Hero SE were top gainers among STOXX Europe 600 components. They added 7.7%. Moreover, the largest energy companies in the euro area, including Equinor, Orron Energy, and Uniper SE topped the list of losers. They lost 6.7%, 6.3%, and 5.7% respectively.

Meanwhile, the French CAC 40 gained 0.19%, the German DAX rose by 0.87%, and the British FTSE 100 advanced by 0.18%.

Shares of German carmaker Volkswagen AG soared by 3.7%. Volkswagen Chief Financial Officer Arno Antlitz said on Tuesday that German carmaker Porsche IPO could take place as soon as late September or early October. It is scheduled that up to 25% of preferred shares will be placed on the stock exchange, i.e. 12.5% of the share capital. Thus, the Porsche IPO may become the largest in the history of Europe's stock exchanges.

Stocks of German air carrier Deutsche Lufthansa AG rose by 1.5%. The day before, CEO Carsten Spohr announced that Deutsche Lufthansa intended to hire about 20,000 new employees by the end of next year amid a permanent industry recovery after the COVID-19 pandemic. Moreover, Deutsche Lufthansa plans to continue negotiations with the pilots' union in order to avoid a strike, which could provoke cancellation of many flights.

The market capitalization of Finnish carrier Finnair Oyj rose by 1.1% even though the number of carried passengers fell by 12% in August compared with June.

The shares of Russian mining company Polymetal International PLC increased by 7.4%.

The shares of British bakery chain Greggs PLC added 6.7%.

The market capitalization of Swiss financial conglomerate Credit Suisse gained 2.3%. Earlier, news broke that the banking giant was selling its global trust units to Bank of N.T. Butterfield & Son Ltd. and Gasser Partner Trust.

On Tuesday, European investors were focused on Germany's corporate news. The day before, the Federal Ministry for Economic Affairs reported that the volume of orders of industrial enterprises in Germany declined by 1.1% month-on-month in July compared to June. In July, the index fell for the fifth month in a row. This dynamics of European production was another proof of the downward trend since the start of the Ukrainian crisis in February.

Moreover, experts had expected a 0.5% decline in July. According to the revised data, manufacturing orders of German industrial enterprises sank by 0.3% in June, not by 0.4% as previously reported.

On Tuesday, the Reserve Bank of Australia raised its target interest rate by 50 basis points to 2.35%. The increase was the highest since 2014 and the fifth in a row in 2022.

The day before, British Foreign Secretary Liz Truss met with Queen Elizabeth II to confirm her as the country's next prime minister. Earlier, Truss had promised voters tax cuts and support for households facing huge energy bills.

Notably, Liz Truss won the race for Conservative Party leader in early September, beating her rival, former Finance Minister Rishi Sunak.