European markets mixed as Germany triggers emergency gas plan

  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
European markets
European markets were mixed as Germany declares an 'early warning' for gas emergency. Photo: John MacDougall/AFP via Getty

European stocks were mixed on Wednesday after Germany declared an "early warning" for gas emergency as a Russia deadline to pay for supplies in rubles looms.

The FTSE 100 (^FTSE) rose 0.2% despite European stocks edging lower. France’s CAC (^FCHI) was 1.1% lower and the DAX (^GDAXI) lost 1.7% in Frankfurt.

It comes as Germany activated an emergency gas plan as Russian president Vladimir Putin threatened to cut supplies if payments are not made in rubles, something which the G7 has rejected. Russia is attempting to prop up the currency after economic sanctions sent it crashing.

German economy minister Robert Habeck urged firms and consumers to reduce energy consumption wherever possible but said there was currently no supply shortage. Habeck said the country was monitoring flows with market operations.

The move could see the bloc's largest economy switch to biogas as it braces to ration supplies. Russia accounted for 55% of German gas imports last year, falling to 40% in the first quarter of 2022. Habeck added Germany will not achieve full independence from Russian gas before mid-2024.

The announcement fuelled a spike in natural gas prices, rising over 10% at 120p per therm as Moscow doubled down on ruble payments. The UK equivalent rose more than 9%.

"Higher commodity prices have rescued the FTSE 100 today, which has escaped the losses prevailing in continental indices," said Chris Beauchamp, chief market analyst at online trading platform IG. "The prospect of heavy pressure on European consumers from higher energy prices is driving down the Dax and others, although the FTSE 100 has escaped the worst of it for now."

Watch: Why are gas prices rising?

Meanwhile, the European Central Bank (ECB) warned that the bloc faces slower growth and higher inflation as the Ukraine war saps confidence and pushes up energy prices.

President Christine Lagarde said that households are already becoming pessimistic, with living costs set to spiral while business investment is also likely to take a hit.

The warning came as Spanish inflation soared at its fastest pace in nearly 40 years to 10% as the invasion of Ukraine pushed up energy bills.

German inflation jumped to its highest level since records began after reunification in the early 1990s. Consumer prices beat expectations. surging 7.6% in March from the year before, and from 5.5% in February.

Read more: Oil prices dip as Shanghai enters phased COVID lockdown

While crude extended losses, prices pared back heavy declines on Wednesday, amid tight supply fears and the likelihood of additional Western sanctions against Russia even as the latest round of peace talks between Moscow and Kyiv seemed fruitful.

Brent crude (BZ=F) rose 3.4% to $113.95 a barrel. US light crude (CL=F) was 3.3% higher to $107.65 in electronic trading on the New York Mercantile Exchange at the time of writing.

"Despite the transatlantic progress, oil prices have nudged higher again this morning – the first such move in three days," said Sophie Lund-Yates, lead equity analyst at Hargreaves and Lansdown. "It shouldn’t be forgotten though, the overall trend is still a downwards one from the highs experienced in recent weeks."

Brent crude rose 3.4% to $113.95 a barrel in afternoon trade on Wednesday in London. Chart: Yahoo Finance
Brent crude rose 3.4% to $113.95 a barrel in afternoon trade on Wednesday in London. Chart: Yahoo Finance

Across the Atlantic, US benchmarks opened in the red after rallying for two consecutive sessions after Treasury yields flashed a recessionary warning sign and optimism about a de-escalation of the war fade.

Wall Street’s S&P 500 (^GSPC) declined 21.32 points, or 0.5%, to 4610.28. The tech-heavy Nasdaq (^IXIC) fell 0.8%. The Dow Jones (^DJI) ticked 0.2% lower at London's close.

In government bond markets, the US two-year yield briefly surpassed the 10-year note (^TNX) on Tuesday for the first time since 2019. Typically, government bonds with longer terms offer higher yields. The move is historically tracked as a predictor of a recession, it is also a gauge of future interest rates and underpins global borrowing costs.

"An inverted yield curve of this sort is usually a pretty good recession indicator for the US, in 50 years it’s never missed. Typically, it takes about 18 months to come good," said Neil Wilson, chief market analyst at Markets.com.

Read more: Cost of living crisis: UK shop prices rise at highest rate since 2011

Overseas markets rebounded following a strong bounce on Wall Street and a surge in Europe on hopes of a resolve in the Ukraine conflict. The MSCI’s broadest index of Asia-Pacific (AAXJ) shares excluding Japan was up 1.8%.

Asian stocks were mixed overnight with the Nikkei (^N225) bucking the trend, declining 0.8% in Japan, while the Hang Seng (^HSI) edged 2% higher in Hong Kong and the Shanghai Composite (000001.SS) gained 1.8%.

Watch: How does inflation affect interest rates?