European Stocks Drop On Rising Recession Risks, Natural Gas Soars

Bridgette Randall
05 Sep, 2022
Frankfurt

Benchmark indexes in Europe fell sharply on the first day of a week on the rising fears of natural gas rationing and the growing possibilities of a recession. 

Crude oil prices rose 3% after Russia halted natural gas shipments through Nord Stream 1 following the G7 finance ministers pledge to implement a price cap on Russia's energy exports. 

Brent crude oil rose $2.49 to $95.11 a barrel and natural gas prices soared as much as 20% but closed up 12.7% to 241.75 euros a megawatt hour. 

Moreover, market sentiment was dented after the eurozone retail sales rose less-than-expected and the private sector contracted for the second month in a row and Switzerland's second quarter economic growth slowed more than estimated. 

Retail sales in the currency union increased 0.3% in July after falling 1.0% in June, the region's statistics agency Eurostat reported Monday. 

Sales declined 0.9% from a year ago, slower than 3.2% decline in June. 

The S&P Global said activities in the eurozone declined after the private service sector contracted, joining the manufacturing sector in August.  

The final composite output index dropped to an 18-month low of 48.9 in August from 49.9 in July. 

The preliminary estimate or flash reading was 49.2.

The DAX index declined 2.2% to 12,760.28, the CAC-40 index dropped 1.2% to 6,093.22, but the FTSE 100 index rose 0.1% to 7,287.43.    

The euro weakened after energy prices surged and traded at a new low of $0.99. 

The British pound also edged lower to $1.15, weakest since March 2020, after rising energy prices worsened the outlook for the embattled currency. 

Rising energy prices are expected to lift the U.K.'s inflation above 15% in 2023 and currency traders are fearing the pound to test its parity with the U.S. dollar. 

The latest government agency data showed that consumer price inflation picked up in the U.K. to 10.1% in July. 

Members of the Conservative Party elected Liz Truss as their next leader according to the voting results released by the party Monday. 

Truss, the next prime minister of the U.K. replacing Boris Johnson, faces 4-decade high inflation, faltering economy and the pound and growing voters' discontent with the political leaders.