Commodities, banks help European shares rise amid gas supply worries

LONDON: European shares rose on Friday as a rally in commodity-linked and bank stocks helped outweigh worries about economic growth and inflation, with Europe remaining on alert for a disruption to gas imports from Russia.

A Russian threat to cut off gas supplies to Europe unless buyers paid with roubles from Friday was averted for now, with Moscow saying it would not halt supplies until new payments are due later in April.

Worries about the fallout from the war, compounded by likely central bank tightening to control surging inflation, saw the pan-European STOXX 600 index mark its first quarterly loss in two years last quarter.

The index on Friday rose 0.5% higher. Banks gained 1.2% on the day with Spanish lender Santander firming 2.6% after reiterating its 2022 profitability target.

“Markets have been range-bound for the last few weeks, and received a boost today after Putin only followed through on his rouble threats in theory, ending a week of concern for investors that Europe could see lower gas flows,” said Craig Erlam, senior market analyst at OANDA.

Miners and oil stocks led gains on the day and leaped 18% and 14% respectively last quarter amid surging commodity prices due to the Ukraine war.

In Ukraine, Ukrainian forces were moving into territory abandoned by withdrawing Russian troops in the north as peace talks resumed on Friday. But in the southeast, which Russia now says is the focus of its operation, the Red Cross said it had been barred from bringing aid to the besieged city of Mariupol.

“Ultimately, we’re in a wait-and-see phase as we await developments in negotiations, clarity from central banks and the upcoming earnings season,” Erlam said.

Adding to nervousness, data showed euro zone inflation surged to 7.5% in March, hitting another record high months before it is set to peak.

“It seems increasingly likely that the ECB will accelerate its plans to tighten - we now think it will begin raising rates as soon as July and the deposit rate will reach around 1.5% by end-2023,” said Andrew Kenningham, chief Europe economist at Capital Economics.

Markets are pricing in 60 basis points of rate hikes by the end of 2022.

Technology stocks were among the worst performers last quarter on inflation worries, down 17%, and slipped another 0.3% on Friday.

In France, volatility could also stem from presidential elections due this month, though analysts do not expect much of an impact as President Emmanuel Macron is widely expected to be re-elected.

Among individual stocks, French catering and food services group Sodexo fell 9.5% on narrowing its full-year organic revenue growth forecast.