LONDON: European shares closed sharply lower on Thursday as concerns over the impact of mounting sanctions against Russia weighed on sentiment even as a relentless rally in commodity prices boosted mining stocks.
The Europe-wide STOXX 600 index slipped 2.0%, having given up modest gains soon after the open. Travel and retail stocks led a broad-based decline.
But the mining index rallied 0.6% and hit its highest since 2008 in the session, as base metal prices hit fresh highs on worries sanctions against Russia over its invasion of Ukraine would hit supplies.
Worries about fallouts from the crisis stoking inflation and denting economic growth were particularly high in Europe where several countries are reliant on Russian gas supplies.
The STOXX 600 is on course to mark its third consecutive week in the red and its worst week since November.
“As the closest region to the conflict, Europe is the most jittery from a market sentiment perspective. We see an increased probability of a growth shock,” said Chi Chan, portfolio manager for European equities at Federated Hermes.
“The surge in commodity prices will be deflationary and squeezes real incomes so there will be a negative impact on consumer sentiment.”
A volatile session for oil after it surged to near decade highs saw Europe’s oil and gas sector slip 3.8%, retreating from a two-year peak.
Banks slid 1.6% to extend sharp falls earlier this week due to concerns about their exposure to Russia, as well as receding expectations of rate hikes from the European Central Bank.
French bank Societe Generale slumped 0.8% to hover near a near one-year low, after it warned of the possibility that Russia could strip the bank of its local operations. The lender has a $20 billion exposure to Russia - one of the largest among foreign lenders.
Germany’s DAX hit over one-year lows. Spain’s IBEX sank 3.7% dragged by utility stocks.
Utilities and autos were among the worst sectoral performers in Europe amid vague market speculation about the unwind of a $1 billion fund that is heavily skewed to the sectors.
The London Stock Exchange Group gained 9.6% after it said applying financial sanctions on Russia would have only a minor impact on its business.
Germany’s Lufthansa fell 8.2% after the airline said it could not provide a detailed outlook for 2022 due to the war in Ukraine and the pandemic.
Meanwhile, a survey conducted before the Ukraine conflict showed business activity across the euro zone accelerated sharply last month as demand soared, particularly in the bloc’s dominant services industry.
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