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European stocks muted as Germany pulls plug on Nord Stream 2 pipeline

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·Business Reporter, Yahoo Finance UK
·4-min read
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European stock markets react to Germany including Nord Stream 2 in sanctions.
European stock markets react to Germany including Nord Stream 2 in sanctions. Photo: JOHN MACDOUGALL/POOL/AFP via Getty Images

European stock markets recovered from initial sharp losses on Tuesday after Germany slammed the brakes on the approval process for its Nord Stream 2 pipeline.

Chancellor Olaf Scholz made the move after Russian president Vladimir Putin ordered troops into two breakaway regions of eastern Ukraine. He said Putin's actions were a "serious breach of international law".

Germany had been reluctant to include it in any sanctions, as the move will hurt its own gas supplies, however it had faced mounting pressure from the US and some other European countries.

In London, the FTSE 100 (^FTSE) closed 0.1% higher on the day, while the French CAC (^FCHI) ended flat, and the Frankfurt DAX (^GDAXI) lost 0.4% after tumbling as much as 2% lower in the morning thanks to its heavy energy dependence on Russia.

Investors are very much in risk-off mode, dumping commodity producers, particularly those with exposure to either Russia or Ukraine, as well as technology stocks, and travel and leisure.

Oil prices reacted sharply to the news, with Brent prices (BZ=F) pushing back up towards last week’s high, on the way to the $100 a barrel level. Gold prices (GC=F) also rallied back above $1,900 while the Japanese yen is also in demand.

UK prime minister Boris Johnson is chairing an emergency meeting to agree on a series of sanctions against Russia after the US imposed sanctions against the rebel territories.

Read more: UK public sector borrowing hits £2.9bn surplus in January

Victoria Scholar, head of investment at Interactive Investor said: “As tensions re-escalate between Russia and Ukraine, central banks are facing an increasingly complex conundrum, attempting to strike the balance between tempering inflation through tighter monetary policy while fending off a recession.

“This tightrope becomes even more difficult to walk when geopolitical uncertainty is thrown into the mix as an inflationary force through higher energy prices and equally as a potential recessionary force through the risk of conflict.”

She added: "If oil and gas prices continue to drive higher, central banks may be forced to accelerate their pace of tightening with the potential for a double rate hike at March’s lift-off date from the Fed.”

The Russian rouble dropped 3.3% on Tuesday, falling past 80 against the dollar, while Moscow’s stock markets plummeted to their lowest level in over a year.

The dollar-denominated RTS index fell as much as 6.4% to its lowest level since November 2020. It is now down 5.2% after yesterday’s 13% drop, while the rouble-based MOEX index has lost 4%.

Watch: Ukraine crisis: Russian invasion 'has begun', Sajid Javid tells Sky News

Across the pond, the S&P 500 (^GSPC) dipped 0.6% at the time of the European close, while the tech-heavy Nasdaq (^IXIC) was 0.9% down. The Dow Jones (^DJI) edged 0.8% lower after being closed for Presidents Day on Monday.

It came after the latest monthly survey from IHS Markit showed that the US economy has bounced back from the Omicron wave this month, however, inflation picked up. The flash US composite output index came in at 56.0, compared to 51.1 in January, at a two-month high.

"With demand rebounding and firms seeing a relatively modest impact on order books from the Omicron wave, future output expectations improved to the highest for 15 months, and jobs growth accelerated to the highest since last May, adding to the upbeat picture," Chris Williamson, chief business economist at IHS Markit, said.

"The service sector rebounded especially impressively, accompanied by a more muted upturn in manufacturing. Goods producers remain hamstrung by supply shortages which, although easing to the lowest since last May, continued to severely limit production growth, resulting in a further large rise in backlogs of work."

Asian stocks tumbled overnight, with the Nikkei (^N225) falling 1.7% in Japan, while the Hang Seng (^HSI) shed 2.7% and the Shanghai Composite (000001.SS) dipped 1% on the day.

MSCI's broadest index of Asia Pacific shares outside Japan all suffered its worst day of this month, off 1.7%.

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