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Stocks fall amid fears over EU gas supplies as Russian troops seize Ukraine facilities

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Stocks
Natural gas pipeline at a gas-compressor near Kyiv, Ukraine. European stocks lost ground on Thursday after a blistering rally the previous session. Photo: STR/NurPhoto via Getty Images

European stocks were in the red on Thursday amid fresh concern over gas supplies to the EU after Ukraine said Russian troops seized several facilities in the country.

In London, the FTSE 100 (^FTSE) closed in the red, losing 1.4%, while the French CAC (^FCHI) fell 2.9% and the DAX (^GDAXI) was 3% lower in Frankfurt.

Ukraine’s grid operator (OGTSU) said Russian troops had entered two of four stations that pump gas to the continent, posing a potential threat to smooth gas transit to Europe.

Large amounts of gas are piped from Russia through Ukraine to the EU, meaning that disruptions pose risks of shortages and will add to inflationary pressures.

Shipments via a key route crossing Ukraine are set to remain normal today as Russian energy giant Gazprom (GAZP.ME), which is sending gas intermittently via the Yamal-Europe pipeline, said flows via Ukraine are in line with client requests.

That's reassuring markets amid concerns Moscow could cut gas supplies to Europe in retaliation against sanctions. Countries are preparing plans to wean themselves off Russian energy, but a halt in supplies would send prices even higher.

London's bluechip index was dragged by Russian steelmaker Evraz (EVR.L), after shares in the firm crashed following new sanctions against its largest shareholder, Chelsea FC owner Roman Abramovich. Trading in Evraz shares was temporarily halted on Thursday after a sharp sell-off.

"While volatility is likely to persist, the rise in equities on Wednesday offers a reminder that markets can turn swiftly," said Mark Haefele, chief investment officer at UBS Global Wealth Management. "It also underlines our view that simply selling risk assets is not the best response to the war in Ukraine."

Read more: Oil prices fall after UEA backs pushing OPEC to increase outputs

The European Central Bank (ECB) held euro zone interest rates at their record lows on Thursday but said that it will make an earlier exit from its economic stimulus program as it tackles rising inflation.

The ECB said it will "take whatever action is needed" amid the war in Ukraine and inflation uncertainty.

The central bank’s benchmark refinancing rate remains at 0%, the rate on its marginal lending facility sits at 0.25% and the rate on its deposit facility was kept at -0.5%.

It also raised its inflation outlook and cut its growth guidance, in the first taste of the economic fallout from war in Ukraine, as the conflict looks to keep commodity prices higher and curb consumers and firms' spending power.

ECB president Christine Lagarde said inflation will rise to more than twice its 2% target in 2022, with price growth holding above its objective next year too. Inflation was set to average 5.1% this year – above the 3.2% predicted in December. In 2023 it's expected to fall back to 2.1%, though this is still above a previous forecast of 1.8%.

GDP growth for this year is now forecast at 3.7%, down from 4.2% previously.

"This wasn’t a surprise, however given what is happening with inflation, the central bank signalled it would be tapering its asset purchase program steadily over the summer, with a view to ending it in Q3," said Michael Hewson, chief market analyst at CMC Markets. "This was a little unexpected as was the ECB removing the language that rates could be lower than they currently are."

Read more: What higher inflation means for savers and investors

Crude prices stabilised after dropping as much as 17% overnight. It came after Ihor Zhovkva, an aide to Ukrainian president Volodymyr Zelenskiy, said the country is open to Russia’s demand of neutrality as long as it’s given security guarantees.

A dramatic U-turn by the United Arab Emirates (UAE) also caused some market volatility.

The UAE said it would call on its OPEC+ members, led by Saudi Arabia and Russia, to boost oil output at a quicker rate. "We favour production increases and will be encouraging Opec to consider higher production levels," Yousef al-Otaiba, the UAE’s ambassador to Washington told the Financial Times.

However, the country’s energy minister Suhail Al-Mazrouei attempted to temper the message on Twitter, saying the UAE is committed to the OPEC+ agreement.

Brent crude (BZ=F) rose 3.1% to $114.61 a barrel. US light crude (CL=F) was 2.2% higher to $111.04 in electronic trading on the New York Mercantile Exchange at the time of writing.

Meanwhile, gold (GC=F), an asset that investors perceive as a safe haven, lost over $50 a troy ounce, or 2.6% to $1,984, the largest one-day dollar and percentage decline since June 2021.

The International Monetary Fund (IMF) approved $1.4bn in emergency financing to help Ukraine deal with the "massive humanitarian and economic crisis" caused by Russia’s invasion.

Managing director Kristalina Georgieva said the package provides "critical financial support" which allow for a "large-scale mobilisation" of funding needed to cope with the economic effects of the crisis.

A US aid package for Ukraine grew to around $14bn as lawmakers put the finishing touches on a $1.5trn government-wide spending bill leaders hope Congress will pass by the end of this week. The package will provide military, humanitarian and economic aid to the region.

Read more: Oil rally cools as IEA vows to release more reserves

Across the pond, US benchmarks have trimmed their losses after inflation figures for February came in exactly in line with expectations, boosting expectations of an interest rate hike next week.

Wall Street’s S&P 500 (^GSPC) fell 31.26 points, or 0.7%, to 4246.62. The tech-heavy Nasdaq (^IXIC) lost 1.3%, and the Dow Jones (^DJI) dropped 0.5%.

The latest snapshot of US inflation shows that the headline consumer price index (CPI) has risen to a new 40-year high, with the crisis in Ukraine now threatening to push prices even higher.

The widely-followed inflation gauge rose 7.9% year-on-year in February from 7.5% in January, this was in line with market expectations. CPI was driven by higher petrol, food and shelter costs.

Meanwhile, the latest figures on US employment showed the labour market is still under strain.

Initial claims for state unemployment benefits increased 11,000 to 227,000 for the week ended 5 March. Economists had forecast 217,000 applications for the latest week. Claims have dropped from a record high of 6.1 million in early April 2020.

Read more: What Biden's new law could mean for crypto investors

The Moscow Exchange (IMOEX.ME) remained shut for the 11th day. Stocks last traded on 25 February. This marks the longest market closure in the country's history as officials attempt to stave off financial collapse when trading resumes.

The Russian Ruble (RUBUSD=X) slightly stabilised after dropped to an all-time low against the US dollar, currently trading $120.10 against the greenback.

Overseas markets rebounded following a strong bounce on Wall Street and a surge in Europe. The MSCI’s broadest index of Asia-Pacific shares excluding Japan was up 2.8%.

Asian stocks were in the green overnight with the Nikkei (^N225) rising 4% in Japan, while the Hang Seng (^HSI) edged 0.8% higher in Hong Kong and the Shanghai Composite (000001.SS) gained 1.3%.

Watch: How does inflation affect interest rates?

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