European shares fall and commodity prices ease after rally on Wall Street

European stocks fell, following their best day since March 2020, as a rally pinned on hopes of central bank support for markets and oil producers increasing output faded out.

The regional Stoxx 600 share index, which gained 4.7 per cent on Wednesday in a move that snapped four days of losses, lost 0.7 per cent in morning trade on Thursday. Germany’s Xetra Dax, which jumped almost 8 per cent on Wednesday, fell 1.2 per cent and the FTSE 100 in London lost 0.7 per cent.

Those equity market moves came ahead of the European Central Bank’s monetary policy statement in the afternoon. They also preceded an EU summit, where leaders will discuss a unified response to recessionary risks from energy price shocks driven by US sanctions curbing Russian supply after Moscow’s invasion of Ukraine. Russia is the world’s second largest crude oil producer and largest exporter of gas.

“The Ukraine crisis may not be a markets crisis yet but it could well be,” said Patrick Spencer, vice-chair of equities at RW Baird. “It is all about oil in my mind,” he added, as “when oil prices double in a year, recessions tend to follow”.

The ECB and US Federal Reserve, which have signed plans to withdraw policies of record-low interest rates and huge bond purchasing programs implemented during the coronavirus crisis two years ago, “are not going to bring back the punchbowl”, Spencer said. “We will not get the relief of more monetary stimulus.”

Brent crude rose 3.9 per cent to about $ 115 a barrel. The international oil benchmark had dropped 13 per cent in the previous session, as news emerged that the United Arab Emirates was set to encourage fellow Opec members to increase production.

Futures tracking TTF, the European wholesale gas contract, rose about 4 per cent to € 154 per megawatt hour after rising as high as € 335 on Monday.

“By far the most common question we have received from investors over the past 24 hours is whether the recovery in the markets yesterday is a first step in a more permanent turnround,” said Karl Steiner, chief quantitative strategist at SEB.

“We are less certain that the bottom has been reached,” he added. “The fact that the war would be resolved through negotiations after only a couple of weeks seems unrealistic.”

ECB governing council members, meanwhile, may emerge divided over whether to delay plans to withdraw emergency monetary policy measures implemented at the start of the pandemic. Although the war in Ukraine is a threat to economic growth, eurozone inflation has already hit a record high last month.

“We expect the ECB to confirm its intention to normalize policy later this year, even though the timing and speed of monetary tightening may have to be reassessed down the road,” said Frederik Ducrozet, a strategist at Pictet Wealth Management.

In Asia, Japan’s Topix rose 4 per cent in its best day since June 2020, while Australia’s S & P / ASX 200 gained more than 1 per cent. China’s benchmark CSI 300 index rose 1.6 per cent while in Hong Kong the Hang Seng index climbed 1.3 per cent.

Futures markets implied by the US’s S&P 500 share gauge would fall 0.4 per cent in early trades. On Wall Street on Wednesday, the S&P benchmark had climbed 2.6 per cent and the tech-focused Nasdaq Composite jumped 3.6 per cent.

The dollar index rose 0.2 per cent and the euro fell 0.2 per cent against the dollar to $ 1.105.