Gas price surge, recession fears weigh on European shares

European shares slipped on Tuesday as investors fretted about soaring energy prices and a weak economic outlook after data showed business activity in the region contracted this month.

The pan-European STOXX 600 slipped 0.1%, paring some losses following the S&P Global (NYSE:SPGI)’s flash Composite Purchasing Managers’ Index (PMI) data for August.

Euro zone business activity contracted for a second consecutive month in August as the cost of living crisis forced consumers to cut spending while supply constraints hurt manufacturers, the survey showed.

In Germany, the downturn deepened in August, as companies saw demand weaken due to high inflation, rising interest rates and economic uncertainty. Separately, the manufacturing index rose to 49.8 in August from 49.3 the previous month, beating analyst forecasts of 48.2. Germany’s DAX rose 0.3% after the data.

“Problems are mounting for the French and German economies, as a fresh snapshot shows demand has fallen due to a toxic combination of factors,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (LON:HRGV).

“But investors seem to have grasped onto data which indicates some easing of supply snarl ups and input cost inflation. Hopes that there could be some respite in sight seems to have helped consumer cyclical stocks in particular.”

Autos and banks rose 1.0% and 0.3% each, while energy led gains, rising 1.3% as crude prices rose on concerns over tight supply. [O/R]

Benchmark gas prices in the European Union surged 13% overnight to a record peak, having doubled in just a month to be 14 times higher than the average of the past decade. Russia will halt gas supplies to Europe via the Nord Stream 1 pipeline for three days at the end of the month. [NG/EU]

Overall, uncertainty reigns ahead for European markets, as it is feared the energy crunch could worsen, Streeter added.

Market nervousness is also set to persist ahead of the Jackson Hole meeting of global central bankers on Friday, analysts say, as investors await U.S. Federal Reserve Chair Jerome Powell’s hints on the path ahead for monetary policy in the world’s largest economy.

Among stocks, German utility Uniper SE rose 1.4% after saying it would start producing electricity for the market at its Heyden 4 hard-coal-fired power plant as a three-day halt in Russia’s gas supplies to Europe may cause disruptions to power supply.

Alcon AG rose 0.9% after saying it would acquire Aerie Pharmaceuticals in a deal valued at about $753 million.