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European stocks were giving back a portion of a powerful prior-session rally on Thursday, ahead of a key European Central Bank meeting, and as oil prices turned higher.
The Stoxx Europe 600 index
SXXP,
fell 1.2% to 428.99, following a 4.6% surge on Wednesday, the biggest one-day percentage gain since an 8.4% jump on March 24, 2020. The German DAX
DAX,
fell 1.2%, on the heels of a 7.9% rally, also its best since that March date. The French CAC 40
PX1,
fell 1.4% and the FTSE 100 index
UKX,
dropped 0.7%.
U.S. stock futures
ES00,
NQ00,
also pulled back after the S&P 500 logged its best session since June. The global equity rally came amid a 13% slump in oil prices, reversing a similar gain in the prior session the U.S. announced a ban on Russian energy imports.
Some views that global markets have oversold, and optimism ahead of high-level talks between Ukraine and Russia on Thursday also helped push markets higher on both sides of the Atlantic.
Russia has come under fresh criticism over its two-week old invasion of Ukraine after a maternity hospital was shelled on Wednesday.
War in Ukraine: Russia steps up siege, hitting hospitals as Turkey set for high-level talks
At its meeting on Thursday, the European Central Bank is facing a mountain of worries, ranging from spiraling inflation and energy costs to the fallout from the biggest land conflict in Europe since WWII that has led to the exodus of more than 2 million refugees.
“There are two forces that will be strongly playing against each other due to the war. First, the war will certainly slow down the post-pandemic economic recovery and the businesses will need support to keep their head above water,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
“But then, the war will also boost the already high inflation through significantly higher energy and commodity prices, and will limit the ECB’s scope of action – even more so as the EU countries are now preparing to issue a massive joint bond, which would further boost inflation and leave the ECB between a rock and a hard place,” said the analyst.
Goldman Sachs on Thursday cut its euro-area growth forecast for 2022 to 2.5% from 3.9%, citing direct fallout from the Russia-Ukraine war. They gave four reasons, including recent tightening of financial conditions, trade spillovers linked to Western companies pulling out of Russia and the ongoing hit from rising energy prices.
“Fourth, we anticipate production cuts due to further energy supply disruptions from Russia given the dependence of the Euro area on Russian oil and gas, especially in Germany and Italy,” said a team led by chief European economist Sven Jari Stehn, in a note to clients on Thursday.
Shares of Credit Suisse
CS,
fell 1.9%. The Swiss lender said its net credit exposure to Russia stood at 848 million Swiss francs ($915.2 million) as of Dec. 31, though that has been reduced since.
Among stocks on the move, shares of major energy companies rose alongside oil prices, with Shell
SHELL,
SHEL,
and TotalEnergies
TTE,
TTE,
up more than 1% each.
Bayer
BAYN,
shares fell 0.8%. The German multinational pharmaceutical and life sciences company said it would sell its environmental science business to private-equity firm Cinven for $2.6 billion.
