Italian and German shares drop as EU agrees on gas rationing

German and Italian shares stood out as weak spots as the wider European market closed little changed on Tuesday, as investors digested a move by EU countries to approve an emergency plan to curb their gas demand. The move comes after Russia’s Gazprom said it would cut flows through the Nord Stream 1 pipeline to Germany to a fifth of capacity, seen as retaliation against western sanctions over Russia’s war with Ukraine.

Energy ministers approved a proposal for EU countries to voluntarily cut gas use by 15 per cent from August to March with compromise deals to reduce the cuts for some countries. Ireland and other island nations, Cyprus and Malta, secured an exemption from the plan.

“Europe is clearly preparing for the occasion that they would be fully cut off from Russian gas,” said Teeuwe Mevissen, senior market economist at Rabobank.

Dublin

The Iseq index fell by 1 per cent to 6,503.81, as investors also weighed the International Monetary Fund’s (IMF) cut of its euro zone growth outlook for 2022 to 2.6 per cent from 2.8 per cent in April, reflecting inflationary spillovers from the war in Ukraine. Uniphar lost 8.4 per cent to €3.48 as the healthcare group accompanied news that it traded in line with expectations during the first six months of the year with comments about the uncertain economic backdrop. Permanent TSB edged 2.2 per cent higher to €1.38 ahead of the publication on Wednesday of its interim results. Housebuilders were out of sorts, with Cairn Homes down 2.2 per cent, while Glenveagh Properties lost 1.1 per cent.

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London

The FTSE 100 was flat at close after rising as much as 0.8 per cent in early trading, with oil major Shell and miner Glencore among the top boosts as commodity prices climbed on the back of a softening dollar. Unilever shares rose 2.9 per cent to their highest in more than seven months after the consumer giant raised its full-year sales guidance as it hiked prices to counter soaring costs.

“With the cost of living soaring, consumers are really having to make that choice around where they spend their pound/euro/dollar,” said Nicola Morgan-Brownsell, fund manager at Legal & General Investment Management. “The majority will have to be on maintaining the basics in life.”

Vodafone fell 5.2 per cent after UBS and JP Morgan cut the telecom operator’s target price.

Europe

Germany’s DAX fell by 0.9 per cent and Italy’s FTSE MIB index slipped 1 per cent on Tuesday. A rally in defensive sectors such as healthcare, food and beverages was offset by a slide in retailers and Swiss bank UBS following a profit miss. Retail stocks lost 4.2 per cent to log its worst day in nearly four months, hit by a profit warning from top US retailer Walmart Inc, which cited surging prices for food and fuel affecting discretionary demand. However, Lindt & Spruengli gained 5.7 per cent after the Swiss chocolate maker raised its 2022 sales guidance and unveiled a 1 billion Swiss franc (€1.03bn) share buyback programme.

New York

US stock indexes were lower in early afternoon trading after Walmart’s profit warning heightened fears in the retail sector that consumers were cutting back on discretionary spending in the face of decades-high inflation. Shares of Walmart slumped, while those of Target and Amazon.com also fell. In a sign of rising pressure to shore up profit amid higher costs, Amazon said it would raise fees for delivery and streaming service Prime in Europe by up to 43 per cent a year. Investors were also bracing themselves ahead of a Federal Reserve rates decision on Wednesday, with the US central bank widely expected to deliver a 0.75 of a percentage point interest-rate hike. Coca-Cola gained after the company raised its full-year revenue forecast, while McDonald’s Corp rose after beating quarterly expectations.

-Additional reporting, Reuters.