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Europe midday: Stocks hold their ground despite surveys pointing to contraction

By Alexander Bueso

European stocks were little changed despite the release of mixed survey readings for euro area manufacturing and services which some economists said pointed towards economic contraction in the third quarter.
Those results followed recent sharp gains for natural gas prices with Capital Economics’s Andrew Kenningham saying that for most major euro area countries “the terms of trade shock from higher gas prices this year will be bigger than both the 1974 and 1979 oil shocks.”

How exactly the gas shock played out would depend on many factors but both those oil shocks were followed by recessions, he pointed out.

At 1148 BST, the benchmark Stoxx Europe 600 index was down 0.13% at 432.62, France’s CAC 40 was edging up 0.01% to 6,378.90 and Germany’s DAX was 0.12% higher to 13,247.35.

In parallel, front-dated Brent crude oil futures were 1.47% higher to $97.95 a barrel on the ICE.

Overnight, Saudi energy minister, Prince Abdulaziz bin Salman, told Bloomberg that OPEC+ might act in the face of volatile prices, which he judged had disconnected from fundamentals.

Euro/dollar was little changed, trading 0.2% lower at 0.9923.

S&P Global’s composite Purchasing Managers’ Index tracking output from manufacturing and services in August printed at 49.2 (consensus: 48.9), which was down from a reading of 49.9 for July.

A separate gauge only for services undershot forecasts while that for factory activity came in ahead of them.

However, Andrew Harker, economics director for the survey compiler, said the recovery from the pandemic was ebbing away due to cost of living pressures and that factories saw another month of record inventory accumulation.

“The remainder of 2022 is therefore looking to be one of struggle for firms across the eurozone,” he added.

In equity markets, German utility Uniper gained ground after saying it will start electricity production 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.

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