Stocks rise cautiously amid Russia’s gas cut

European stocks are set to open higher despite weakness on Wall Street, which saw US stocks sink to a six-week low and despite Russia briefly cutting gas supply to Poland and Bulgaria.

•         Nasdaq closed 3.2% lower towards a 5 year low on Fed & China fears
•         Gas prices spiked as Russia cut supplies to Poland, EURUSD hits 5 year low
•         Lloyds posts stronger than expected pre-tax profit £1.6 billion

Wall Street fell firmly yesterday, with the Nasdaq once again bearing the brunt of the pain. The tech-heavy index dropped over 3%, heading towards a five-year low. Once the darlings of Wall Street, tech stocks are now firmly out of favour, owing to a toxic cocktail of factors. 

Fears of the Fed adopting a more aggressive path to tightening monetary policy have been one of the main factors sending tech stocks 20% lower from their January highs. Then COVID cases in China will ensure that supply chain disruptions will be ongoing, and the war in Ukraine is keeping inflation elevated. After Netflix, which looks to have been a make or break moment, confidence in tech is waning.

Tesla fell 10%, with the share price now down some 23% since Elon Musk unveiled his Twitter stake amid concerns that Musk could sell shares to complete the $44 billion takeovers of the social media company. Concerns over slower global growth and persistent inflation are also dragging on the firm.

Gas supplies briefly cut

In Europe, stocks are set to open higher despite escalating EU- Russian tensions. Russia briefly cut off gas to Poland and Bulgaria overnight amid the standoff over energy supplies and the gas price spiked. Putin briefly made good on his threat to stop gas to those countries that refuse to pay for fuel in rubles. While the relief rally is lifting stocks today, Russia’s willingness to shut off Europe’s energy supply could accelerate Europe’s efforts to move away from Russian energy dependency.

Governments across Europe appear to be making preparations for shifting away from Russian oil, with Germany saying that a Russian oil embargo would be manageable.

Reflecting growing fears surrounding the outlook, German consumer sentiment is set to tumble further in May. Consumer confidence dropped to -26.5, down from -15.7 in April falling to a historic low. The Ukraine war has dealt a huge blow to morale. Weaker consumer confidence is likely to start affecting consumer spending habits going forwards.

EURUSD has fallen to its lowest level in 5 years at 1.0622 and could fall further.

Lloyds

Lloyds could push higher on the open after reporting stronger than expected Q1 profits. The UK’s largest lender reported pre-tax profits of £1.6 billion, down from £1.9 billion last year but ahead of the£1.4 billion forecast.

The domestically-focused bank benefited from the economic rebound from the pandemic, continued strength in the housing market, and the BoE hiking interest rates. It meant that the bank was able to lift its net interest margin outlook despite the UK's uncertain outlook. The upbeat results were in stark contrast to HSBC’s results, which saw Europe’s largest bank shelve plans for new stock buybacks.

Looking ahead, earnings are likely to remain in focus, with Facebook parent Meta, Spotify, PayPal, and Boeing all set to report later today.