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FTSE retreats from three-week high as Putin threatens to slash gas supplies

Pipes at the landfall facilities of the 'Nord Stream 1' gas pipeline. The FTSE is down on the day
The FTSE fell as Putin threatened to slash gas supplies through Nord Stream pipeline by 80%. Photo: Reuters/Hannibal Hanschke

European stock markets fell on Wednesday as Russian president Vladimir Putin threatened to slash gas supplies to the bloc through a key pipeline by as much as 80%.

In London, the FTSE 100 (^FTSE) was down 0.4% bythe end of the day, retreating from its three-week high after opening, while the CAC (^FCHI) also lost 0.2% in Paris, and the DAX (^GDAXI) was 0.3% down in Frankfurt.

It came as the Kremlin said it will restart flows through the Nord Stream link once maintenance work is completed on Thursday, averting fears of a full cut-off.

Read more: Bank of England signals UK interest rates rising to 1.75% in August

However, Putin said flows could drop to 20% of capacity next week if sanctions prevented further maintenance work from being carried out. The move would deepen the continent’s energy crisis ahead of winter.

After a second successive day of gains on Tuesday, the mood was boosted by reports emerging from Moscow which indicated that gas flows out of the Nord Stream 1 pipeline would resume as scheduled on Thursday, albeit at a lower capacity.

It also followed news that the EU has outlined a voluntary target for member states to cut gas use by 15% until March, warning a full Russian supply cut-off could hit average GDP by up to 1.5%.

"All consumers, public administrations, households, owners of public buildings, power suppliers and industry can and should take measures to save gas," the European Commission said.

The reduction in gas use would apply to all member states between 1 August and 31 March next year.

Meanwhile, UK inflation soared to 9.4% in the 12 months to June, up from 9.1% in May, and slightly ahead of expectations thanks to rising prices for motor fuels and food.

Transport made the largest upward contribution to the change in the CPI annual inflation rate with a rise in motor fuels offsetting a decline in second-hand car prices. Food and non-alcoholic beverages along with restaurants and hotels also pushed inflation higher.

Read more: What is stagflation and can it lead to a recession?

Victoria Scholar, head of investment at Interactive Investor said: “It looks like the central bank could carry out a 50-basis point hike at its next meeting in August, which would be the largest increase since 1995, following the ECB this week which could also increase interest rates by half a percentage point on Thursday.

“With price levels in the UK spiralling out of control and wages struggling to keep apace, the biggest risk right now is that the Bank of England fails to act aggressively enough, and inflation becomes entrenched.”

Watch: How does inflation affect interest rates?

Across the pond on Wall Street, the S&P 500 (^GSPC) rose 0.6% and the tech-heavy Nasdaq (^IXIC) climbed 1.6%. The Dow Jones (^DJI) edged almost 0.1% higher at the time of the European close.

US markets finished the day strongly yesterday, with shares in Netflix (NFLX) up nearly 8% in after-hours trading following the streaming giant's “better-than-expected” loss of 1 million subscribers in the second quarter.

This was below downbeat expectations for a drop of 2 million thanks to its hit-series Stranger Things. However the company’s forecast for new subscribers in the current quarter came in at 1 million, falling short of Wall Street estimates of 1.8 million.

Meanwhile the dollar was mired near two-week lows.

Read more: Cost of living: Top tips to save money on a UK staycation

Stocks in Asia extended their global rally overnight thanks to strong US corporate earnings and the easing fears of a recession.

In Japan, the Nikkei (^N225) climbed 2.7% while the Hang Seng (^HSI) rose 1.5% and the Shanghai Composite (000001.SS) advanced 0.8% on the day.

Watch: What are SPACs?