Rolls-Royce retreats from three-month high as markets wobble

After rallying as much as 20% in the past couple of weeks, the engineer has given back ground today. The big banks have too, but tech stocks are higher. 

A strong run for Lloyds Banking Group (LSE:LLOY) and Rolls-Royce (LSE:RR.) petered out this afternoon as stock market sentiment wavered on fresh fears of an energy shock for Europe’s economy.

The FTSE 100 index had been on course for a six-week high after three good sessions, driven by a robust US earnings season and the cooling of Federal Reserve 1% rate rise expectations.

London’s top flight initially rose to 7,347 today after Reuters reported that Russia intends to re-open the Nord Stream 1 pipeline on Thursday after a 10-day maintenance period.

But with Russia’s gas exports expected to remain at much lower levels, the bounce for Europe’s stock markets was short-lived as the focus returned to possible natural gas rationing.

UBS said: “Russia cut gas supplies from the Nord Stream 1 pipeline by around 60% in June, and the flow is now expected to recover only to the reduced rate before maintenance started on 11 July.

“That lower level of gas supply is unlikely to be sufficient for Germany and other nations to build up enough gas storage for the winter. This poses considerable headwinds for the European economy.”

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UBS thinks the challenging outlook will lead to downgraded earnings forecasts, with its own 2023 earnings estimate for eurozone equities currently 15% below consensus.

The Dax fell 0.8% in Frankfurt and the Cac40 lost 0.5% in Paris, while the FTSE 100 weakened to 7267. It had been as low as 7,039 on Thursday but risk appetite improved after positive second-quarter earnings from companies including Citigroup and Goldman Sachs.

Ahead of the first UK bank sector results next Wednesday, shares in Lloyds, Barclays (LSE:BARC) and NatWest (LSE:NWG) rallied by between 7% and 9% in the three sessions up to this morning. Rolls-Royce also added 10% and British Airways owner International Consolidated Airlines Group (LSE:IAG) cheered 8%, but all five stocks are on the FTSE 100 fallers board today.

JD Sports Fashion (LSE:JD.), which rose 11.2% as the best-performing FTSE 100 stock between Thursday and last night, held on to its gains by adding another penny to 138.65p.

Technology-focused stocks including Ocado (LSE:OCDO), Scottish Mortgage (LSE:SMT) and industrial internet-of-things firm AVEVA (LSE:AVV) were also higher after a shift in sentiment following the reassuring second-quarter update from Netflix (NASDAQ:NFLX).

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The world’s biggest streaming service reported the loss of 970,000 subscribers, but this compared with its forecasts in April for two million.

The S&P 500 jumped 2.7% on Tuesday but trading was much more cautious today on signs the recent improvement has been a typical bear market rally.

Mark Haefele, UBS Global Wealth Management’s chief investment officer, said: “Despite Tuesday’s more positive trading session, we don’t expect a sustained improvement in market sentiment until investors get greater clarity on the outlook for the economy, central bank policy, and political risks.  Uncertainty in all of these areas remains elevated, in our view.”