European shares snap three-day winning streak; eyes on Draghi government’s fate

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European shares snapped a three-day winning streak on Wednesday on jitters around Russian gas supplies to the continent, while Italian shares slid amid a political crisis surrounding Prime Minister Mario Draghi’s government.

Italy’s MIB index closed 1.6% lower, weighed by bank stocks. Draghi asked for the upper house Senate to hold a confidence vote that will effectively decide if his coalition government stays in office.

A vote on his speech is expected after the market closes at 1730 GMT.

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Italian President Sergio Mattarella urged Draghi to reconsider his resignation tendered last week after the populist 5-Star coalition boycotted a confidence vote, sending the MIB index to November 2020 lows.

“In the event that Mr Draghi confirms his resignation, there is a chance that President Mattarella will open a round of consultations with all political parties to verify whether there is a majority in parliament to support a new government with a different prime minister, with the main aim of passing the 2023 budget law before calling elections,” UniCredit analysts said in a research note.

“This will not be an easy outcome to achieve, further increasing political uncertainty.”

The pan-European STOXX 600 index rose as much as 0.5% before erasing gains to end 0.2% lower.

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Hitting sentiment was news that the European Union told member states to cut gas usage by 15% until March as an emergency step after President Vladimir Putin warned that Russian supplies sent via the biggest pipeline to Europe could be reduced further and might even stop.

The STOXX 600 hit a more than five-week high on Tuesday after sources told Reuters Russian gas flows to Europe via the Nord Stream 1 pipeline were seen restarting on time this week.

Worries about an energy supply crunch in Europe, a weaker euro and prospects that aggressive monetary policy tightening to curb soaring inflation could spark a global recession have rattled markets, with the STOXX 600 down 13.4% this year.

All eyes are now on the European Central Bank’s impending policy decision on Thursday, with sources saying a larger-than-signaled 50 basis point interest rate hike could be discussed in the meeting.

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Among single stocks, HelloFresh slumped 9.4% after the German meal-kit maker reduced its 2022 outlook, citing inflation, waning consumer confidence and the Ukraine war.

Volvo Cars fell 5.2% after it flagged a potential dip in retail sales this year.

As of Tuesday, second-quarter earnings are expected to increase 22.1% from a year ago, with a chunk of upbeat earnings expected from the energy sector, according to Refinitiv.

Uniper surged 12.7% after a report that the German government plans to take a 30% stake in the German power firm and will allow the utility to pass on some energy costs to customers as part of a bailout package. (Reporting by Susan Mathew and Devik Jain in Bengaluru; Editing by Vinay Dwivedi and Bernadette Baum)