Europe close: Germany's Dax paces losses amid angst over natural gas supplies

Most major European stock market indices finished off their lows of the session but not Germany's Dax, due to concern that its supplies of natural gas from Russia might soon be cut.

The Nordstream 1 natural gas pipeline from Russia to Germany was to be taken off-line for annual maintenance for 10 days, starting from Monday.

Fears were that it would not be brought back on line and according to economists at Citi that would be enough to tip the euro area from stagnation into a "(mild) recession".

The Stoxx 600 ended the day well off its lows, albeit down by 0.50% to 415.02, with the region's other main indices carving out a similar rebound.

Germany's Dax was the exception, losing 1.4% to 12,832.44.

Also dragging on investor sentiment were reports that more Covid-19 infections were detected in the People's Republic of China.

The euro remained on the back foot, trading down 1.08% to 1.0075 versus the Greenback.

On a related note, Russia's Gazprom reportedly reduced its natural gas supplies to Italy by a third.

That followed reports during the previous week that exports of crude oil through the Caspian oil pipeline from Kazhakstan might be cut due to a court order.

That would take approximately 1.0% of global oil supply off the market, although the order was overturned on Monday by a Russian court, Reuters reported.

Front-dated Brent crude oil futures fell 1% to roughly $106 a barrel on the ICE, although Reuters cited Western oil executives who believed that the Caspian pipeline was facing a possible "prolonged suspension".

TTF natural gas futures on the other hand slumped 12% on the ICE after Canada said it would allow delivery of a turbine for Nordstream 1 which might enable it to return to operations.

Ten-year euro area periphery government bond yields on the other hand appeared to be well-behaved, drifting modestly lower.

On a related note, analysts at Barclays said that Purchasing Managers' Indices had slowed and "reconnected" with surging yields.

"If growth continues to slow from here, it could cap yields near current levels," they added.

"Expensive factors like Growth's valuation adjustment may well be nearly over then. On the opposite side, Value's more cyclical earnings may be at risk. We take profit on OW Value/UW Growth."

There was little in terms of fresh economic data on Monday, although ISTAT did report a 1.9% month-on-month jump in Italian retail sales during the month of May.

At the weekend, European Central Bank governing council member, Robert Holzmann, argued in a newspaper interview in favour of as much as 125 basis points of interest rate hikes by September if the inflation outlook did not improve.

His peer on the council, Greece's Yannis Stournaras meanwhile told Bloomberg on Saturday that a "very good debate" was ongoing as regarded the ECB's future anti-fragmentation tool.

Stournaras further said he hoped that the tool would surprise markets "on the positive side".