European Stocks, Euro Sink as Energy Woes Worsen: Markets Wrap

European stocks slumped and the euro fell Monday as the region’s worsening energy crisis added to risks for a global economy already facing high inflation and a wave of monetary tightening.

The Stoxx Europe 600 Index fell 1.6% after Russia’s Gazprom PJSC halted its key gas pipeline indefinitely. Steelmaker ThyssenKrupp AG, car-parts manufacturer Valeo, chemicals firm BASF SE, cement maker Cie de Saint-Gobain, and gas utility Uniper SE were among the worst performers. Germany’s DAX index, filled with corporate heavyweights from these sectors, is the biggest laggard among the region’s major benchmarks. 

The dollar strengthened as commodity-linked currencies joined the euro’s retreat to a two-decade low. The pound slipped before the UK’s ruling Conservative Party announces the winner of its leadership contest later today. Oil rallied ahead of an OPEC+ meeting on supply.

Wall Street equity contracts wavered after the worst week for world shares since June. Cash Treasuries and US stocks are closed because of Labor Day.

Gazprom announced its move after Group of Seven leaders agreed to implement a price cap on Russian oil as the Kremlin continues its war in Ukraine. Natural gas surged more than 30% in Europe and nations there could roll out special steps at the end of the week to rein in power costs. Germany plans a $65 billion package to shield consumers.

Monetary authorities including Europe’s central bank are set to keep hiking interest rates this week to fight inflation despite the darkening global economic outlook due to risks such as power shortages.

“It is more clear now to everybody that Europe will go into recession and we have also witnessed some protests over the weekend and different single government interventions ahead of the EU proposal which will be voted on Friday,” said Alberto Tocchio, a portfolio manager at Kairos Partners. European Union equities “will possibly test the lows made in July with a potential break over the next hours or days,” he said.

An Asian equity index was also in the red, paced by losses in Hong Kong, where tech shares slid as traders weighed the risk of curbs on investment from the US.

The view that global shares already hit their bear-market low back in June is looking increasingly precarious. Europe’s intensifying energy crisis is the latest hit to sentiment, which was already under pressure from a wave of monetary tightening.

Markets also face more uncertainty from US-China tension. The Biden administration is considering moves to curb US investment in Chinese technology firms and will allow Trump-era merchandise import tariffs to continue while the levies are reviewed.

Separately, China extended its lockdown in districts of the megacity Chengdu and ordered more mass testing there as it tries to contain a Covid outbreak.

In the UK, Conservative Party members are expected to name Liz Truss as their leader, clearing her way to become prime minister. Her plan to “turbo-charge” the economy by slashing taxes is already worrying investors amid double-digit inflation.

Elsewhere, Bitcoin dropped below the $20,000 level. Gold was a little changed.

What to watch this week:

• UK prime minister to be announced, Monday
• OPEC+ meeting on supply, Monday
• Australia rate decision, Tuesday
• Apple event due to feature new iPhones, watches, Wednesday
• Bank of England Governor Andrew Bailey at Treasury Committee, Wednesday
• Fed’s Beige Book of regional economic activity, Wednesday
• Cleveland Fed President Loretta Mester is due to speak, Wednesday
• European Central Bank rate decision, Thursday
• Fed Chair Jerome Powell speaks at a Cato Institute conference in Washington, Thursday
• Reserve Bank of Australia Governor Philip Lowe speaks at an event, Thursday
• China PPI, aggregate financing, money supply, new yuan loans, Friday
• EU energy ministers extraordinary meeting on emergency intervention in electricity markets, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 1.6% as of 9:33 a.m. London time
• Futures on the Nasdaq 100 were little changed
• Futures on the Dow Jones Industrial Average rose 0.2%
• The MSCI Asia Pacific Index fell 0.5%
• The MSCI Emerging Markets Index fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.4% to $0.9918
• The Japanese yen fell 0.2% to 140.53 per dollar
• The offshore yuan fell 0.5% to 6.9517 per dollar
• The British pound fell 0.2% to $1.1487

Bonds

• Germany’s 10-year yield advanced three basis points to 1.56%
• Britain’s 10-year yield advanced seven basis points to 2.99%

Commodities

• Brent crude rose 2.7% to $95.57 a barrel
• Spot gold was little changed

Source By: Bloomberg