Following Russia’s closure of a significant gas pipeline to Europe, which prompted some governments present there to announce emergency steps to lessen the agony of skyrocketing energy prices, European stock futures declined on Monday while the euro suffered a new decline.
As markets began to factor in an increased possibility of a European recession, the euro dropped 0.3% to $0.9918 and was ready to touch its most recent 20-year bottom of $0.99005.
FTSE futures decreased 1.1%, while EUROSTOXX 50 futures fell 3.0%.
While Finland and Sweden issued liquidity assurances to keep power providers operational, Germany announced plans to invest 65 billion euros ($64.7 billion) to protect consumers and businesses from rising costs.
Due to a holiday in the United States, there was a spike in oil prices that affected the entire energy sector. Blue chips (.CSI300) were down 0.6% as a result of the news of additional coronavirus lockdowns in China, which only heightened the nervous atmosphere.
Japan’s Nikkei (.N225) was down 0.2%, and MSCI’s broadest index of Asia-Pacific shares outside of Japan (.MIAPJ0000PUS) declined by 0.4%.
After falling late on Friday, Wall Street performed slightly better, with S&P 500 futures moving up 0.2% & Nasdaq futures nudging up 0.1%.
The European Central Bank (ECB) is meeting this week to decide how much to hike interest rates, which is complicated further by the energy crisis.
According to Tapas Strickland, the head of market economics at NAB, there are many tales of businesses reducing production as a result of the grim energy forecast for Europe.
The ECB will likely decide to raise rates this week, he continued. Following statements from various ECB officials that they were inclined in that direction, markets are almost entirely pricing in a 75bp increase, while there will likely still be discussion around 50 vs. 75.
This week, it’s predicted that the central banks of Canada and Australia will also increase interest rates. Additionally, Jerome Powell, the chairman of the Federal Reserve, and several other policymakers will be speaking publicly and are expected to be hawkish on inflation.
Despite some positive indicators of a slowing in the labour market in the August U.S. jobs report, investors continue to favour a 75-basis point rate increase from the Fed this month.
On Friday, the yield on the two-year U.S. Treasury did decrease by over 12 basis points, and on Monday, futures prices were unchanged due to widespread risk aversion.
The U.S. dollar, which reached another two-decade peak on a major currency basket at 110.040, profited once more from the flight to safety.
Just under Friday’s 24-year high of 140.80 yen, the dollar was keeping steady at 140.20 yen.
The value of the pound dropped as low as $1.1458 and to levels not seen since March 2020 during the beginning of the pandemic, when it was trying to hold at $1.1485.
Jonas Goltermann, a veteran economist at Capital Economics, said that they now anticipate the EUR/USD & GBP/USD rates to hit $0.90 and $1.05 respectively the following year as the regional economic slowdown and terms of trade shock begin to take their toll.
If she is, as expected, named prime minister on Monday, British Foreign Minister Liz Truss stated on Sunday that she would outline quick measures in her first week in power to address rising energy bills and improve energy supply.
Gold remained unchanged at $1,710 per ounce due to the strong dollar.
Expectations that gas prices will spike in Europe later in the day helped to support oil prices.
ANZ analysts claim that Germany would ultimately need to reduce its natural gas usage by 15% to prevent gas storage tanks from becoming empty. As storage will barely last 2.5 months even at 95% capacity, gas rationing becomes quite likely.
While some sources did not completely rule out a slight production cut to support oil prices, which have fallen as a result of concerns about an economic downturn, OPEC+ is expected to maintain oil output quotas as-is for October at its meeting on Monday.