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.
(Bloomberg) — 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 dropped after Russia’s Gazprom PJSC halted its key gas pipeline indefinitely, although the benchmark gauge recovered from its worst levels as energy stocks rallied. Wall Street equity futures edged higher after the worst week for world shares since June. Cash Treasuries and US stocks are closed because of Labor Day.
The euro retreated to a two-decade low, while the dollar strengthened. The pound was steady after the UK’s Conservative Party named Liz Truss as its 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.
Oil gained as OPEC+ unexpectedly agreed to make a token oil supply cut for October. Elsewhere, Bitcoin dropped below the $20,000 level. Gold was little changed.
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.
“Economies have been preparing for some sort of energy constraint and the prospect of rationing, but obviously compared to expectations at the beginning of the year, this is pretty close to the worst outcome,” Wei Li, BlackRock global chief investment strategist, said on Bloomberg Television. “So as we head into rest of the year, underweight equities at this juncture feels appropriate.”
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. The escalating energy crisis comes ahead of unprecedented tightening expected from the European Central Bank on Thursday in the form of a 75-basis-point rate increase.
An Asian equity index declined, paced by losses in Hong Kong, where tech shares slid as traders weighed the risk of curbs on investment from the US. China reduced the amount of foreign-exchange deposits banks need to set aside as reserves for the second time this year to boost the yuan after the currency hit a two-year low.
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.
READ: Xi to Give Boost to China Stocks But Not Yuan: MLIV Pulse
What to watch this week:
- 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 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 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
- Futures on the S&P 500 rose 0.3% as of 4:36 p.m. New York time
- Futures on the Dow Jones Industrial Average rose 0.4%
- The MSCI World index fell 0.3%
- Futures on the Nasdaq 100 rose 0.3%
- The MSCI Asia Pacific Index fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.3% to $0.9929
- The British pound was little changed at $1.1518
- The Japanese yen fell 0.3% to 140.57 per dollar
- The offshore yuan fell 0.4% to 6.9444 per dollar
Bonds
- Germany’s 10-year yield advanced four basis points to 1.56%
- Britain’s 10-year yield advanced two basis points to 2.94%
Commodities
- West Texas Intermediate crude rose 2.2% to $88.82 a barrel
- Gold futures were little changed
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