US Business

European stock markets recovered from initial falls Wednesday, as traders awaited another hefty US interest rate hike from the Federal Reserve.

The dollar reached the highest level in 20 years against a basket of major rival currencies with investors seeking safety as Russia escalates operations over Ukraine.

The Dollar index, which compares the US unit against currencies including the euro, pound and yen, jumped to 110.87 points, also as the Fed prepares a third successive jumbo rate hike to combat decades-high inflation.

The British pound hit a new 37-year low at $1.1305, even as the Bank of England prepares to announce its own large interest rate hike Thursday.

“The Fed is having to be cruel in order to restore price stability,” noted Russ Mould, investment director at AJ Bell.

“Higher rates will cause pain to households and businesses, with the jobs market being closely watched for signs of redundancies and hiring freezes.”

Most analysts are predicting that the Fed will announce another 75 basis-point lift, though some have tipped a full percentage-point move.

In the event of no surprises, the US central bank’s forecast and post-meeting comments from boss Jerome Powell will be the main attraction for investors.

“Volumes remain light and the mood cautious, with few looking to take on large positions before hearing what the Fed says,” according to Fiona Cincotta at City Index trading group.

Other central banks are meeting this week. On Tuesday, officials in Sweden surprised markets by unveiling a one percentage-point hike.

Adding to the cautious mood was Vladimir Putin’s announcement of a “partial mobilisation” as Russia’s president upped the ante in his battle against Ukraine.

Putin said he would annex the territories his forces had occupied and backed referendums in four regions in Russian-held parts of Ukraine.

“We will definitely use all means available” to protect Russian territory, he warned, adding: “That’s not a bluff.”

The moves mark an escalation in the seven-month war, which has roiled markets and sparked an energy crisis.

Oil prices surged nearly three percent Wednesday, having wilted in recent months on weaker demand expectations fuelled by recession fears.

Putin’s announcement and possible escalation in the war “raises a whole new set of uncertainties”, Rabobank’s Jane Foley said.

Asian stock markets closed lower Wednesday, reversing Tuesday’s bounce.

– Key figures at around 1100 GMT –

London – FTSE 100: UP 0.7 percent at 7,244.18 points

Frankfurt – DAX: FLAT at 12,668.47

Paris – CAC 40: UP 0.2 percent at 5,991.70

EURO STOXX 50: UP 0.1 percent at 3,469.99

Tokyo – Nikkei 225: DOWN 1.4 percent at 27,313.13 (close)

Hong Kong – Hang Seng Index: DOWN 1.8 percent at 18,444.62 (close)

Shanghai – Composite: DOWN 0.2 percent at 3,117.18 (close)

New York – Dow: DOWN 1.0 percent at 30,706.23 (close)

Pound/dollar: DOWN at $1.1343 from $1.1384 Tuesday

Euro/dollar: DOWN at $0.9928 from $0.9970

Euro/pound: DOWN at 87.52 pence from 87.63 pence 

Dollar/yen: UP at 143.88 yen from 143.72 yen

Brent North Sea crude: UP 2.7 percent at $93.10 per barrel

West Texas Intermediate: UP 2.5 percent at $86.00 per barrel

Germany has reached a deal to nationalise troubled gas giant Uniper, the government said Wednesday, as the energy sector reels from the fallout of Russia’s war in Ukraine.

The deal will leave Germany with a 99 percent stake in the debt-laden gas company, the economy ministry said in a statement.

“Uniper is a central pillar of German energy supplies,” the ministry said.

Under the agreement, Berlin will inject eight billion euros ($8 billion) in cash into Uniper and buy 500 million euros of shares from its majority shareholder, the Finnish state-owned energy company Fortum.

Fortum will also be repaid for an eight-billion-euro loan it gave Uniper.

“The situation has become much more dramatic” for Uniper since the shutdown in late August of the Nord Stream 1 gas pipeline from Russia to Germany, Economy Minister Robert Habeck told a press conference.

One of the biggest importers of Russian gas, Uniper has been squeezed as Moscow has reduced supplies to the continent in the wake of its invasion of Ukraine in February.

– Gas crisis –

Missing deliveries have had to be replaced with expensive supplies from the open market, where prices for gas have skyrocketed.

The German state had already agreed in July to take a 30 percent stake in Uniper as part of an initial bailout agreement.

But Uniper announced earlier this month that the two sides were exploring a possible nationalisation as the energy crisis showed no signs of abating.

Fortum provided an eight-billion-euro loan to Uniper in January as the price of gas had already begun to climb amid tensions with Moscow before the invasion of Ukraine.

The Finnish company held a near-80-percent stake in Uniper, which would have been cut to around 56 percent under the July bailout plan.

Fortum said Uniper has accumulated close to 8.5 billion euros in gas-related losses “and cannot continue to fulfil its role as a critical provider of security of supply as a privately-owned company”.

“New measures to resolve the situation were needed, as both Uniper and Fortum were exposed to significant risks,” said Fortum chief executive Markus Rauramo at a press conference.

– ‘No longer viable’ –

“The role of gas in Europe has fundamentally changed since Russia attacked Ukraine, and so has the outlook for a gas-heavy portfolio. As a result, the business case for an integrated group is no longer viable,” Rauramo also said in a separate statement.

Fortum had taken an “inevitable decision in exceptionally uncertain circumstances”, said Tytti Tuppurainen, the Finnish minister responsible for state companies.

“The situation is a result of Russia’s attack on Ukraine. Putin is using energy as a weapon,” Tuppurainen said in a statement. 

Russia’s war in Ukraine has triggered an earthquake on European energy markets, cranked up the pressure on suppliers and raised fears of possible shortages over the winter.

Germany has found itself particularly exposed due to its previous heavy reliance on Russian energy imports.

Since the outbreak of the war, Berlin has worked to wean itself off Russian gas and secure alternative supplies.

Officials have seized key pieces of energy infrastructure which were in the hands of Russian energy companies and mandated gas stores to be filled.

Earlier in September, the German government entered into discussions with another gas supplier, VNG, over a possible bailout package.

Stocks fell Wednesday ahead of what many expect to be a third successive jumbo rate hike by the Federal Reserve, while the dollar hit fresh multi-decade highs against the pound and euro after Russia stepped up its war in Ukraine.

Equities around the world have been clattered by fears of a recession in major economies as central banks ramp up borrowing costs to combat the highest inflation in decades, which has been compounded by the Ukraine war and supply chain snarls.

In Washington, the Fed is due to conclude its latest policy meeting, with most analysts predicting it will announce another 75 basis-point lift, though some have tipped a full percentage-point move.

However, while the hike has largely been priced into the markets, the US central bank’s forecast and post-meeting comments from boss Jerome Powell are the main attraction for investors.

“Volumes remain light and the mood cautious, with few looking to take on large positions before hearing what the Fed says and where policy makers see rates going by the end of the hiking cycle,” Fiona Cincotta, at City Index, said.

“This is what will drive the markets, not the rate hike… but what the Fed plans to do next.”

Fed officials have for months stuck to the mantra that they will only ease up on their hawkish drive when inflation comes down and remains subdued.

This has led many to warn that rates are unlikely to come down anytime soon, possibly as late as 2024, with a recession more than likely in the United States as well as other major economies.

– Dollar extends rally –

Other central banks are also meeting this week. On Tuesday, officials in Sweden surprised markets by unveiling a one percentage-point hike, while the United Kingdom and Switzerland are expected to announce more increases.

Asian markets were back in the red, reversing Tuesday’s bounce.

Tokyo, Hong Kong, Sydney and Manila were all down more than one percent, while there were also losses in Shanghai, Seoul, Singapore, Wellington, Taipei, Mumbai and Jakarta.

London rose in early trade, but Paris and Frankfurt were down.

Adding to the dour mood was Vladimir Putin’s announcement of a “partial mobilisation” as he upped the ante in his battle against Ukraine after his forces were routed from several cities in recent weeks.

He added that he would annex the territories his forces have already occupied and backed weekend referendums in four regions in Russian-held parts of Ukraine.

“We will definitely use all means available” to protect Russian territory, he warned, adding: “That’s not a bluff.”

The moves mark an escalation of the seven-month war, which has roiled markets and sparked an energy crisis.

Oil prices, which have wilted in recent months owing to worries about demand caused by any recession, surged more than three percent.

And the dollar, a safe haven in times of uncertainty and turmoil and which was already elevated ahead of the rate decision, rallied further.

It hit a fresh 37-year high of $1.1305 against sterling and a new 20-year peak of $0.9885 per euro, with the eurozone already in economic trouble owing to sanctions on Russian oil and Putin’s decision to cut off gas supplies to the continent.

The announcement and possible escalation in the war “raises a whole new set of uncertainties”, Rabobank’s Jane Foley said.

“This is set to weigh on the euro and on the currencies of eastern Europe.”

– Key figures at around 0810 GMT –

Tokyo – Nikkei 225: DOWN 1.4 percent at 27,313.13 (close)

Hong Kong – Hang Seng Index: DOWN 1.8 percent at 18,444.62 (close)

Shanghai – Composite: DOWN 0.2 percent at 3,117.18 (close)

London – FTSE 100: DOWN 0.3 percent at 7,210.45

Euro/dollar: DOWN at $0.9909 from $0.9977 on Tuesday

Dollar/yen: DOWN at 143.71 yen from 143.72 yen

Pound/dollar: DOWN at $1.1345 from $1.1384

Euro/pound: DOWN at 87.35 pence from 87.63 pence 

West Texas Intermediate: UP 3.2 percent at $86.62 per barrel

Brent North Sea crude: UP 3.1 percent at $93.39 per barrel

New York – Dow: DOWN 1.0 percent at 30,706.23 (close)

— Bloomberg News contributed to this story —

Germany has reached a deal to nationalise troubled gas giant Uniper, the government said Wednesday, as the energy sector reels from the fallout of Russia’s war in Ukraine.

Berlin and Uniper’s Finnish owner, Fortum, announced a deal that will leave Germany with a 98.5 percent stake in the debt-laden gas company.

“Uniper is a central pillar of German energy supplies,” the economy ministry said in a statement.

Under the agreement, Berlin will inject eight billion euros ($8 billion) in cash in Uniper and buy Fortum’s shares for 500 million euros.

Fortum will also be repaid for an eight-billion-euro loan it gave Uniper.

“Under the current circumstances in the European energy markets and recognising the severity of Uniper’s situation, the divestment of Uniper is the right step to take, not only for Uniper but also for Fortum,” said Fortum chief executive Markus Rauramo.

“The role of gas in Europe has fundamentally changed since Russia attacked Ukraine, and so has the outlook for a gas-heavy portfolio. As a result, the business case for an integrated group is no longer viable,” Rauramo said in a statement.

One of the biggest importers of Russian gas, Uniper has been squeezed as Moscow has reduced supplies to the continent in the wake of its invasion of Ukraine in February.

Missing deliveries have had to be replaced with expensive supplies from the open market, where prices for gas have skyrocketed.

Fortum said Uniper has accumulated close to 8.5 billion euros in gas-related losses “and cannot continue to fulfil its role as a critical provider of security of supply as a privately-owned company”.

– Germany’s Russian gas dependence –

The German state had already agreed in July to take a 30 percent stake in Uniper as part of an initial bailout agreement.

But Uniper announced earlier this month that the two sides were exploring a possible nationalisation as the energy crisis showed no signs of abating.

Fortum provided an eight-billion-euro loan to Uniper in January as the price of gas had already begun to climb amid tensions with Moscow before the invasion of Ukraine.

The Finnish company held a near-80-percent stake in Uniper, which would have been cut to around 56 percent under the July bailout plan.

Earlier in September, the German government entered into discussions with another gas supplier, VNG, over a possible bailout package.

Russia’s war in Ukraine has triggered an earthquake on European energy markets, cranked up the pressure on suppliers and raised fears of possible shortages over the winter.

Germany has found itself particularly exposed due to its previous heavy reliance on Russian energy imports.

Since the outbreak of the war, Berlin has worked to wean itself off Russian gas and secure alternative supplies.

Officials have seized key pieces of energy infrastructure which were in the hands of Russian energy companies and mandated gas stores to be filled.

The Federal Reserve is poised to roll out another big increase in interest rates Wednesday as it tries to cool the economy to tamp down the highest inflation in 40 years, but recession fears are rising.

Soaring prices that are putting the squeeze on American families and businesses have already become a political liability for President Joe Biden, as he faces midterm congressional elections in early November.

But a contraction of the world’s largest economy would be a more damaging blow to Biden, to the Fed’s credibility and the world at large.

Federal Reserve Chair Jerome Powell has made it clear that officials will continue to act aggressively to cool the economy and avoid a repeat of the 1970s and early 1980s, the last time US inflation got out of control.

It took tough action — and a recession — to finally bring prices down in the 1980s, and the Fed is unwilling to give up its hard-won, inflation-fighting credibility.

Many economists are expecting a third straight three-quarter point rate hike when the meeting concludes Wednesday, which would be an unprecedented action since that era. But there is a chance the Fed could opt for a full point increase.

Powell and other central bankers have been sending the same message: a downturn is better than continued high inflation given the pain that would inflict, especially on those least able to withstand it.

“Since inflation began to accelerate in early 2021, Fed officials have been overly optimistic that it would quickly recede to the central bank’s 2% target,” economists Mickey Levy and Andrew Levin wrote in The Wall Street Journal.

“The economy now faces a serious risk of persistent high inflation.”

The Fed’s policy-setting Federal Open Market Committee (FOMC) is scheduled to announce its decision at 1600 GMT Wednesday.

Powell’s press conference after the meeting will be closely scrutinized for clues on how much more he thinks the Fed will have to do before it declares victory in the inflation fight.

– Avoiding a downturn –

Inflation is a global phenomenon amid the Russian war in Ukraine on top of global supply chain snarls and Covid lockdowns in China, and other major central banks are taking action as well.

European Central Bank President Christine Lagarde said Tuesday that more increases will be needed to stop inflation from taking hold. 

US policymakers have the luxury of a strong job market, and low unemployment, which gives it some leeway to tackle high prices.

Even so, many economists say at least a short period of negative GDP in the first half of 2023 will be needed before inflation starts coming down.

Despite the welcome drop in gasoline prices at the pump in recent weeks, the disappointing consumer price report for August showed widespread increases. 

But Ian Shepherdson of Pantheon Macroeconomics, who believes inflation has peaked, said incomes are growing amid rising wages, which bodes well for the outlook.

“The US economy is not in recession or headed there,” he said in an analysis.

The Fed has front-loaded its rate hikes, cranking up the benchmark lending rate four times this year, including two straight three-quarter-point hikes in June and July.

The aim is to raise the cost of borrowing and cool demand, and it is having an impact: the housing market has slowed as mortgage rates have surged.

Recent statements from Fed officials indicate more rate hikes are coming, and no cuts until inflation is under control — dousing hopes that had built up in markets following the July policy meeting.

“The irony here is that just as the Fed is ratcheting-up the anti-inflation rhetoric to fever-pitch, the forces needed to drive down inflation over the next year are now in place,” Shepherdson said.

The FOMC also will release the quarterly forecasts from members, which will show how they feel about the direction of the economy and the impact of the policy moves, and how soon inflation will come down.