World

European equities fell Tuesday as concerns over European gas supplies and the Ukraine conflict again came to the fore, while the dollar weakened slightly against major rivals, helping the pound to rebound from a record low.

Paris, Frankfurt and London all closed in the red, failing to hang on to earlier gains. Wall Street followed suit in mid-morning trades after an early rally.

“There’s little doubt instability is here to stay, and nerves are frayed as central bankers pull out all the stops to battle with inflation,” Danni Hewson, analyst at AJ Bell said.

“And there’s plenty of tension too over Russian moves to try to annex parts of Ukraine as well as worries about gas supplies after it emerged the pipeline that carries gas from Russia to Europe has suffered some kind of damage.”

European natural gas prices surged nearly 10 percent at one point, to 190.50 euros, following news that the two Nord Stream gas pipelines linking Russia and Europe have been hit by unexplained leaks.

Explosions were recorded before the mysterious leaks, seismologists said Tuesday, raising suspicions of sabotage amid tensions over Moscow’s war in Ukraine.

The pipelines have been at the centre of geopolitical tensions in recent months as Russia cut gas supplies to Europe in suspected retaliation against Western sanctions following its invasion of Ukraine.

“This damage is the clearest signal so far that Europe will have to survive the winter without significant Russian gas flows,” analysts at Charles Schwab said in a note to clients.

– Tackling red-hot inflation – 

In the latest warning of a looming economic downturn, World Trade Organization chief Ngozi Okonjo-Iweala said Tuesday that the world was heading towards a global recession as multiple crises collide.

Recession prospects have risen in recent weeks as central banks keep hiking interest rates to try and cool decades-high inflation, boosting in particular the dollar.

The Federal Reserve has carried out three successive bumper US hikes and is warning of more to come.

That has seen investors pile into the dollar, sending it to record or multi-decade peaks, in turn rattling governments from Tokyo to Beijing and London.

On Monday, the pound hit an all-time low at $1.0350, with traders spooked by a UK tax giveaway they warned could further fuel inflation and significantly ramp up British state borrowing.

In late afternoon deals on Tuesday, the pound rose 0.6 percent to $1.0755, having earlier rebounded by more than one percent.

The small recovery came after the Bank of England said it would “not hesitate to change interest rates by as much as needed”.

With the pound showing record weakness against the dollar this week, analysts are forecasting a big rate increase when the BoE holds its next regular policy meeting on November 3.

Oil prices jumped more than two percent, helped by a weaker dollar.

“Oil remains a sellers’ market with worries about a global recession and high interest rates intensifying,” Fawad Razaqzada, analyst at City Index and FOREX.com said.

“In addition, with currencies of major oil importing nations tumbling, anything traded in US dollars will cost more… such as oil.”

– Key figures at around 1745 GMT –

London – FTSE 100: DOWN 0.5 percent at 6,984.59 (close)

Frankfurt – DAX: DOWN 0.7 percent at 12,139.68 (close) 

Paris – CAC 40: DOWN 0.3 percent at 5,753.82 (close)  

EURO STOXX 50: DOWN 0.4 percent at 3,328.65 

New York – Dow: DOWN 0.04 percent at 29,252.34

Tokyo – Nikkei 225: UP 0.5 percent at 26,571.87 (close)

Hong Kong – Hang Seng Index: FLAT at 17,860.31 (close)

Shanghai – Composite: UP 1.4 percent at 3,093.86 (close)

Pound/dollar: UP at $1.0776 from $1.0689 on Monday

Euro/dollar: UP at $0.9625 from $0.9611

Euro/pound: DOWN  at 89.37 pence from 89.87 pence 

Dollar/yen: DOWN at 144.62 yen from 144.72 yen

Brent North Sea crude: UP 2.8 percent at $86.38 per barrel

West Texas Intermediate: UP 2.5 percent at $78.66 per barrel

Explosions were recorded before mysterious leaks in two Baltic Sea gas pipelines linking Russia and Europe, seismologists said Tuesday, raising suspicions of sabotage amid tensions over Moscow’s war in Ukraine.

Photos taken by the Danish military showed large masses of bubbles on the surface of the water emanating from the three leaks in Sweden and Denmark’s economic zones north of Poland, from 200 to 1,000 metres (656 feet to 0.62 miles) in diameter.

Polish Prime Minister Mateusz Morawiecki said that while the details of what happened were not yet known, “we see clearly that it’s an act of sabotage, one that probably marks the next step of escalation of the situation in Ukraine”.

Danish Prime Minister Mette Frederiksen meanwhile said it was “hard to imagine that it’s accidental”.

The Swedish National Seismic Network recorded two “massive releases of energy” shortly before the gas leaks near their locations off the coast of the Danish island of Bornholm, Uppsala University seismologist Peter Schmidt told AFP.

“With energy releases this big there isn’t much else than a blast that could cause it,” he added. “You can see that they are quite sudden. It is a very sudden energy release. It’s not a slow collapse of something.”

Russia said earlier that it was “extremely concerned” about the leaks. Asked by reporters whether it could be an act of sabotage, Kremlin spokesman Dmitry Peskov said that at the moment “it is impossible to exclude any options”.

Ukraine, however, pointed the finger directly at Moscow, saying it was “nothing more than a terrorist attack planned by Russia and an act of aggression towards the EU”.

A White House official said the United States would not speculate on the cause but was ready to support European efforts to investigate the leaks.

The Nord Stream 1 and 2 pipelines have been at the centre of geopolitical tensions in recent months as Russia cut gas supplies to Europe in suspected retaliation against Western sanctions following its invasion of Ukraine.

While the pipelines — operated by a consortium majority-owned by Russian gas giant Gazprom — are not currently in operation, they both still contain gas.

One of the leaks on Nord Stream 1 occurred in the Danish economic zone and the other in the Swedish economic zone, while the Nord Stream 2 leak was in the Danish economic zone.

A leak was first reported on Nord Stream 2 on Monday.

Danish climate and energy minister Dan Jorgensen confirmed the two Nord Stream 1 leaks in a statement to AFP on Tuesday.

“It is too early to say anything about the causes of the incidents,” the Danish Ministry of Climate, Energy and Utilities said in a statement.

Two Danish military vessels have been dispatched to the area, while Sweden’s government called an emergency meeting to be held on Tuesday evening.

Navigational warnings have been issued for a distance of five nautical miles and a flight height of 1,000 metres (3,280 feet).

– ‘Extremely rare’ –

“Gas pipeline leaks are extremely rare and we therefore see a reason to increase the level of preparedness following the incidents we have witnessed over the past 24 hours,” Danish Energy Agency director Kristoffer Bottzauw said in a statement.

The European Commission said it was too early to speculate on the causes of the leaks.

“We believe we do not have the elements in order to determine what is the reason for the leak. And obviously any act of sabotage on any infrastructure is something that we would condemn,” commission spokesman Eric Mamer told reporters.

A Nord Stream spokesperson told AFP they had not been able to assess the damage but conceded that “an incident where three pipes experience difficulties at the same time on the same day is not common.”

– ‘Targeted attack’ –

Built in parallel to the Nord Stream 1 pipeline, Nord Stream 2 was intended to double the capacity for Russian gas imports to Germany.

But Berlin blocked newly-completed Nord Stream 2 in the days before the war.

Germany, which has been highly dependent on imports of fossil fuels from Russia to meet its energy needs, has since come under acute stress as Moscow’s supplies dwindle.

Russian energy giant Gazprom progressively reduced the volumes of gas being delivered via Nord Stream 1 until it shut the pipeline completely at the end of August, blaming Western sanctions for the delay of necessary repairs to the pipeline. 

Germany has rebuffed Gazprom’s technical explanation for the cut, instead accusing Moscow of wielding energy as a weapon amid tensions over the war in Ukraine.

Meanwhile, German daily Tagesspiegel reported that the leaks might be the result of “targeted attacks”. 

“We cannot imagine a scenario that is not a targeted attack,” a source close to the government and relevant authorities was quoted as saying in the newspaper.

Boosted by rising wages and falling gas prices, US consumers were much more upbeat about the state of the American economy now and in the months ahead, according to a closely-watched survey released Tuesday.

The consumer confidence index jumped nearly five points to 108.0 the second straight monthly gain, according to The Conference Board. The result was the highest level since April and far better than the modest improvement economists had expected.

The US Federal Reserve has been raising borrowing costs aggressively this year, and last week announced its third consecutive, 0.75 percentage point increase in the benchmark interest rate as it tries to cool the world’s largest economy to bring down the fastest inflation in 40 years.

So far progress has been slow, as resilient consumers, flush with savings have continued to spend, supporting economic activity. But the survey showed expectations about inflation fell for third straight month, which is good news for the central bank.

“Concerns about inflation dissipated further in September — prompted largely by declining prices at the gas pump — and are now at their lowest level since the start of the year,” said Lynn Franco, senior director of economic indicators at The Conference Board.

Buoyed by a strong job market, respondents felt better about their present situation as well as expectations for the coming six months, the survey showed, but Franco cautioned that “recession risks nonetheless persist.”

Intentions to make big-ticket purchases were mixed, with plans to buy cars and appliances increasing, but more reluctance to invest in a home, which Franco said reflected rising mortgage rates and the cooling housing market.

“Looking ahead, the improvement in confidence may bode well for consumer spending in the final months of 2022, but inflation and interest-rate hikes remain strong headwinds to growth in the short term,” Franco said in a statement.

Ian Shepherdson of Pantheon Macroeconomics cautioned that the good feelings “might not last as people absorb the hit from the recent drop in stock prices and the Fed’s latest rate hikes, with the promise of more to come.”

“For now, though, people’s views of both the current and future economy have perked up, and the headline index is now just a few points shy of the pre-Ukraine invasion peak,” he said.

Explosions were recorded before mysterious leaks in two Baltic Sea gas pipelines linking Russia and Europe, seismologists said Tuesday, raising suspicions of sabotage amid tensions over Moscow’s war in Ukraine.

Photos taken by the Danish military showed large masses of bubbles on the surface of the water emanating from the three leaks located in Sweden’s and Denmark’s economic zones, spreading from 200 to 1,000 metres (656 feet to 0.62 miles) in diameter.

“It’s hard to imagine that it’s accidental,” said Danish Prime Minister Mette Frederiksen, noting that it was “unusual” for the leaks to happen at such a distance from each other.

The Swedish National Seismic Network recorded two “massive releases of energy” shortly prior to the gas leaks and near their locations off the coast of the Danish island of Bornholm, Peter Schmidt, an Uppsala University seismologist told AFP.

“With energy releases this big there isn’t much else than a blast that could cause it,” he added. “You can see that they are quite sudden. It is a very sudden energy release. It’s not a slow collapse of something.”

Russia said earlier that it was “extremely concerned” about the leaks. Asked by reporters whether it could be an act of sabotage, Kremlin spokesman Dmitry Peskov said that at the moment “it is impossible to exclude any options”.

Ukraine, however, pointed the finger directly at Moscow, saying the incident was “nothing more than a terrorist attack planned by Russia and an act of aggression towards the EU”.

A White House officials said the United States would not speculate on the cause but was ready to support European efforts to investigate the leaks.

The Nord Stream 1 and 2 pipelines have been at the centre of geopolitical tensions in recent months as Russia cut gas supplies to Europe in suspected retaliation against Western sanctions following its invasion of Ukraine.

While the pipelines, which are operated by a consortium majority-owned by Russian gas giant Gazprom, are not currently in operation, they both still contain gas.

One of the leaks on Nord Stream 1 occurred in the Danish economic zone and the other in the Swedish economic zone, while the Nord Stream 2 leak was in the Danish economic zone.

A leak was first reported on Nord Stream 2 on Monday.

Danish climate and energy minister Dan Jorgensen confirmed the two Nord Stream 1 leaks in a statement to AFP on Tuesday.

“It is too early to say anything about the causes of the incidents,” the Danish Ministry of Climate, Energy and Utilities said in a statement.

Two Danish military vessels have been dispatched to the area, while Sweden called an emergency cabinet meeting to be held on Tuesday evening.

Navigational warnings have been issued for a distance of five nautical miles and a flight height of 1,000 metres (3,280 feet).

– ‘Extremely rare’ –

“Gas pipeline leaks are extremely rare and we therefore see a reason to increase the level of preparedness following the incidents we have witnessed over the past 24 hours,” Danish Energy Agency director Kristoffer Bottzauw said in a statement.

The European Commission said it was too early to speculate on the causes of the leaks.

“We believe we do not have the elements in order to determine what is the reason for the leak. And obviously any act of sabotage on any infrastructure is something that we would condemn,” commission spokesman Eric Mamer told reporters.

A Nord Stream spokesperson told AFP that they had not been able to assess the damage but conceded that “an incident where three pipes experience difficulties at the same time on the same day is not common.”

The Danish energy agency told the Ritzau news agency that only the area where the gas plume is located will be affected by the leak, but methane escaping into the atmosphere has a “climate-damaging effect”.

– ‘Targeted attack’ –

Built in parallel to the Nord Stream 1 pipeline, Nord Stream 2 was intended to double the capacity for Russian gas imports to Germany.

But Berlin blocked newly-completed Nord Stream 2 in the days before the war.

Germany, which has been highly dependent on imports of fossil fuels from Russia to meet its energy needs, has since come under acute stress as Moscow has dwindled supplies.

Russian energy giant Gazprom progressively reduced the volumes of gas being delivered via Nord Stream 1 until it shut the pipeline completely at the end of August, blaming Western sanctions for the delay of necessary repairs to the pipeline. 

Germany has rebuffed Gazprom’s technical explanation for the cut, instead accusing Moscow of wielding energy as a weapon amid tensions over the war in Ukraine.

Meanwhile, German daily Tagesspiegel reported that the leaks might be the result of “targeted attacks”. 

“We cannot imagine a scenario that is not a targeted attack,” a source close to the government and relevant authorities, was quoted as saying in the newspaper.

Italian far-right leader Giorgia Meloni and her allies began Tuesday what is likely to be a weeks-long process of forming a new government, with crises looming on several fronts.

Meloni’s post-fascist Brothers of Italy party, which triumphed in Sunday’s elections, has no experience of power but must assemble a cross-party team to tackle sky-high inflation and energy prices, and relations with a wary Europe.

The 45-year-old is hoping to be the first woman to lead Italy as prime minister, but needs her allies, Matteo Salvini’s far-right League party and former Silvio Berlusconi’s Forza Italia, for a majority in parliament.

The division of the top jobs — notably economy, foreign affairs, the defence and interior ministries — will always be political but now, more than ever, “will have to reflect areas of expertise”, the Stampa daily noted.

In the past, it has taken anything between four and 12 weeks for a new administration to take office.

But the first deadline for action is coming up fast, with debt-laden Italy due to submit its draft plan for next year’s budget to Brussels by October 15.

President Sergio Mattarella will begin consultations on who should lead the new government only once the Senate and Chamber presidents have been elected by parliament, which meets on October 13.

With families and businesses struggling with huge bills aggravated by the Ukraine war, sorting out the budget will be “like scaling Everest without oxygen tanks for the new cabinet”, the Corriere della Sera daily said.

Meloni sought to reassure investors during the election campaign that, despite her radical past, she will be a safe pair of hands.

But the Italian ten-year bond rate increased to its highest level since October 2013 on Tuesday morning.

And the gap between German and Italian interest rates, the closely watched spread, rose above 250 points for the first time since the depths of the coronavirus pandemic in spring 2020.

– Non-controversial, credible –

The European Commission approved Tuesday the second instalment of post-pandemic recovery funds to Italy, worth 21 billion euros.

But Meloni has said she wants to renegotiate the deal with Brussels, potentially putting the rest of the fund — worth a total of almost 200 billion euros — at risk.

EU economy commissioner Paolo Gentiloni said he urged “the next Italian government to ensure that this opportunity is seized”, saying it was key to putting Italy on a path to “strong and durable growth”.

Agnese Ortolani, senior Europe analyst at the Economist Intelligence Unit, said she expected Meloni “to continue to reassure the markets by picking a non-controversial figure for the role of finance minister”.

“She will also want to avoid reputational damage by nominating someone who is not perceived as credible by the markets,” she said in a note.

Meloni’s allies have been pitching for heavy-weight positions, Salvini wanting his old job as interior minister back, and Berlusconi eyeing president of the Senate.

Their disappointing performance in the polls, however, with neither reaching 10 percent while Brothers of Italy’s secured 26 percent, means Meloni may already be planning to sideline them.

– Friction –

Salvini and Berlusconi do not see eye-to-eye with Meloni on several fronts, including on sending weapons to Ukraine.

With all the potential friction ahead, winning the elections “was almost the easy part”, commented Luciano Fontana, chief editor of the Corriere della Sera daily.

Berlusconi downplayed concerns he would rock the boat Tuesday, saying his party was ready to make compromises “in the country’s interests”.

His ally Antonio Tajani, a former European parliament president, is tipped as possible foreign minister, an appointment which could both appease Berlusconi and assuage international fears that Meloni’s Eurosceptic populist party plans to pick fights with Brussels.

Salvini, 49, may prove more difficult. He is currently on trial for allegedly abusing his powers as interior minister in 2019 to block migrants at sea, which could rule him out returning to the job.

“Defusing Salvini” without sparking a backlash that could seriously weaken the nascent executive is “Meloni’s first test”, the Repubblica daily said.