Frankfurt: Stocks rocked as the euro hit another 20-year low on Tuesday as data highlighted a contracting eurozone economy and a worsening energy crisis. The single currency, which has also been hit by the US Federal Reserve’s interest rate hike plans, tumbled to $0.9901 before much-anticipated comments from Chairman Jerome Powell this week.
Shared units were already trading below par on Monday on recession fears that plunged them to their lowest level since 2002. In the latest blow, the monthly Composite Purchasing Managers Index (PMI), which S&P Global watches, has , a measure of business confidence, fell below the key 50-point level in August. This reinforced long-term fears of a prolonged recession.
“Eurozone PMIs confirm fears of an impending recession in Europe on the back of high inflation and the energy crisis, with activity slowing for the second month in a row,” said Citi analyst Luis Costa. It shows that,” he warned. He added: Equities in the region rocked amid stubborn fears that the US Federal Reserve will continue to raise rates to fight inflation.
Rising US interest rates also boost the dollar against other currencies. Natural gas prices remained high on Tuesday due to concerns over Russia’s suspension of gas supplies to Europe.
The Dutch TTF gas futures contract was at €274.50 per MWh, but fell slightly from Monday. Gas hit a record peak in his March after major producer Russia launched an invasion of neighboring Ukraine. This has caused domestic energy prices to skyrocket, fueling decades of high inflation and prompting monetary tightening around the world.
“More effective than Kalashnikov”
“As it has become painfully obvious, natural gas is a much more effective weapon in the hands of Russian politicians than a Kalashnikov in the hands of soldiers,” said PVM analyst Tamas Varga. This hit the single currency hard as the bloc relies heavily on imported Russian gas, said Societe Generale analyst Kit Jax.
Fears mounted on Friday after Russia’s Gazprom announced that the Nord Stream pipeline would be closed for maintenance at the end of the month, cutting critical gas supplies in Europe. “The problem with the euro is … the threat of continued pressure on gas supplies and the cost of replacing Russian gas,” said Juckes. Asian markets fell again on Tuesday as traders became more worried about rising US interest rates.
The S&P 500 and Nasdaq both fell more than 2%, with Wall Street slipping into the red on Monday. A symposium of central bankers and treasurers in Jackson Hole this week will focus on what Fed Chairman Jerome Powell will say about his plans to tackle inflation, with many officials predicting a recession. Recession fears rose after Saudi Arabia suggested that the Organization of the Petroleum Exporting Countries (OPEC) and other major producers could cut production because of oil market ‘volatility’. Oil prices rebounded after weeks of declines as demand forecasts were hit. – AFP