European stocks, euro sink as energy crisis worsens

Bloomberg

European stocks slumped and the euro falls on 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 falls 1.1% after Russia’s Gazprom PJSC halted its key gas pipeline indefinitely. Steelmaker Thyssenkrupp AG, car-parts manufacturer Valeo, chemicals firm BASF SE, cement maker Cie de Saint-Gobain and gas utility Uniper SE were among the worst performers. Germany’s DAX index, filled with corporate heavyweights from these sectors, is the biggest laggard among the region’s major benchmarks.
The dollar strengthened as commodity-linked currencies joined the euro’s retreat to a two-decade low. The pound steadied before the UK’s ruling Conservative Party announces the winner of its leadership contest. Oil rallied ahead of an Opec+ meeting on supply.
Wall Street equity contracts wavered after the worst week for world shares since June. Cash Treasuries and US stocks are closed because of Labour Day.
“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.”
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.
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.
“It is more clear now to everybody that Europe will go into recession and we have also witnessed some protests over the weekend and different single government interventions ahead of the EU proposal which will be voted on Friday,” said Alberto Tocchio, a portfolio manager at Kairos Partners. European Union equities “will possibly test the lows made in July with a potential break over the next hours or days,” he said.
An Asian equity index was also in the red, paced by losses in Hong Kong, where tech shares slid as traders weighed the risk of curbs on investment from the US.
In the UK, Conservative Party members are expected to name Liz Truss as their 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. Elsewhere, Bitcoin dropped below the $20,000 level.
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 the sentiment, which was already under pressure from a wave of monetary tightening.
The Stoxx Europe 600 falls 1.1% as of 10:48 am London time and futures on the Nasdaq 100 were little changed.
While futures on the Dow Jones Industrial Average rose 0.3%, the MSCI Asia Pacific Index fell 0.5%. The MSCI Emerging Markets Index fell as much as 0.5%.
The Bloomberg Dollar Spot Index rose 0.2% and the euro fell 0.3% to $0.9921.
While the Japanese yen fell 0.2% to 140.42 per dollar, the offshore yuan fell 0.4% to 6.9413 per dollar. The British pound was little changed at $1.1505.