Stocks Drop, Europe Futures Sink on Energy Crunch

The dollar was firm as commodity-linked currencies and the yen joined the euro’s retreat

Oil Storage at Hamburg Port as Germany Prioritizes Fuel Cargo Over RailAn oil tanker truck departs the Oiltanking Deutschland GmbH & Co. KG terminal in the Port of Hamburg in Hamburg, Germany, on Wednesday, Aug. 24, 2022. Germany will prioritize shipments of fuel and coal for power stations on the country's rail network in the government's latest move to prevent the energy crisis from spiraling out of control this winter.(Bloomberg/Krisztian Bocsi)

By Andreea Papuc

Bloomberg — European equity futures tumbled and the euro fell Monday as the region’s worsening energy crisis added to concerns about a global economy already facing high inflation and a wave of monetary tightening.

European futures shed more than 3% and US contracts wavered after the worst week for world shares since their June drop to bear-market lows. An Asian equity index was in the red, paced by Japan’s gauges.

The dollar was firm as commodity-linked currencies and the yen joined the euro’s retreat. Crude jumped past $88 a barrel ahead of an OPEC+ meeting on supply and as traders weighed the latest energy-sector twists.

Gazprom PJSC last week again halted its key European gas pipeline indefinitely after Group of Seven leaders agreed to implement a price cap on Russian oil as the Kremlin continues its war in Ukraine.

European ministers will discuss special measures to rein in soaring power costs, from gas-price caps to a suspension of power derivatives trading. Germany -- most affected by the Nord Stream pipeline cutoff -- has unveiled a $65 billion package to protect consumers.

US real yields are back in positive territory and continue to rise

There’s no cash Treasuries trading because of the Labor Day break, which also shutters the US stock market. Bonds rose in Australia and New Zealand.

Monetary authorities including Europe’s central bank are set to keep hiking interest rates this week to fight inflation despite a darkening global economic outlook due to risks such as natural gas shortages and China’s Covid curbs. An attendant advance in real yields -- seen as the true cost of money for borrowers -- poses an obstacle to a variety of risk assets.

“Russia’s response to the G7′s plan to apply price caps on Russian oil imports was to shut off the Nord Stream 1 pipeline and we’re at the point where lots of questions are being asked by the market on how this escalates and right now there is minimal clarity,” Chris Weston, Pepperstone Group Ltd. head of research, wrote in a note.

Markets also face more uncertainty from US-China tension -- the Biden administration is considering moves to curb US investment in Chinese technology firms and will allow Trump-era merchandise import tariffs to continue while the levies are reviewed.

China extended its lockdown in districts of the megacity Chengdu and ordered more mass testing there as it tries to contain a Covid outbreak.

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. The British pound weakened against the greenback.

Elsewhere, Bitcoin hovered near the $20,000 level and gold edged lower.

What to watch this week:

  • UK prime minister to be announced, Monday
  • OPEC+ meeting on supply, Monday
  • 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

  • S&P 500 futures rose 0.1% as of 9:50 a.m. in Tokyo. The S&P 500 fell 1.1%
  • Nasdaq 100 futures added 0.1%. The Nasdaq 100 fell 1.4%
  • Japan’s Topix index lost 0.3%
  • Australia’s S&P/ASX 200 index added 0.1%
  • South Korea’s Kospi index rose 0.4%
  • Euro Stoxx 50 futures sank 3.2%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2%
  • The euro fell 0.4% to $0.9917
  • The Japanese yen fell 0.1% to 140.38 per dollar
  • The offshore yuan fell 0.1% to 6.9242 per dollar

Bonds

  • The yield on 10-year Treasuries declined six basis points to 3.19% on Friday
  • Australia’s 10-year bond yield was at 3.64%

Commodities

  • West Texas Intermediate crude rose 1.6% to $88.23 a barrel
  • Gold was at $1,709.21 an ounce, down 0.2%

Read more at Bloomberg.com