Strong Dollar Is Good for the US but Bad for the World

The Federal Reserve’s determination to crush inflation at home by raising interest rates is inflicting profound pain in other countries — pushing up prices, ballooning the size of debt payments and increasing the risk of a deep recession.

Those interest rate increases are pumping up the value of the dollar — the go-to currency for much of the world’s trade and transactions — and causing economic turmoil in both rich and poor nations. In Britain and across much of the European continent, the dollar’s acceleration is helping feed stinging inflation.

On Monday, the British pound touched a record low against the dollar as investors balked at a government tax cut and spending plan. And China, which tightly controls its currency, fixed the renminbi at its lowest level in two years while taking steps to manage its decline.

Somalia, where the risk of starvation already lurks, the strong dollar is pushing up the price of imported food, fuel and medicine. The strong dollar is nudging debt-ridden Argentina, Egypt and Kenya closer to default and threatening to discourage foreign investment in emerging markets like India and South Korea.

the International Monetary Fund.

Japanese yen has reached a decades-long high. The euro, used by 19 nations across Europe, reached 1-to-1 parity with the dollar in June for the first time since 2002. The dollar is clobbering other currencies as well, including the Brazilian real, the South Korean won and the Tunisian dinar.

the economic outlook in the United States, however cloudy, is still better than in most other regions.

loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

A fragile currency can sometimes work as “a buffering mechanism,” causing nations to import less and export more, Mr. Prasad said. But today, many “are not seeing the benefits of stronger growth.”

Still, they must pay more for essential imports like oil, wheat or pharmaceuticals as well as for loan bills due from billion-dollar debts.

debt crisis in Latin America in the 1980s.

The situation is particularly fraught because so many countries ran up above-average debts to deal with the fallout from the pandemic. And now they are facing renewed pressure to offer public support as food and energy prices soar.

Indonesia this month, thousands of protesters, angry over a 30 percent price increase on subsidized fuel, clashed with the police. In Tunisia, a shortage of subsidized food items like sugar, coffee, flour and eggs has shuttered cafes and emptied market shelves.

New research on the impact of a strong dollar on emerging nations found that it drags down economic progress across the board.

“You can see these very pronounced negative effects of a stronger dollar,” said Maurice Obstfeld, an economics professor at the University of California, Berkeley, and an author of the study.

central banks feel pressure to raise interest rates to bolster their currencies and prevent import prices from skyrocketing. Last week, Argentina, the Philippines, Brazil, Indonesia, South Africa, the United Arab Emirates, Sweden, Switzerland, Saudi Arabia, Britain and Norway raised interest rates.

World Bank warned this month that simultaneous interest rate increases are pushing the world toward a recession and developing nations toward a string of financial crises that would inflict “lasting harm.”

Clearly, the Fed’s mandate is to look after the American economy, but some economists and foreign policymakers argue it should pay more attention to the fallout its decisions have on the rest of the world.

In 1998, Alan Greenspan, a five-term Fed chair, argued that “it is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress.”

The United States is now facing a slowing economy, but the essential dilemma is the same.

“Central banks have purely domestic mandates,” said Mr. Obstfeld, the U.C. Berkeley economist, but financial and trade globalization have made economies more interdependent than they have ever been and so closer cooperation is needed. “I don’t think central banks can have the luxury of not thinking about what’s happening abroad.”

Flávia Milhorance contributed reporting from Rio de Janeiro.

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Italians expected to elect right-wing government led by Meloni

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  • Rightist bloc set for majority in both houses-exit polls
  • Meloni would be country’s first woman prime minister
  • Early vote follows collapse of Draghi government

ROME, Sept 25 (Reuters) – A right-wing alliance led by Giorgia Meloni’s Brothers of Italy party looks set to win a clear majority in the next parliament, exit polls said on Sunday after voting ended in an Italian national election.

An exit poll for state broadcaster RAI said the bloc of conservative parties, that also includes Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia party, won between 41 and 45%, enough to guarantee control of both houses of parliament.

Italy’s electoral law favours groups that manage to create pre-ballot pacts, giving them an outsized number of seats by comparison with their vote tally.

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Full results are expected by early Monday.

If confirmed, the result would cap a remarkable rise for Meloni, whose party won only 4% of the vote in the last national election in 2018, but this time around was forecast to emerge as Italy’s largest group on 22.5-26.5%.

As leader of the biggest party in the winning alliance, she is the obvious choice to become Italy’s first woman prime minister, but the transfer of power is traditionally slow and it could take several weeks before the new government is sworn in.

Meloni, 45, plays down her party’s post-fascist roots and portrays it as a mainstream conservative group. She has pledged to support Western policy on Ukraine and not take undue risks with the third largest economy in the euro zone.

Italy’s first autumn national election in over a century was triggered by party infighting that brought down Prime Minister Mario Draghi’s broad national unity government in July.

Italy has a history of political instability and the next prime minister will lead the country’s 68th government since 1946 and face a host of challenges, notably soaring energy costs and growing economic headwinds.

The outcome of the vote was also being watched nervously in European capitals and on financial markets, given the desire to preserve unity in dealings with Russia and concerns over Italy’s daunting debt mountain.

The new, slimmed-down parliament will not meet until Oct. 13, at which point the head of state will summon party leaders and decide on the shape of the new government.

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Additional reporting by Gavin Jones and Giselda Vagnoni
Editing by Keith Weir

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Bank Of England Raises Rates But Avoids Bolder Hike Like Fed

By Associated Press
September 22, 2022

Surging inflation is a worry for central banks because it saps economic growth by eroding people’s purchasing power.

The Bank of England raised its key interest rate Thursday by another half-percentage point to the highest level in 14 years, but despite facing inflation that outpaces other major economies, it avoided more aggressive hikes made by the U.S. Federal Reserve and other central banks.

It is the Bank of England’s seventh straight move to increase borrowing costs as rising food and energy prices fuel a cost-of-living crisis that is considered the worst in a generation. Despite facing a slumping currency, tight labor market and inflation near its highest level in four decades, officials held off on acting more boldly as they predicted a second consecutive drop in economic output this quarter, an informal definition of recession.

The bank matched its half-point increase last month — the biggest in 27 years — to bring its benchmark rate to 2.25%. The decision was delayed for a week as the United Kingdom mourned Queen Elizabeth II and comes after new Prime Minister Liz Truss’ government unveiled a massive relief package aimed at helping consumers and businesses cope with skyrocketing energy bills.

The new measures have eased uncertainty over energy costs and are “likely to limit significantly further increases” in consumer prices, the bank’s policymakers said. They expected inflation — now at 9.9% — to peak at 11% in October, lower than previously forecast.

“Nevertheless, energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10% over the following few months, before starting to fall back,” the monetary policy committee said.

The bank signaled it is prepared to respond more forcefully at its November meeting if needed. Its decision comes during a busy week for central bank action marked by much more aggressive moves to bring down soaring consumer prices.

The U.S. Federal Reserve hiked rates Wednesday by three-quarters of a point for the third consecutive time and forecast that more large increases were ahead. Also Thursday, the Swiss central bank enacted its biggest-ever hike to its key interest rate.

Three of the British bank’s nine committee members wanted a similar three-quarter-point raise but were outvoted by five who preferred a half-point and one who voted for a quarter-point.

The decision “suggests the Bank of England is concerned about the U.K.’s economic deteriorating outlook amid the looming threat of recession,” said Victoria Scholar, head of investment at interactive investor. “The timid increase will do little to stem the slide in sterling but may avoid inadvertently inducing unnecessary pain for the economy which is already grappling with slowing demand and deteriorating confidence.”

Surging inflation is a worry for central banks because it saps economic growth by eroding people’s purchasing power. Raising interest rates — the traditional tool to combat inflation — reduces demand and therefore prices by making it more expensive to borrow money for big purchases like cars and homes.

Inflation in the United Kingdom hit 9.9% in August, close to its highest level since 1982 and five times higher than the Bank of England’s 2% target. The British pound is at its weakest against the dollar in 37 years, contributing to imported inflation.

To ease the crunch, Truss’ government announced it would cap energy bills for households and businesses that have soared as Russia’s war in Ukraine drives up the price of natural gas needed for heating.

The Treasury is expected to publish a “mini-budget” Friday with more economic stimulus measures, and the bank said it won’t be able to assess how they will affect inflation until its November meeting..

The Bank of England expects gross domestic product to fall by 0.1% in the third quarter, below its August projection of 0.4% growth. That would be a second quarterly decline after official estimates showed output fell by 0.1% in the previous three-month period.

The weakness partly reflects a smaller-than-expected rebound after an extra June holiday to celebrate the queen’s 70 years on the throne and the impact of another public holiday Monday for her funeral, officials said.

The bank avoided pressure to go bigger even as other banks around the world take aggressive action against inflation fueled by the global economy’s recovery from the COVID-19 pandemic and then the war in Ukraine.

This month, Sweden’s central bank raised its key interest rate by a full percentage point, while the European Central Bank delivered its largest-ever rate increase with a three-quarter point hike for the 19 countries that use the euro currency.

But British policymakers signaled they will “respond forcefully, as necessary” if there are signs that inflationary pressure is more persistent than expected, “including from stronger demand.”

The bank said it’s also moving ahead with plans to trim its bond holdings built up under a stimulus program, selling off 80 billion pounds ($90 billion) worth of assets over the next year to bring its portfolio down to 758 billion pounds.

Additional reporting by The Associated Press.

Source: newsy.com

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U.S. Markets Sink Ahead Of Another Expected Interest Rate Hike

By Associated Press
September 19, 2022

Futures for the Dow Jones industrials and for the S&P 500 each tumbled nearly 1% Monday morning.

Wall Street pointed lower before the opening bell Monday ahead of another expected large interest rate hike from the U.S. Federal Reserve.

Futures for the Dow Jones industrials and for the S&P 500 each tumbled 0.9%.

Britain was observing a day of mourning for Queen Elizabeth II. Japan’s markets were closed for a holiday.

Germany’s DAX lost 0.4%, while the CAC 40 in Paris shed 1%.

Markets have been on edge because of stubbornly high inflation and the increases in interest rates being used to fight it. The fear is that the Fed and other central banks might overshoot their policy targets, triggering a recession.

Most economists forecast that the Fed will jack up its primary lending rate another three-quarters of a point when the central bank’s leaders meet this week.

“Fact is, hawkish expectations built on the ‘hot under the hood’ U.S. inflation print means that markets have good reason to be braced for headwinds amid prospects of higher (for longer) rates; and arguably ‘higher for longer’ USD (dollar) as well,” Vishnu Varathan of Mizuho Bank said in a commentary.

Hong Kong’s Hang Seng lost 1% to 18,565.97 while the Shanghai Composite index shed 0.4% to 3,115.60. Australia’s S&P/ASX 200 gave up 0.3% to 6,719.90. In Seoul, the Kospi sank 1.1% to 2,355.66.

Japan’s central bank meets Wednesday and Thursday amid rising pressure to counter a sharp decline in the yen’s value against the dollar. That has raised costs for businesses and consumers, who must pay more for imports of oil, gas and other necessities.

However the Bank of Japan has held firm so far in maintaining an ultralow benchmark rate of minus 0.1% in hopes of stimulating investment and spending.

On Friday, a stark warning from FedEx about rapidly worsening economic trends elevated anxiety in markets. The S&P 500 fell 0.7%, while the Nasdaq lost almost 1%. The Dow lost almost half percent.

The S&P 500 sank 4.8% for the week, with much of the loss coming from a 4.3% rout on Tuesday following a surprisingly hot report on inflation.

All the major indexes have now posted losses four out of the past five weeks.

FedEx sank 21.4% for its biggest single-day sell-off on record Friday after warning investors that its fiscal first-quarter profit will likely fall short of forecasts because of a drop-off in business. The package delivery service is also shuttering storefronts and corporate offices and expects business conditions to further weaken.

Higher interest rates tend to weigh on stocks, especially the pricier technology sector. The housing sector is also hurting as interest rates rise. Average long-term U.S. mortgage rates climbed above 6% last week for the first time since the housing crash of 2008. The higher rates could make an already tight housing market even more expensive for American homebuyers.

But the rate hikes have yet to cool the economy substantially.

Last week, the U.S. reported that consumer prices rose 8.3% through August compared with last year, the job market is still red-hot and consumers continue to spend, all of which give ammunition to Fed officials who say the economy can tolerate more rate hikes.

In other trading Monday, U.S. benchmark crude lost $2.01 to $83.10 per barrel in electronic trading on the New York Mercantile Exchange. It edged up 1 cent to $85.11 per barrel on Friday.

Brent crude oil gave up $1.93 to $89.42 per barrel.

The dollar strengthened to 143.57 Japanese yen from 142.94 yen. The euro slipped to 99.93 cents from $1.0014.

Additional reporting by The Associated Press.

Source: newsy.com

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Stocks subdued by outsized rate risks, yen fragile

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  • Fed looms over broader markets, dollar rises
  • Oil tumbles on demand concerns, U.S. rail strike averted
  • Treasury yields climb while oil gold tumbles

NEW YORK, Sept 15 (Reuters) – Wall Street indexes were firmly in the red after a choppy start to Thursday’s session while bond yields rose as investors digested economic data that provided the Federal Reserve little reason to ease its aggressive interest rate hiking cycle.

Oil futures tumbled more than 3% on demand concerns and after a tentative agreement that would avert a U.S. rail strike, as well as continued U.S. dollar strength with expectations for a large U.S. rate increase. read more

Economic data showed U.S. retail sales unexpectedly rebounded in August as Americans ramped up purchases of motor vehicles and dined out more while taking advantage of lower gasoline prices. But data for July was revised downward to show retail sales declining instead of flat as previously reported.

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Separately the Labor Department said initial claims for state unemployment benefits fell for the week ended Sept. 10 to the lowest level since the end of May. read more

Investors are widely expecting an aggressive rate hike after the Federal Open Market Committee (FOMC) meeting next week, but nervously awaiting hints from Fed Chair Jerome Powell about future policy moves, said Quincy Krosby, chief global strategist at LPL Financial.

“The market remains choppy knowing that there’s a Fed meeting next week. Even though participants agree that it’ll be a 75 basis points rate hike, it’s what the statement adds to previous commentary and what Chairman Powell says in his press conference” that have them worried, Krosby said.

The Dow Jones Industrial Average (.DJI) fell 173.07 points, or 0.56%, to 30,962.02; the S&P 500 (.SPX) lost 44.69 points, or 1.13%, to 3,901.32 and the Nasdaq Composite (.IXIC) dropped 167.32 points, or 1.43%, to 11,552.36.

MSCI’s gauge of stocks across the globe (.MIWD00000PUS) shed 0.96% while emerging market stocks (.MSCIEF) lost 0.57%.

Stocks, bonds and currencies on Thursday were showing a market “increasingly understanding the Fed is going to hike more aggressively next week,” said Scott Ladner, chief investment officer at Horizon Investments in Charlotte, North Carolina.

Referring particularly to the still strong labor market, Ladner said “economic numbers released today are tying a bow on the situation.”

Treasury yields rose with the two-year hitting fresh 15-year highs, after data on retail sales and jobless claims showed a resilient economy that gives the Fed ample room to aggressively hike interest rates.

Also already signaling a recession warning the inverted yield curve – the gap between 2-year and 10-year treasury yields – widened further to -41.4 basis points, compared with -13.0 bps a week ago.

Benchmark 10-year notes were up 4.5 basis points to 3.457%, from 3.412% late on Wednesday. The 30-year bond last fell 5/32 in price to yield 3.4779%, from 3.469%. The 2-year note last fell 5/32 in price to yield 3.8646%, from 3.782%.

“In this vicious cycle where the data continues to remain resilient, that would imply a Fed that would likely stay the course and continue to tighten policy,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York.

Also clouding investors’ moods on Thursday was the World Bank’s assessment that the world may be edging toward a global recession as central banks across the world simultaneously hike interest rates to combat persistent inflation. read more

In currencies the dollar was slightly higher against the yen while the Swiss franc hit its strongest level against the euro since 2015. read more

The dollar index , which measures the greenback against a basket of major currencies, rose 0.091%, with the euro up 0.18% to $0.9995.

The Japanese yen weakened 0.19% versus the greenback at 143.44 per dollar, while Sterling was last trading at $1.1469, down 0.57% on the day.

Before the tentative labor agreement, fears of a U.S. railroad worker strike had supported oil prices due to supply concerns on Wednesday. In addition, the International Energy Agency (IEA) said this week that oil demand growth would grind to a halt in the fourth quarter.

U.S. crude settled down 3.82% at $85.10 per barrel while Brent finished at $90.84, down 3.46% on the day.

Gold dropped to its lowest level since April 2021, hurt by elevated U.S. Treasury yields and a firm dollar, as bets of another hefty Fed rate hike eroded bullion’s appeal.

Spot gold dropped 1.9% to $1,664.46 an ounce. U.S. gold futures fell 2.02% to $1,662.30 an ounce.

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Additional reporting by Herbert Lash in New York, Marc Jones in London, Stefano Rebaudo in Milan, Tom Westbrook in Singapore and Wayne Cole in Sydney; Editing by Kirsten Donovan and Jonathan Oatis

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Kyiv claims battlefield gains as Russian gas shutdown hits Europe markets

  • Zaporizhzhia plant cut from grid but operating safely -IAEA
  • Zelenskiy warns of near nuclear “catastrophe” day before report
  • Kyiv cites battlefield gains, including Kherson province town
  • European markets hit hard by closure of Russian gas pipeline

KYIV, Sept. 5 (Reuters) – Power at a critical nuclear plant in Ukraine was all but cut off on Monday for the second time in two weeks as Kyiv accused Moscow of pushing the war to the brink of nuclear catastrophe, one day before the U.N. nuclear watchdog was due to issue an assessment of the Zaporizhzhia power station. .

Ukraine and Russia have accused each other of risking catastrophe by shelling near the plant, which officials said disrupted power lines and taken the sole remaining reactor at Europe’s largest nuclear plant offline.

The International Atomic Energy Agency, citing information supplied from Ukraine, said the plant’s backup power line had been cut to extinguish a fire but that the line itself was not damaged and would be reconnected.

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The plant has enough electricity to operate safely and will be reconnected to the grid once the backup power is restored, the watchdog agency said in a statement before releasing its full findings in a fuller report on Tuesday.

Ukrainian President Volodymyr Zelenskiy on Monday warned of a near “radiation catastrophe” and said the shelling showed Russia “does not care what the IAEA will say.”

“Again – already for the second time – because of Russian provocation, the Zaporizhzhia station was placed one step away from a radiation catastrophe,” he said in his nightly video message.

The nuclear concerns add to the ongoing energy fight between Moscow and the West since Russian troops invaded Ukraine in late February as the larger military conflict continues.

European markets on Monday went into free-fall as Russia kept its main gas pipeline to Germany shut. Meanwhile, Kyiv made its boldest claim yet of success on the battlefield in its week-old counter-offensive against Russian forces in the south.

The six-reactor Zaporizhzhia plant in southern Ukraine has become a focal point of the six-month conflict after Moscow took control of the facility in March, even as Ukrainian engineers continue to operate it, raising the spectre of a nuclear accident.

Ukraine’s state nuclear company Energoatom said the plant’s last working reactor block was disconnected from Ukraine’s grid after Russian shelling disrupted power lines.

Vladimir Rogov, a Russian-installed official in Zaporizhzhia region, said Ukrainian shelling had damaged a containment vessel next to the second reactor but its operation was unaffected.

Following days of silence about their new offensive, Ukrainian officials posted an image online of three soldiers raising a flag over a town in Kherson province, a southern region occupied by Russia since the war’s early days.

The image of the flag being fixed to a pole on a rooftop, purportedly in Vysokopyllya in the north of Kherson, was released as Zelenskiy on Sunday announced Ukrainian forces had captured two towns in the south and one in the east without identifying them.

COUNTER-ATTACK

After months of enduring punishing Russian artillery assaults in the east, Ukraine has at last begun its long-awaited counter-attack, its biggest since it repelled Russian forces from the outskirts of Kyiv in March.

Ukraine had kept most details of its new campaign under wraps, banning journalists from the frontline and offering little public commentary in order to preserve tactical surprise.

Russia has said it pushed back assaults in Kherson, but in a rare acknowledgment of the Ukrainian counter-offensive, TASS news agency quoted a Moscow-installed official in the region as saying plans for a referendum on joining Russia had been put on hold due to the security situation.

In a Monday evening update, the Ukrainian general staff said its forces had driven back Russian forces in an unspecified area near Kramatorsk – a key town in eastern Donetsk region – while Russian forces had shelled about a dozen towns in the south.

Still, Zelenskiy has warned European countries that they could face a cold winter.

On Monday evening, a missile strike by Russian forces destroyed an oil depot in Kryvorizsky district in Dnipropetrovsk region, emergency authorities in the area said on Facebook following earlier nearby Russian missile strikes.

BLEAK WINTER

Moscow blames disruption to equipment repairs and maintenance caused by Western sanctions for its halt to the flow of gas through Nord Stream 1, its main pipeline to Germany. Russia was due to reopen the pipeline on Saturday but is now shut indefinitely.

“Problems with gas supply arose because of the sanctions imposed on our country by Western states, including Germany and Britain,” Kremlin spokesman Dmitry Peskov said on Monday.

Europe and the United States say Russia is using energy as a weapon but add they are collaborating to ensure supplies. read more

European countries have also rolled out billions of euros in aid that last week helped drive European gas prices back down sharply from record highs.

But the weekend news about Nord Stream’s extended shutdown sent prices soaring once again on Monday, with the main European benchmark up by more than 35%, bringing fears of a bleak winter for consumers and businesses across the continent.

Germany’s DAX share index was down well over 2%, the Euro sank below 99 U.S. cents for the first time in decades, and the pound was not far off mid-1980s lows against the dollar as Liz Truss was announced as Britain’s next prime minister.

Russia’s Peskov vowed retaliation for the latest Western move aimed at capping the price of Russian oil exports from December designed to reduce Moscow’s main source of income.

In Russia, which has effectively banned independent media since President Vladimir Putin launched his “special military operation” Feb. 24, a judge on Monday revoked the license of liberal newspaper Novaya Gazeta, one of the last unofficial voices. read more

The ruling was “a political hit job, without the slightest legal basis”, said its editor, Dmitry Muratov, who won last year’s Nobel Peace Prize for the paper’s fight for free speech.

A Russian court also sentenced a former journalist to 22 years in prison for treason after prosecutors said he disclosed state secrets. His supporters say the case is retribution for him exposing details of Russia’s international arms deals.

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Reporting by Tom Balmforth, Max Hunder and Ron Popeski; writing by Peter Graff, Philippa Fletcher and Susan Heavey; editing by Tomasz Janowski and Alistair Bell

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Shares slip, euro hits 20-year low on energy ills

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A man walks under an electronic screen showing Japan’s Nikkei share price index inside a conference hall in Tokyo, Japan June 14, 2022. REUTERS/Issei Kato

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LONDON, Sept 5 (Reuters) – European stock indexes fell on Monday, the euro dropped below 99 cents for the first time in twenty years and European gas prices surged after Russia said its main gas supply pipeline to Europe would stay shut.

Gas deliveries had been due to resume on Saturday, but Russia scrapped that deadline on Friday and did not give a new timeframe for re-opening. The news stoked fears of a recession in Europe, with businesses and households hurt by sky-high energy prices. read more

European gas prices jumped as much as 30% as the market opened. read more

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Germany announced on Sunday around $65 billion of support to help protect Germans from rising costs. read more

Finland and Sweden also announced plans to offer liquidity guarantees to power companies. Finland’s economic affairs minister warned of the possibility of “kind of a Lehman Brothers” in the energy industry, referring to the 2008 collapse of what was then the fourth-largest U.S. investment bank. read more

Nomura economist George Buckley said it is uncertain how much the support packages from European governments will mitigate the energy crisis.

“The impact of what’s happening from energy is absolutely enormous, so I think the bigger risk is that it’s just simply not possible – like COVID – you can do a lot to help but you can’t offset it.”

European Union energy ministers will meet on Sept. 9 to discuss options to rein in soaring energy prices, including gas price caps and emergency credit lines for energy market participants. read more

At 1414 GMT, the MSCI world equity index (.MIWD00000PUS), which tracks shares in 47 countries, was down 0.4% on the day. Europe’s STOXX 600 was down 0.8%, having recovered slightly after approaching a seven-week low earlier in the session (.STOXX).

London’s FTSE 100 was 0.1% lower (.FTSE) and Germany’s DAX was down 2.3% on the day (.GDAXI).

A public holiday in U.S. markets means lower liquidity, which could lead to outsized market moves.

The euro was trading around $0.9925, down 0.3% on the day. It slid during Asian trading hours and hit $0.9876 in early European hours, its lowest since 2002 . read more

Euro zone government bond yields rose, with Italian 10-year yields heading towards 4% . read more

The European Central Bank (ECB) meets later this week and is expected to deliver its second big rate hike in an attempt to combat inflation, which is running at more than four times its 2% target. read more

“Sky-high energy prices, the risk of gas shortages and the fiscal and regulatory response will shape the outlook for euro zone GDP and inflation much more than anything the ECB may do with rates,” Berenberg chief economist Holger Schmieding said in a client note.

In the UK, Liz Truss was named as Britain’s next prime minister, taking power at a time when the country faces a cost of living crisis, industrial unrest and a recession. In her victory speech Truss said she planned to cut taxes and deal with energy bills. read more

The British pound was down around 0.1% at $1.15125 , but slightly up against the euro at 86.275 pence .

The U.S. dollar index was little changed, while the risk-sensitive Australian dollar was near a seven-week low .

Oil prices rose more than 3%, extending gains as OPEC+ producers agreed a small oil production cut to bolster prices. read more

Euro area PMI survey data showed that Germany’s services sector contracted for a second month running in August. France’s service sector eked out modest growth, though purchasing managers there said the outlook was bleak. read more

Euro vs gas prices

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Reporting by Elizabeth Howcroft; Editing by Mark Potter, Andrew Heavens and Jan Harvey

Our Standards: The Thomson Reuters Trust Principles.

Elizabeth Howcroft

Thomson Reuters

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and the money driving “Web3”.

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Morning Bid: Paused stream

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Pipes at the landfall facilities of the ‘Nord Stream 1’ gas pipeline are pictured in Lubmin, Germany, March 8, 2022. REUTERS/Hannibal Hanschke/File Photo

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A look at the day ahead in European and global markets from Tom Westbrook

As far as first days go, Monday is shaping as a doozy for Britain’s new Prime Minster. read more

That’s widely expected to be Liz Truss, who’d begin as leader with gas prices poised to fly after Russia cancelled the weekend’s resumption of gas flow down the Nord Stream pipe.

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Gazprom blamed an oil leak at a compressor station near where the pipeline plunges into the Baltic Sea, though Germany’s network regulator and turbine supplier Siemens said a leak was no technical reason for cutting flows. read more

The result is worst-case scenarios for Europe’s growth edging closer to reality.

The pound is within striking distance of its lowest levels since 1985. The euro is testing a fall below 99 cents for the fist time since the early 2000s, with outsized moves possible since a U.S. holiday will thin liquidity.

The latest storage figures show German facilities have already hit October’s 85% capacity target. But that achievement has required cuts to consumption so deep that they are unsustainable without damage to growth.

And the autumn has barely begun, so a lean season awaits.

Focus on Monday, apart from the appointment of Britain’s next leader, is likely to be on the fallout from the gas cut, which is already drawing emergency subsidies and liquidity guarantees in Germany and Baltic states. read more

Later in the week, the European Central Bank meets with markets pricing about a 75% chance of a 75 basis point rate hike.

Reuters Graphics

Key developments that could influence markets on Monday:

Economics: Final Europe and UK PMIs, euro zone retail sales

Speakers: Bank of England’s Catherine Mann

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Reporting by Tom Westbrook
Editing by Vidya Ranganathan & Shri Navaratnam

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