Asia shares ease, euro slugged by energy crisis

Asia shares ease, euro slugged by energy crisis

Oil prices jumped along with the whole energy complex as a holiday in US markets made for thin trading conditions. News of more coronavirus lockdowns in China only added to the jittery mood. — Reuters pic

Monday, 05 Sep 2022 9:28 AM MYT

SYDNEY, Sept 5 — Asian shares slipped on Monday while the euro took a fresh spill after Russia shut a major gas pipeline to Europe, leading some governments there to announce emergency measures to ease the pain of soaring energy prices.

The euro was down 0.4 per cent at US$0.9908 (RM4.45) and looking likely to test its recent 20-year low of US$0.90005 as markets priced in more risk of a European recession.

Germany announced plans to spend €65 billion (RM289.4 billion) on shielding customers and businesses from rising costs, while Finland and Sweden offered liquidity guarantees to keep power companies open.

Oil prices jumped along with the whole energy complex as a holiday in US markets made for thin trading conditions. News of more coronavirus lockdowns in China only added to the jittery mood.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1 per cent, and Japan’s Nikkei was off 0.3 per cent.

Wall Street fared better as S&P 500 futures edged up 0.3 per cent and Nasdaq futures 0.2 per cent, though EUROSTOXX 50 futures were expected to open lower.

The energy crisis is an added complication for the European Central Bank (ECB) as it meets this week to consider how much to raise interest rates.

“Europe is faced with a dire energy outlook, with numerous anecdotes of firms cutting back production,” said Tapas Strickland, head of market economics at NAB.

“The ECB will undoubtedly decide to hike rates this week,” he added “Markets are close to fully pricing in a 75bp hike after numerous ECB officials said they were leaning that way, though there is still likely to be a debate around 50 v 75.”

Euro, sterling struggle

Central banks in Canada and Australia are also expected to raise interest rates this week, while Federal Reserve Chair Jerome Powell and several other policy makers will make appearances and are likely to sound hawkish on inflation.

While the August US jobs report showed some welcome signs of cooling in the labour market, investors are still leaning toward a hike of 75 basis points from the Fed this month.

The two-year US Treasury yield did fall almost 12 basis points on Friday and futures 0#YT: were trading flat on Monday amid general risk aversion.

The shift to safety again benefited the US dollar, which hit another two-decade high on a basket of major currencies at 110.040.

The dollar was firm at ¥140.50, just short of Friday’s 24-year top of 140.80.

Sterling was struggling at US$1.1481, after diving as deep as US$1.1458 and levels last seen in March 2020 at the start of the pandemic.

“We now expect the EUR/USD and GBP/USD rates to reach US$0.90 and US$1.05 respectively next year as the economic slowdown and the terms of trade shock hitting the region take their toll,” said Jonas Goltermann, a senior economist at Capital Economics.

British foreign minister Liz Truss said on Sunday she would set out immediate action in her first week in power to tackle rising energy bills and increase energy supplies if she is, as expected, appointed prime minister on Monday.

The strong dollar kept gold flat at US$1,709 an ounce.

Oil prices were supported by expectations gas prices would leap in Europe later in the day.

“Ultimately, Germany would need to cut natural gas consumption by 15 per cent to keep gas storage facilities from running empty,” said analysts at ANZ. “Gas rationing looks very likely, as even at 95 per cent full, storage would only last 2.5 months.”

Opec+ is meeting on Monday and is likely to keep oil output quotas unchanged for October, although some sources would not rule out a small production cut to bolster prices that have slid due to fears of an economic slowdown.

Brent was up US$1.54 at US$94.56, while US crude rose US$1.38 to US$88.25 per barrel. — Reuters