Eurozone slide into recession puts euro at 20-year low

  • PMI data bolsters European recession expectations
  • Dollar leads after euro hits 20-year low, sterling slips
  • Investors ask how hawkish the Fed will be in Jackson Hole
  • Oil rebounds as Saudis talk production cuts
  • US PMI expected just after Wall Street opens

LONDON, Aug 23 (Reuters) – The contraction of the euro zone economy for a second consecutive month pinned the single currency to its lowest level in 20 years against the dollar on Tuesday, as soaring petrol prices added to misery dragging Europe into recession.

Flat U.S. stock index futures also gave investors little appetite for risky assets, although oil jumped more than 1% as tight supply returned to center stage as Saudi Saudi Arabia was tossing around the idea of ​​OPEC+ production cuts. Read more

While the S&P Flash Composite Purchasing Managers’ Index (PMI) of business activity in Europe was not as bad as expected, analysts said darker news for the economy is likely given how gas prices reached record highs before winter. Read more

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The MSCI World Stock Index (.MIWD00000PUS) was down 0.3%.

The STOXX (.STOXX) the European corporate stock index lost 0.4%, after falling for nearly a week. It is now around 11% from its record high of January 4, as the war in Ukraine pushed up inflation and triggered central bank interest rate hikes that weighed on growth.

Benchmark gas prices in the European Union jumped 13% overnight to a record high, having doubled in just one month to be 14 times higher than the average for the past decade.

Europe has braced for another disruption of energy supplies from Russia. Read more

“I don’t see the end of the war in Ukraine anytime soon, that would be the catalyst for a market rally. It will keep pressure on energy prices and like the euro, the only way is down,” said Michael Hewson, head of markets at CMC Markets.

Stocks had started to rally on bets that the US Federal Reserve would step away from its rate hike path next year.

But despite signs of a spike in inflation in the United States, markets now expect the Fed to remain hawkish when its Chairman Jerome Powell addresses the annual meeting of world central bankers in Jackson Hole on Friday.

At last year’s meeting, central bankers misled investors by predicting that inflation would only come to a temporary halt, but price increases were higher, longer lasting. and more widespread, said Monica Defend, Director of the Amundi Institute.

Markets are betting on a Fed rate hike of 75 basis points next month, as the European Central Bank and Bank of England are also expected to raise benchmark rates.

Defend said while corporate earnings have shown some resilience, margins will come under pressure later this year.

The euro, which is trading at $0.9920 against the dollar, is likely to fall further to $0.9600 by December given Europe’s bleaker outlook, Defend said.

“The United States and the eurozone are on two different tracks,” she said.

Euro tumbles to 20-year low against strong dollar

The pound hit a two-and-a-half-year low against the dollar after Britain’s PMI showed a slowdown in business activity in line with expectations. Read more

S&P 500 and Nasdaq futures held steady after Monday’s strong selloff on Wall Street. PMI indices for the United States are expected shortly after the market opens.

CHINA DISEASE

Asian stocks fell for a seventh straight session on Tuesday after another spike in energy prices in Europe fueled recession fears and pushed bond yields higher, while sending the euro to its highest. low level in 20 years.

Unease about China’s economy continued to seep in as a cut in lending rates and talk of a new round of official loans to property developers underscored tensions in the sector.

“Growth in the services sector looks unlikely to accelerate as long as China’s zero-COVID policies remain in place; the pandemic-related export boom is winding down; and drought-induced power shortages in some parts of the country are expected to hamper the industry in the near term,” said Oliver Allen, market economist at Capital Economics.

chinese blue chips (.CSI300) were down 0.5%, while the yuan fell to a nearly two-year low.

The Nikkei (.N225) fell 1.2% after a PMI survey showed factory activity in Japan slowed to a 19-month low in August. Read more

Ten-year yields were last trading at 3.01%, up nearly 50 basis points from lows in early August.

Relapse of American assets

The rise in the dollar and yields was a drag on gold, which was hovering at $1,736 an ounce after hitting a three-week low overnight.

Oil prices rose as Saudi Arabia warned that the OPEC+ producer alliance could cut production.

Brent rose 1.5% to $97.92, while U.S. crude rose 1.75% to $91.96 a barrel.

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Reporting by Huw Jones and Wayne Cole; Editing by Jacqueline Wong, Mike Harrison and Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.

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