Europe hit by gas squeeze
Stock markets in Europe mostly finished in the red due to worries about an energy shortage. Gazprom, the gas company owned by the Russian government, announced that gas supply via the Nord Stream 1 pipeline will be reduced by 20% from tomorrow. Relations between the EU and Moscow have been tense since Russia’s invasion of Ukraine, and things have gone from bad to worse in light of the news. Germany is the largest economy in Europe, and more than half of its gas imports come from Russia, so the latest development is likely to apply pressure to its economy. Natural gas prices hit their highest level since early June, and that weighed on the DAX, the CAC and the FTSEMIB. US stocks are in the red because Walmart cut its profit forecast yesterday. The retailer warned that high levels of inflation are driving up costs. Walmart is seen as a good benchmark for US society, and if a major player like that is feeling the pinch of rising costs, then other firms are likely to be a little less optimistic in their outlook. The US Conference Board consumer confidence report fell to 95.7, a nine-year low. Tonight, Visa, Microsoft, and Alphabet – Google’s parent – will release their latest quarterly numbers. Alphabet rely heavily on advertising revenue and considering the consumer climate is becoming more challenging, traders will be looking out for any signs that advertisers are trimming their budgets.
The IMF cautioned the world economy could be on the brink of a recession as it lowered its growth forecasts for the US, the eurozone and China. The body predicts the UK will have the slowest growth of the G7 this year. High inflation levels were behind the downgrades.
The US dollar index is driving higher ahead of tomorrow’s Fed meeting, where the bank is widely expected to hike rates by 0.75%. Earlier this month, the BoC lifted rates by 1%, a larger rate hike than expected, the ECB also did a larger than anticipated lift, so it might not be a total shock if the Fed do a 1% hike. The euro has sold off sharply due to concerns about potential energy shortages in the continent in the months ahead. EUR/USD is down over 0.9%. The uncertainty running through stock markets is pushing up demand for the yen. The currency typically performs well when traders are seeking out lower risk assets. WTI and Brent crude are now in the red as natural gas is off its session highs.