LONDON (Reuters) – Contractions in the eurozone economy for the second straight month sent the single currency to a 20-year low against the dollar on Tuesday, and rising gas prices exacerbated poverty, pushing Europe into recession.
Flat U.S. stock index futures also blew investor interest in risky assets, although oil jumped more than 1% as tight supply came back into the spotlight as Saudi Arabia floated the idea of OPEC+ production cuts.
While the S&P Composite Manufacturing Index (PMI) for Europe was not as bad as feared, analysts say gloomier news for the economy is likely to come as gas prices jumped to record highs ahead of winters.
The MSCI Global Equity Index was down 0.3%.
The STOXX European Stocks Index lost 0.4% after falling for almost a week. It is now about 11% below the January 4 record high as the war in Ukraine pushed up inflation and forced central bank interest rate hikes that clouded economic growth.
Estimated gas prices in the European Union rose 13% overnight to a record peak, doubling in just one month and 14 times the average over the past decade.
Europe was ready for new interruptions in the supply of energy resources from Russia.
“I don’t see the war in Ukraine ending anytime soon, that would be the catalyst for a market rally. This will continue to put pressure on energy prices, and as far as the euro is concerned, the only way is down,” said Michael Hewson, chief market officer at CMC Markets.
Stocks have begun to recover on bets that the U.S. Federal Reserve will ‘deviate’ from its rate hike path next year.
But despite signs of a spike in U.S. inflation, markets now expect the Fed to remain aggressive when its chairman, Jerome Powell, speaks at the annual meeting of world central banks in Jackson Hole on Friday.
At last year’s meeting, central banks deceived investors by predicting
that inflation would be a temporary spike, but the rise in prices was higher, longer and more widespread, said Monica Defend, head of the Amundi Institute.
Markets are betting that the Fed will raise rates by 75 basis points next month, when the European Central Bank and the Bank of England are also expected to raise their base rates.
Defend said that while the company’s earnings showed some resilience, margins will come under pressure later this year.
The euro, which is trading at $0.9920 against the dollar, is expected to fall to $0.9600 by December given Europe’s worst outlook, Defend said.
“The U.S. and the eurozone are going two different ways,” she said.