The fall of the euro zone into recession takes the euro to its lowest level in 20 years

  • PMI data raises expectations of European recession
  • Dollar on top after euro hits 20-year lows, sterling collapses
  • Investors ask how aggressive the Fed will be in Jackson Hole
  • Oil bounces as Saudis talk of cutting output
  • US PMI due to Wall Street opening

LONDON, Aug 23 (Reuters) – The euro zone’s economy contracted for the second month in a row sent the single currency to a 20-year low against the dollar on Tuesday, with rising gasoline prices adding to the misery that is dragging Europe into recession.

Flat US stock index futures also gave investors little appetite for risky assets, although oil jumped more than 1% as supply tightness came back into focus as Saudi Arabia floated the idea of OPEC+ production cuts. read more

While S&P’s flash composite Purchasing Managers’ Index (PMI) of trading activity in Europe wasn’t as bad as feared, analysts said more gloomy news for the economy is likely as gas prices have risen. to record levels before winter. read more

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

The STOXX (.STOXX) The index of European company shares lost 0.4%, after falling for nearly a week. It is now 11% below its Jan. 4 all-time high as the war in Ukraine fueled inflation and prompted central bank interest rate hikes to dampen growth.

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

Europe braced for a new disruption in energy supplies from Russia. read more

“I can’t see the Ukraine war ending any time soon, that would be the catalyst for a market rally. That will keep the pressure on energy prices and as for the euro, the only way is down,” Michael said. . Hewson, head of markets at CMC Markets.

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

But despite signs that US inflation is peaking, markets are now expecting the Fed to remain tough when its chairman, Jerome Powell, addresses the annual meeting of global central bankers in Jackson Hole on Friday.

At last year’s meeting, central bankers misled investors by predicting that inflation would be a momentary problem, but price increases have been larger, longer lasting and more broadly based, said Monica Defend, director of the Amundi Institute.

Markets are betting 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 benchmark rates.

Defend said that while the company’s earnings have shown some resilience, margins will come under pressure later this year.

The euro, trading at $0.9920 against the dollar, is expected to fall further to $0.9600 in December, given Europe’s worsening outlook, Defend said.

“The United States and the euro zone are on two different paths,” he said.

Euro falls to 20-year low against strong dollar

Sterling moved from two-and-a-half-year lows against the dollar after Britain’s PMI showed business activity slowed in line with expectations. read more

S&P 500 and Nasdaq futures were flat after Monday’s sharp sell-off on Wall Street. The PMIs for the United States are due shortly after the stock market opens.

CHINESE CONCERN

Asian stocks fell for a seventh straight session on Tuesday after a further rise in energy prices in Europe stoked fears of a recession and pushed bond yields higher, while pushing the euro to a 20-year low.

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

“Growth in the services sector seems unlikely to accelerate much while China’s zero-COVID policies remain in place; the pandemic-linked export boom is coming to an end; and energy shortages due to droughts in parts of the country look set to hobble the industry in the short term,” said Oliver Allen, market economist at Capital Economics.

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

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

Ten-year yields last traded at 3.01%, almost 50 basis points above the lows of early August.

Relapse into US assets

The rise in the dollar and yields has been a drag on gold, which was hovering around $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 output.

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

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Information from Huw Jones and Wayne Cole; Edited by Jacqueline Wong, Mike Harrison, and Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.

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