The euro slumped back to parity with the US dollar and European stocks dropped as surging energy prices heightened fears that region’s big economies would slide into a recession.
Europe’s regional Stoxx 600 lost 1.2 per cent, while Germany’s Dax fell 1.7 per cent. The euro dropped 0.4 per cent to $0.99, slipping below the $1 threshold again after reaching parity with the greenback in July for the first time in two decades.
Those falls came as German baseload power for next-day delivery — a key regional barometer — surged as high as €603 a megawatt hour, an all-time record, after Russian state-owned company Gazprom on Friday said it would shut down the key Nord Stream 1 gas pipeline to Europe between August 31 and September 2 for repairs.
European gas prices also jumped on Monday, with futures contracts for delivery next month linked to TTF — the continent’s benchmark wholesale price — adding 10 per cent to €281 a megawatt hour.
Investors and economists are concerned soaring energy prices will crimp business activity across the region. A survey released last week showed that German investors are the most worried about the eurozone’s powerhouse economy than at any time since the eurozone debt crisis a decade ago.
“Governments are starting to share higher energy costs with consumers, and firms will have to start slowly curtailing production, while supply lines are being hit by a lack of transport options on the lower water levels on the river Rhine,” said Jordan Rochester at Japanese bank Nomura.
Investors were on Monday also looking ahead to the Jackson Hole symposium of US central bankers taking place later in the week, searching for clues about how aggressively the US Federal Reserve will lift borrowing costs to rein in inflation.
The annual conference, which is hosted by the Kansas City Federal Reserve and which begins on Thursday, is often used by the US central bank to make announcements on its policy stance.
“I wouldn’t bank on Powell giving a strong signal at Jackson Hole that he’s ready to change direction on inflation,” said Joost van Leenders, senior investment strategist at Van Lanschot Kempen. “[He’ll] justify why they are raising rates so fast and why they have to.”
In debt markets, the yield on Germany’s two-year Bund, which closely tracks interest rate expectations, lost 0.05 percentage points to 0.77 per cent as the price of the instrument rose. The benchmark 10-year yield slipped 0.04 percentage points to 1.19 per cent.
The yield on the 10-year US Treasury note slipped 0.04 percentage points to 2.95 per cent.
Elsewhere, mainland Chinese shares bounced on Monday after the People’s Bank of China slashed its mortgage lending rate for the second time this year, in an effort to support its debt-laden real estate sector. The CSI 300 gauge of Shanghai and Shenzhen-listed stocks rose 0.7 per cent.