Dollar jumps as euro, Europe equity futures sink: markets wrap

European equity futures tumbled 3% and the euro fell Monday as the region’s worsening energy crisis added to concerns about a global economy already facing high inflation and a wave of monetary tightening.

An Asian equity index was also in the red, paced by losses in Hong Kong, where tech shares slid as traders weighed the risk of curbs on investment from the US. US contracts wavered after the worst week for world shares since June.

The dollar jumped as commodity-linked currencies joined the euro’s retreat to a two-decade low. Oil rallied past $88 a barrel before an OPEC+ meeting on supply. Cash Treasuries and US stocks are closed because of Labor Day.

Russia’s Gazprom PJSC last week again halted its key European gas pipeline indefinitely after Group of Seven leaders agreed to implement a price cap on Russian oil as the Kremlin continues its war in Ukraine. Natural gas prices are set to test records, and Europe could roll out special steps to rein in power costs. Germany plans a $65 billion package to shield consumers.

Monetary authorities including Europe’s central bank are set to keep hiking interest rates this week to fight inflation despite the darkening global economic outlook due to risks such power shortages and China’s Covid curbs. An attendant advance in real yields — seen as the true cost of money for borrowers — poses an obstacle to a variety of risk assets.

“The EU energy situation highlights the very challenging environment for central banks as they normalise policy settings and continue to hike,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada.

Markets also face more uncertainty from US-China tension. The Biden administration is considering moves to curb US investment in Chinese technology firms and will allow Trump-era merchandise import tariffs to continue while the levies are reviewed.

Separately, China extended its lockdown in districts of the megacity Chengdu and ordered more mass testing there as it tries to contain a Covid outbreak.

In the UK, Conservative Party members are expected to name Liz Truss as their leader, clearing her way to become prime minister. Her plan to “turbo-charge” the economy by slashing taxes is already worrying investors amid double-digit inflation. The British pound weakened against the greenback.

Elsewhere, Bitcoin dropped below the $20 000 level. Gold was little changed.

What to watch this week:

• UK prime minister to be announced, Monday
• OPEC+ meeting on supply, Monday
• Australia rate decision, Tuesday
• Apple event due to feature new iPhones, watches, Wednesday
• Bank of England Governor Andrew Bailey at Treasury Committee, Wednesday
• Fed’s Beige Book of regional economic activity, Wednesday
• Cleveland Fed President Loretta Mester due to speak, Wednesday
• European Central Bank rate decision, Thursday
• Fed Chair Jerome Powell speaks at a Cato Institute conference in Washington, Thursday
• Reserve Bank of Australia Governor Philip Lowe speaks at event, Thursday
• China PPI, aggregate financing, money supply, new yuan loans, Friday
• EU energy ministers extraordinary meeting on emergency intervention in electricity markets, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 6:20 a.m. in London. The S&P 500 fell 1.1%
• Nasdaq 100 futures lost 0.1%. The Nasdaq 100 fell 1.4%
• Japan’s Topix index was steady.
• Australia’s S&P/ASX 200 index added 0.2%
• South Korea’s Kospi index fell 0.3%
• China’s Shanghai Composite index rose 0.1%
• Hong Kong’s Hang Seng index declined 1.6%
• Euro Stoxx 50 futures sank 3.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%
• The euro fell 0.7% to $0.9886
• The Japanese yen was at 140.37 per dollar, down 0.1%
• The offshore yuan fell 0.5% to 6.9530 per dollar

Bonds

• The yield on 10-year Treasuries declined six basis points to 3.19% on Friday
• Australia’s 10-year bond yield was at 3.63%, down two basis points

Commodities

• West Texas Intermediate crude rose 2% to $88.63 a barrel
• Gold was at $1 711.37 an ounce, down 0.1%