October 1, 2022

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Euro, stocks and sterling resist after recent energy shock

Euro, stocks and sterling resist after recent energy shock

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  • European shares rose as gas prices fell after the rally
  • The yen fell to a 24-year low, the euro and the pound rose
  • Bond markets anticipate a breakout volume of 75 basis points from the European Central Bank on Thursday
  • Oil falls after modest supply cut from OPEC

LONDON (Reuters) – European stock markets, the euro and the British pound rose on Tuesday as previously high gas prices fell 10%, although government bond market costs continued to rise and the Japanese yen fell to a 24-year low. .

The mood was noticeably calmer after Monday’s chilling reaction to Moscow’s latest gas supply cuts. There was also hope that new British Prime Minister Liz Truss would launch an immediate relief package there, but the wounds from rising energy costs were palpable in the markets.

Even the 0.45% morning rally in the EUR cannot make it above parity/FRX. Stokes 600 (.stoxx) The rebound was a modest 0.25%, while Italian bond yields held near 4% on bets that the European Central Bank will have to raise interest rates by a record 0.75 later this week.

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“It might be natural to take a break here, but it’s hard to see where the good news will come from,” said James Athey, Abrdn’s chief investment officer.

He added that Russian gas would remain “the sword hanging over the European economy”, while the scope for higher interest rates was likely to come and the risk of recession not being fully reversed.

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“We remain in a strong dollar and a weak risk environment for the foreseeable future,” Othy said.

Sterling, which was one of the world’s weakest major currencies over the past month, rose 0.5% as the inauguration of new UK Prime Minister Liz Truss fueled expectations with a massive energy easing package in the coming days.

US stocks appear to be poised to open higher after the Labor Day holiday on Monday, while Chinese yuan prices slipped from more than two-year lows in Asia after Beijing’s recent stimulus efforts slashed foreign-exchange reserve requirements again.

But the major stock markets there have hardly budged. MSCI’s measure of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It finished 0.02% in the red and the Nikkei in Tokyo finished exactly where it started.

Yen sellers took all the action, sending the currency to a 24-year low of 141.56 against the dollar.

The movements in the other crosses were more pronounced. The euro jumped 1.2 percent to 141.2 yen and the pound rose 1.4 percent to 163.92 yen.

European currencies have been falling for more than a year

Australia raises prices again

By contrast, the Australian dollar was little changed after the Reserve Bank of Australia raised its interest rate by another 50 basis points and indicated that more was to come, with the warning that it was not on the predetermined path. Read more

“After we saw the 140 (dollar/yen) break … the momentum was definitely skewed by the weak yen,” said Galvin Shea, strategist at NatWest Markets.

“As long as (yield curve control) is in place, and as long as the interest rate variance exists, one of those side effects will be a weak yen.”

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The European Central Bank is widely expected to raise interest rates sharply when it meets on Thursday. European energy ministers are due to hold an emergency meeting on the gas crisis on Friday, while the next US Federal Reserve interest rate decision comes on September 21. read more

Jim Reed, strategist at Deutsche Bank, noted that markets are now pricing in not only a 75 basis point rate hike from the European Central Bank on Thursday, but a 50 basis point increase by the end of the year, which will underpin the fastest rate hike ever. borrow.

Returning to the commodity markets, oil prices fell, trimming the previous session’s 3% gain, after an agreement among members of the OPEC + group to cut production by 100,000 barrels per day in October was considered largely symbolic.

Brent crude futures fell 0.7 percent to $95.07 a barrel, adding to the morning’s losses. However, US crude futures rose 2.12% to $88.71 a barrel.

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Additional reporting by Ken Woo in Hong Kong and Elon John in London. Editing by Susan Fenton

Our criteria: Thomson Reuters Trust Principles.