Financial markets are reeling from the shutdown of Russia’s Nord Stream1 pipeline as energy pressure on European economies intensifies as winter approaches. The euro fell to a two-decade low in early trade this morning after Russian energy company Gazprom extended the shutdown of its natural gas pipeline to Germany into Friday night. Fears of excessively high energy prices and possible shortages pushed the euro further below parity against the US dollar. sending the single currency as high as $0.9879 against the US dollar for the first time in two decades. Nord Stream 1 was due to restart operations on Saturday morning, after a three-day maintenance shutdown. However, Gazprom played down hopes of a restart on Friday night, blaming a leak. Russia’s gas supply routes to Europe Analysts expect natural gas prices to soar, having retreated from recent highs last week. Michael Hewson of CMC Markets explains: Russia’s actions on Friday in indefinitely closing the pipeline could see fresh upward pressure on gas prices in Europe and the UK when markets reopen today, after seeing big falls in prices last week as prices of natural gas in the UK fell 39%, while European prices fell 33%. European stock markets are headed for big losses at the opening, with the German DAX falling 2-3% in the futures market. Good morning from Europe, where Europe is in a state of emergency after Russia shuts down NS1 streams. from $1.1448) — Joumanna Bercetche 🇱🇧 (@CNBCJou) September 5, 2022
Also coming today.
OPEC and its allies meet to set production targets for October today. They are likely to leave output prices unchanged, although they could consider a small output cut to support oil prices. The latest services sector PMI reports will show how companies in the UK and the eurozone fared last month. And UK car sales are expected to rise slightly in August, according to monthly data from the SMMT.
THE AGENDA
9 a.m. BST: UK New Car Sales for August 9 a.m. BST: Eurozone Services PMI for August 9.30 am BST: UK Services PMI for August 10 am. BST: Eurozone retail sales for July Noon BST: OPEC+ meeting begins
Updated at 07:30 BST Important events BETA filters Key events (6) Russia (6) Germany (6) UK (6) Europe (6) USA (3) The energy crisis, rising inflation and recession worries have dragged down Eurozone business activity for the second straight month. The services sector contracted in August, the latest survey of purchasing managers showed, after a fall in manufacturing output reported on Friday. The decline was particularly sharp in the euro zone’s largest economy, Germany, data provider S&P Global said. It found that the eurozone’s services sector shrank at the fastest pace in 17 months, leading the wider euro economy to its biggest decline in 18 months. This raises the risk that the eurozone will slip into recession this quarter, explains Chris Williamson, chief economist at S&P Global Market Intelligence. The deterioration is also becoming more broad-based, with services now joining manufacturing to report a fall in output. Having driven growth earlier in the year, consumer-facing services such as travel, tourism and leisure are now reporting falling activity levels as the rising cost of living prompts households to cut back on non-essential spending. Financial services (mainly including real estate) are meanwhile feeling the squeeze from higher interest rates, and industrial services are seeing manufacturing customers cut spending amid a slowdown in demand for goods. In Turkey, inflation hit a new 24-year high…. more than 80%. Consumer prices rose 80.2 percent in the past year, according to the Turkish Statistics Institute, the highest since 1998. It is the 15th monthly increase in inflation in a row as energy and food prices have soared, partly due to a weak lira following cuts in Turkish interest rates last year. Inflation this high is a heavy blow to consumers and businesses, but Bloomberg points out that it is slightly lower than expected: The median forecast of 15 economists surveyed by Bloomberg was 81.2%. Price growth came in at 1.5% month-on-month, less than expected in a separate poll. “The somewhat lower-than-expected inflation in Turkey in August is welcome news for the government and the central bank,” said Per Hammarlund, head of emerging markets strategy at SEB. “However, with energy prices rising again in the winter months, the problem of high inflation has not been solved.” Although European natural gas prices jumped 30% this morning, they are still not above the record highs set this year. This suggests that the risk of further disruption of Russian gas to Europe has already been priced into: European #Gas Futures TTF jumps 30% this morning to €265 but now comes the crucial point: 🚨Prices remain well below the €346 highs. It seems that the ability to completely stop flows from #Russia was already priced in to some extent. pic.twitter.com/LON3PGDcKp — Lukas Kuemmerle (@lukaskuemmerle) September 5, 2022 European gas prices open sharply higher after Russia shuts down Nord Stream 1 pipeline. TTF futures up ~25% to €260 per MWh (equal to >$75 per Btu or $440 per barrel of oil equivalent) #EnergyCrisis #EnergyTwitter — Javier Blas (@JavierBlas) September 5, 2022 French day-ahead baseload electricity prices have jumped 19% to €590/MWH. Wholesale electricity prices in Germany also rose this morning. Next year’s baseload electricity contract rose 24% to €620 per MWh. A year ago, this contract was trading at €75/MWH – before the war in Ukraine drove up energy prices so dramatically. Last month, the contract briefly hit a record high of €1000/MWH in the race to buy power. GERMAN TIME BASELOAD POWER PRICE UP 24% TO EUR 620/MWH — *seven (@sevenloI) September 5, 2022 The options I hear OPEC+ is considering for today’s meeting:
- Roll-over production quotas2) ~100k b/d cut (reversing last month’s token increase) 3) Roll-over quotas, but keep OPEC+ meeting ‘in session’, possibly cuts before next month if needed #OOTT #EnergyCrisis — Javier Blas (@JavierBlas) September 5, 2022 UK wholesale gas prices are pushing further higher as markets react to Russia’s decision to indefinitely suspend gas flows via Nord Stream 1 to mainland Europe. The UK gas contract for next month has soared almost 35% today to 550p per heat. That’s up from 410 p/therm on Friday afternoon, when natural gas prices had fallen on hopes that Nord Stream 1 would continue to operate as planned. Updated 09.04 BST
Oil rises – could OPEC cut production?
The price of oil is rising this morning after suggestions that the OPEC+ producer group could decide to cut production today. OPEC and its allies hold a regular monthly meeting around noon and sources say they will discuss cutting oil production by 100,000 barrels a day in October. That pushed the price of Brent crude up nearly 3% this morning to $95.65 a barrel. Earlier this year, OPEC steadily increased production, with the White House urging them to pump even more to lower gasoline prices. Last month, they agreed to raise production by 100,000 bpd in September, well below the 600,000 bpd increase in July and August. Brent crude has fallen since June, when it hit $125 a barrel, bringing some relief to businesses and motorists. However, OPEC members may wish to cut production to push the price higher. OPEC+ TO DISCUSS 100,000 BPD OIL PRODUCTION CUT AMONG OTHER OPTIONS – OPEC+ SOURCE. — Breaking market news ⚡️ (@financialjuice) September 5, 2022 Germany’s DAX fell further into the red, now down 2.6%, as the ongoing shutdown of Nord Stream 1 spooks investors in Frankfurt. German utilities are being hit hard, with Uniper down 9%, and RWE, E.ON and PNE all in the red. Updated at 08.35 BST Victoria Scholar, chief investment officer at interactive investor sums up the early morning action so far: “The euro has fallen below $0.99 for the first time in twenty years after Russia indefinitely shut down the Nord Stream 1 gas pipeline to Europe as the G7 agrees to impose a price cap on Russian oil exports. European stocks opened sharply lower, while natural gas prices soared amid renewed supply squeeze. Dutch wholesale gas prices are up nearly 30% so far in today’s session. The risk sentiment lifted the US dollar index to its highest level since 2002, with the pound falling to a 2.5-year low. In a big week for UK politics, Liz Truss is expected to be announced as the next Prime Minister. She is set to announce a plan to tackle the energy crisis this week if she is appointed Tory leader. There are several reports this morning that Truss is considering freezing energy bills, although there are no details on how that will be done. My colleague Andrew Sparrow’s Politics Live blog has all the details, ahead of the midday leadership race results. Updated at 08.30 BST European stock markets opened sharply lower. Germany’s DAX fell 1.8% at the open, as did Spain’s IBEX, while France’s CAC lost 1.9%. The London stock market opened in the red, as the energy crisis worries investors. The blue-chip FTSE 100 fell 60 points, or 0.8%, to 7,221 points, off last Thursday’s six-week low. Ninety out of a hundred FTSE 100 stocks are in the red, with packaging firms Smurfit Kappa (-5.6%) and DS Smith (-3.1%), building materials firm CRH (3.5%) and investment groups 3i (3.5%) and Abrdn (-3.3%) among the decliners.
