Live Markets: German gas woes cloud European inflation outlook
25/07/2022 11:17
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GERMAN GAS WOES CLOUD EUROPEAN INFLATION OUTLOOK (1017 GMT)
Developments in Germany around the supply and price of gas
are clouding the outlook for European inflation, and will be key
in predicting the timing and severity of a potential recession.
The next crucial signal will be shown in fresh data on
European inflation released on Friday, however this reading will
unlikely reflect the impact of latest moves by the German
government as it grapples with strangled supply of Russian
natural gas.
Last week Germany entered phase 2 of its three-stage
emergency gas plan, and stepped in to rescue Uniper
UN01.DE urn:newsml:reuters.com:*:nL8N2Z32QK.
Economists at UBS predict a reading of 8.6% for euro zone
inflation later this week, stable from the previous month.
"Following a rate of 8.6% y/y in July, we anticipate
inflation to remain at that level in August, before rising to a
peak of 9.1% y/y (prev. 9.0%) in September," the UBS economists
said in a note.
Their 2022 average forecast is unchanged at 7.7%, but they
stress that this does not include the impact of likely increase
in German gas prices.
"As we have previously flagged, in an extreme scenario of a
complete convergence of retail and wholesale gas prices, this
could add as much as c. 8pp to German inflation."
However they think this is an unlikely scenario for
political reasons, as it will probably be cushioned by
additional support measures.
Still the risk to energy prices and inflation is skewed to
the upside, and if Europe were forced to ration gas, inflation
could peak around 12% or higher, the UBS economists said.
Danske Bank today revised down its growth expectations for
German GDP to 1% for 2022, from 1.4% previously, saying that
inflation will linger for longer amid higher energy prices.
"We think the German recession will also have adverse
spill-overs to other euro area countries," Danske analysts said
in a note.
(Lucy Raitano)
*****
RECESSION FEARS, EARNINGS HIT EUROPEAN STOCKS (0745 GMT)
European shares slide amid growth worries and expectations
the U.S. Fed will hike rates sharply later this week.
A mixed batch of earnings results is also weighing on
stocks.
The pan-European STOXX 600 index .STOXX is 0.3% lower,
with oil producers .SXEP leading losses as crude prices fell.
O/R
In terms of single stocks, Dutch medical equipment maker
Philips PHG.AS is the worse performer, down more than 10%
after reporting a worse-than-expected drop in second-quarter
core earnings, citing supply shortages and lockdowns in China.
urn:newsml:reuters.com:*:nL1N2Z5097
(Joice Alves)
******
BLUE MONDAY (0722 GMT)
U.S. Treasury Secretary Janet Yellen said on Sunday a
recession is not inevitable but most economic data has been
pointing the other way, including last week's dismal PMI
readings in the United States and Europe. urn:newsml:reuters.com:*:nL1N2Z50EE
Data or policymakers -- it's clear which of them markets
believe.
Rate-sensitive short-dated bond maturities rallied last week
while latest data showed speculators cutting bearish positions
on short-dated Treasury futures. Interest rate futures now see
the Fed funds rate peaking in January at about 3.38% --
Wednesday's projected 75 basis-point move will already take
rates to 2.5%.
As for stocks, the easing in rate-hike bets lifted equity
markets last week but the mood is sour on Monday for global
stocks (down 0.2%) as well as Wall Street futures
.MIWD00000PUS Esc1 NQc1 .
Focus now is likely to train on company earnings, with
Europe's Q2 season kicking off in earnest and more tech
mega-giants due to report stateside. Monday's crop of results
saw Ryanair post a return to profit, while Dutch medical
equipment maker Philips blamed supply shortages and Chinese
lockdowns for its earnings drop.
Still some European companies, especially luxury purveyors
such as LVMH and Hermes may find a silver lining in the euro's
10% year-to-date decline against the dollar with double-digit
sales growth, partly offsetting the China effect urn:newsml:reuters.com:*:nL8N2Z25SN.
The reverse is true across the Atlantic where companies are
increasingly bemoaning dollar strength; Morgan Stanley estimates
each percentage-point of year-on-year increase in the dollar
index cuts S&P 500 earnings growth by 0.5 percentage points
urn:newsml:reuters.com:*:nL1N2Z21X5.
But the poor global growth outlook implies the dollar will
stay strong for a while yet. After this week's Fed statement,
that may hinge on U.S. inflation easing or some truly horrendous
economic growth prints.
Key developments that should provide more direction to markets
on Monday:
-WTO meeting until July 26
-Bank of Japan brings in less dovish board member urn:newsml:reuters.com:*:nL1N2Z602Z
-German industry cuts production due to high energy prices
-survey urn:newsml:reuters.com:*:nL1N2Z5097
-July German IFO business sentiment survey
-U.S. 2-year Treasury auction
-Europe Earnings: Ryanair, Vodafone, Christian Dior
-U.S. Earnings: Newmont Mining Corp, Whirlpool, Logitech
(Sujata Rao)
******
EUROPEAN SHARES SEEN LOWER ON RECESSION FEARS, BIG EARNINGS
WEEK AHEAD (0630 GMT)
European stocks are seen opening in negative territory
tracking Asian shares lower as worries about a global economic
downturn sapped investors' risk appetite.
As a big week for corporate results kicks in, the
pan-European STOXX 600 .STOXX is seeing pausing after having
its best weekly gains since May.
Swiss bank Julius Baer BAER.S says it was hit by market
downturn during first half of year. Philips PHG.AS misses Q2
forecasts, cites supply chain issues and China lockdowns.
TOP/EQE
Traders are also bracing for a for a 75-basis-point (bp)
U.S. interest rate hike this week as data points to a weakening
global economy. TOP/GLOMKT
European STOXX50, Dax and FTSE futures are trading down
around 0.5%.
(Joice Alves)
******
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