The euro dropped to a 20-year low on Tuesday and stocks and oil prices registered steep falls, as fears intensified over the health of the global economy.
In a sign of worsening sentiment about the growth outlook, Europe’s common currency lost almost 1.8 per cent against the dollar to $1.0235 — its weakest point since 2002.
Vasileios Gkionakis, head of European FX strategy at Citi, said that euro-dollar parity “looks almost inevitable now”, noting that the deterioration in the euro was driven by the prospect of further falls for European stocks and a sharp rise in natural gas prices.
Europe’s regional Stoxx 600 share gauge tumbled 2.1 per cent on Tuesday. London’s FTSE 100 closed 2.9 per cent lower.
Wall Street’s S&P 500 was down 1.5 per cent by the late morning in New York, while the Nasdaq Composite was down 0.3 per cent, falling less than other indices as big tech companies — known for generating consistent earnings during times of market stress — made gains. Amazon and Facebook-owner Meta each added roughly 2 per cent.
However, adding to the sense of gloom, futures contracts tied to TTF, the European wholesale gas price, rose almost 9 per cent to a four-month high as it emerged that Norway’s Equinor was temporarily shutting three oil and gasfields after workers went on strike. Norway has warned that gas exports to the UK could be shut off this weekend if the situation escalates.
TTF later trimmed its gains to trade flat.
Jane Foley, head of FX strategy at Rabobank, said the euro’s slump was primarily owing to surging European gas prices. “The strikes in Norway certainly don’t help and I think it’s the layering of these risks that’s making it increasingly difficult to be more optimistic,” she said.
“The dollar remains this primary safe haven . . . and that is a factor which is exacerbating the [euro] movement. People want dollars in times of stress and anxiety,” she added.
Elsewhere in energy markets, Brent crude slumped almost 10 per cent to $102.41 a barrel — reflecting worries about a possible recession and the knock-on impact on oil demand. West Texas Intermediate, the US benchmark, slipped below $100 a barrel for the first time since May.
Roger Lee, head of UK equity strategy at Investec, said the sell-off following the rise in gas prices, which included large falls for cyclical sectors like materials and energy, was a sign that “the market is absolutely convinced, if there was any doubt, that we are heading into a recession.”
German government debt rallied on Tuesday, with the yield on the 10-year Bund — seen as a proxy for borrowing costs across the eurozone — dropping 0.16 percentage points to 1.18 per cent. The two-year yield slipped 0.19 percentage points lower to 0.44 per cent.
Elsewhere, the yield on the 10-year US Treasury note lost 0.12 percentage points to 2.78 per cent. Bond yields fall as their prices rise.
Yields on Bunds and Treasury notes had marched higher earlier this year as the European Central Bank and the US Federal Reserve signalled aggressive interest rate rises and the planned withdrawal of large bond-buying programmes in a bid to tackle scorching inflation.
The Fed lifted its benchmark rate by 0.75 percentage points in June, its largest such increase since 1994.
But investors have in recent weeks scaled back their expectations of how high the world’s most influential central bank will raise borrowing costs in the coming months, amid mounting evidence of an economic slowdown.
Futures markets indicate that the Fed is now expected to lift rates to 3.3 per cent by early 2023, down from projections three weeks ago of 3.9 per cent.
Details of the Fed’s most recent monetary policy meeting, due to be published on Wednesday, may give further clues about the extent to which the central bank is willing to tighten monetary policy. A closely watched US jobs report on Friday will also signal the level of heat in the country’s labour market, a criterion that may also influence Fed decision-making.
Additional reporting by Nikou Asgari
