US stock exchanges had a mixed start to the new week. The S&P 500 gained +0.1% and the Dow Jones advanced +0.3%. Technology stocks, on the other hand, are under pressure two days before the interest rate decision of the Federal Reserve and the Nasdaq Composite lost -0.4%. The expected tightening of US monetary policy on Wednesday is likely to particularly hurt the rate-sensitive tech stocks. Today, Google parent Alphabet and Microsoft present quarterly figures, followed by Facebook owner Meta on Wednesday. Amazon and Apple publish their results on Thursday.
Asian stock exchanges are also trading inconsistently on Tuesday. In Tokyo, the Nikkei quotes slightly lower. The Hang Seng gains +1.6% in Hong Kong, and the Shanghai Composite advances +0.8%.
Europe's fears seem to be justified after all: Russia’s state-owned company Gazprom has announced that it will curtail gas deliveries through the Nord Stream 1 pipeline. As of Wednesday, only 20% of the maximum capacity will flow to Germany every day, Gazprom announced on Monday. According to the company, the reason for this is the overhaul of a turbine. Germany’s economy ministry has opposed this statement, saying there is no technical reason for the reduction in supply volumes. Some European countries, including Germany, are already struggling to fill gas storage facilities for the winter. If supplies are cut again, there is a threat of rationing for industry.
EU member states are holding an extraordinary meeting in Brussels today to agree on an emergency plan to reduce gas consumption, reports Deutsche Presse-Agentur. They intend to reduce the risks that could result from a complete interruption of Russian gas supplies. The plan calls for individual countries to voluntarily reduce consumption by 15% from Aug. 1, 2022, to March 31, 2023, to prevent supply shortages.
Gas prices have risen significantly following Gazprom's announcement. On Monday TTF futures contracts on the energy exchange in the Netherlands rose by up to +10% to EUR 177 per megawatt hour – five times higher than prices one year ago. Only last Thursday, Russia resumed energy deliveries to Europe after Nord Stream 1 was shut down for ten days for routine maintenance. Gazprom had already reduced gas deliveries via the pipeline to 40% in June.
Financial markets continue to bet on a steep interest rate hike path of the Federal Reserve. Accordingly, most analysts expect that the monetary authorities will raise the target range for the federal funds rate on Wednesday by +75 basis points to 2.25 to 2.5%. By the end of the year, key interest rates are forcasted to rise to around 3.5%. However, it is becoming increasingly difficult for the Fed to fight inflation with rising interest rates without choking off the economy. Numerous economists now expect the US economy to slide into recession over the next twelve months. This is also reflected in interest rate expectations: thus, financial markets assume that the Fed will have to make a U-turn in early 2023 and lower key interest rates again to support the economy.
Sentiment among German companies deteriorated significantly in July. The Ifo business climate index, Germany's most important leading indicator, fell by -3.6 points to 88.6 points compared with the previous month, the Ifo Institute reported on Monday. This is the lowest level in two years. Analysts had expected a decline, but only to 90.1 points. “Germany is on the threshold of recession,” Ifo President Clemens Fuest commented, referring to high energy prices and the threat of gas shortages. The downbeat trend runs through all sectors of the economy. In manufacturing, for example, sentiment is as pessimistic as it was last in April 2020, when the first wave of the pandemic was spreading. But sentiment has also deteriorated in the service sector, in tourism and the hospitality industry.
The German economy is currently facing numerous challenges. At the top of the list of concerns are the energy crisis and rapidly rising consumer prices. However, ongoing problems in supply chains and rising capital market rates are also dampening the mood. Last week, the European Central Bank (ECB) raised key interest rates for the first time in eleven years and hiked interest rates by 50 basis points.
|15:00||US||S&P/Case Shiller Home price index (May, y/y)||+21.2%|
|16:00||US||Consumer confidence (July)||98.7|
|16:00||US||New home sales (June, m/m)||+10.7%|
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Source: LGT Bank (Switzerland) Ltd.
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