Daily Market Analysis | Euro Slumps to Two-Decade Lows Against Dollar as Energy Crisis Bites

Key events:
United States - ISM Non-Manufacturing PMI (Aug)
UK - Construction PMI (Aug)
Australia - GDP (QoQ) (Q2)

Moscow's halt to gas supplies has exacerbated Europe's energy emergency, causing the euro to plunge to a new 20-year low. OPEC will meet with Russia to discuss its production strategy in October. Britain will have a new prime minister. Volkswagen is set to approve an IPO for Porsche, freeing up funds to finance its electrification ambitions. Here's what you need to know about the financial market on Tuesday, September 6.

1. Gas supply cut-off deepens Europe's energy crisis; euro at new low
Europe's energy emergency worsened after Russia shut down the Nord Stream 1 pipeline to Germany last Friday night, raising fears that the continent will have to do without natural gas from its largest supplier this winter. Russia attributed the suspension to technical problems requiring maintenance.
Because of that, a deeper recession and a higher peak in inflation are likely, while natural gas and electricity prices have risen again and the euro has fallen to a new 20-year low against the dollar.
Last weekend, Germany announced a new tax on electricity producers to help finance a €65 billion ($64 billion) bailout package for households and businesses. Sweden and Finland also offered emergency liquidity support to energy suppliers to ensure the key Scandinavian electricity market continues to operate.

2. OPEC+ will meet while G7 tries to limit the price of Russian export oil
Russia on Friday responded to the G7's decision to impose a price cap on Russian oil exports, which was aimed at reducing the cash flow to the government budget but has serious implementation difficulties.
A little later, Russia's energy minister will meet with his counterparts at the Organization of the Petroleum Exporting Countries amid speculation that the cartel will cut production by 100,000 bpd in October, thereby reversing the symbolic increase agreed a month earlier.
What practical significance this would have when OPEC+ countries are already producing almost 3 million barrels a day less than their agreed quotas is unclear.
WTI crude futures increased 5% to $90.03 a barrel since the beginning of the month.

The WTI chart is showing the recent price spike

3. European stock market falls on gas news; VW to approve Porsche IPO
U.S. stock indices are closed today due to Labor Day and Europe is in turmoil after news from Russia on Friday.
By 10:20 GMT yesterday, the benchmark STOXX 600 index was down 1.1%, but the DAX index in Germany and the FTSE MIB index in Italy, the two countries most exposed to Russian gas shortages, were down more than 2%, cutting losses slightly after an initial drop of more than 3%.
 

The chart above shows the simultaneous downtrend movement of Stoxx 600 and Dax indices

Stock likely to be in the spotlight a little later is Volkswagen (ETR: VOWG), whose board is expected to approve an IPO of Porsche preferred stock in hopes of raising money to finance a huge investment budget to switch to electric cars in the coming years. It is also scheduled to approve the sale of 25 percent of the sports car maker's voting shares to Porsche Automobil Holding (ETR: PSHG_p), through which the Pich and Porsche families control the VW Group.

4. Truss to become UK's new Conservative leader
Liz Truss will become Britain's next prime minister. Truss appears to have the overwhelming support of her party after focusing on the need for tax cuts, as well as promising a significant increase in defense spending.
Truss has promised to decide on a package of measures to ease the blow of the energy crisis within a week of her confirmation into office.
This should put an end to the devastating period of uncertainty that has undermined both sterling and the U.K. government bond market in recent weeks. However, many other questions, such as Truss' intentions regarding the independence of the Bank of England and her attitude toward ties with the EU (her team reportedly plans to break the UK's Brexit deal with the EU), remain unanswered.

5. The pound collapsed to its lowest level since 1985
The pound dropped to its lowest rate since 1985. The rate of the British currency fell by 0.55% to $1.1444.
 

 Cable remains weak with the daily chart showing an ongoing series of lower highs and lower lows 

According to The Wall Street Journal, the pound sterling exchange rate is affected by both the strengthening of the dollar and the economic situation in Britain. Due to the energy crisis in the country, many households may not be able to pay bills during winter.
In addition, among other factors for the weakening of the pound sterling are the ability of the Bank of England to cope with record inflation and uncertainty about the economic policy to be implemented by the new British Prime Minister.