Market Drivers – European Session 31/8/2022

The euro slipped back below par against the dollar on Wednesday. They extended its decline for the third consecutive month as the deepening energy crisis fuels recession fears, while the European Central Bank pushes ahead with interest rate hikes.

Russia on Wednesday halted gas supplies from the Nord Stream 1 pipeline, intensifying an economic battle between Moscow and Brussels and raising the prospect of recession and energy efficiency in some of the world’s richest countries.

The annualized Eurozone Harmonised Index of Consumer Prices (HICP) rose by 9.1% in August vs. July’s 8.9%, the latest data published by Eurostat showed on Wednesday. The market forecast was for a 9.0% print.

The core figures jumped to 4.3% YoY in August when compared to 4.1% expectations and 4.0% recorded in July.

On a monthly basis, the old continent’s HICP accelerated to 0.5% in August vs. 1.1% expectations and 0.1% previous. The core HICP jumped 0.5% this month against 0.4% expected and -0.2% seen in July.

China’s manufacturing sector spent another month in a state of contraction in August, according to the official PMI published overnight.

The official Purchasing Managers’ Index, which mainly tracks the activities of large state-owned enterprises, rose more than expected, but still at 49.4, well below the 50 key threshold indicating growth. The composite PMI of 51.7 was in line with the moderate expansion, but came in below estimates due to a decline in the services sector PMI.

Crude oil prices fell sharply after reports that Washington and Tehran had reached an agreement to revive the United Nations-backed pact limiting its nuclear activities.

By 06:30 ET, US crude futures were down 3.3% to $88.62 a barrel, while Brent crude futures were down 3.2% at $94.75 a barrel.

The agreement between Iran and the West will lift sanctions on Iran and release more than 1 million barrels per day of oil supplies to the global market.