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Euro fell to a 20-year low
Stock futures fell, and bond rates increased as traders awaited further information from Jackson Hole on the course the Federal Reserve intends to take with its monetary policy. Contracts on the S&P 500 index pointed to a third consecutive day of losses for the equities benchmark. The yield on the 10-year Treasury note remained higher than 3%, while a measure of the currency showed no movement. The Stoxx Europe 600 index dropped as economic activity in the euro region fell for a second consecutive month, indicating that worries of a recession may already be coming true. Both the euro and bond rates inched closer to their lowest levels have the last twenty years. Next month, the Federal Reserve of the United States will begin implementing quantitative tightening, another possible headwind for equity markets.
Vulnerability in the German economy
The fear that markets would run out of Russian supply caused European gas and power prices to skyrocket. On August 31, Russia will reportedly shut down its vital Nord Stream gas pipeline for three days so that repairs may be made. The benchmark gas price reached an all-time high before settling, while the cost of power in Germany broke beyond the 700 euro threshold for the first time. Germany is looking into the possibility of reviving coal-fired power facilities and may also look into extending the lifespan of its surviving nuclear power plants, all while promoting the reduction of greenhouse gas emissions. The country is highly vulnerable due to its dependency on Russian gas, so it is searching urgently for an alternate supply.
The head of the Bundesbank, Joachim Nagel, stated over the weekend that a recession would likely occur next winter if the energy issue continues to deepen. Gazprom has disabled the lone turbine that was able to continue running and flow gas into the Nord Stream pipeline. For several weeks, the channel has been functioning at just 20% of its capacity, and European politicians continue to argue that the restrictions were implemented for political reasons. At the end of the day, the European benchmark, the Dutch front-month contract, finished 13% higher at 276.75 euros a megawatt-hour. The prices are around fifteen times more than the norm for this time of year.
On August 31, the Nord Stream gas pipeline will be stopped
After Moscow's decision to shut down a critical pipeline, worries of a lengthy supply standstill led to a 20% increase in the price of European gas. On August 31, the primary Nord Stream pipeline will be shut down for three days for maintenance, again raising worries that the link will not return to operation as scheduled when the repairs are completed.