From 1h ago 07. 36 Introduction: euro at two-decade low Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets. The euro has sunk to a fresh two-decade low as surging gas prices fuel concerns over the eurozone economy. The single currency has dropped as low as $0. 991 against the US dollar this morning, its weakest point since 2002, as fears of a European recession and more aggressive US interest rate rises both rattle the markets. The euro vs the US dollar over the last 20 years Photograph: Refinitiv The euro came under renewed pressure as wholesale energy prices rocketed on Monday, after Russia announced it would halt natural gas supplies to Europe via the Nord Stream 1 pipeline for three days at the end of the month, for maintenance. Last night, the benchmark European gas price settled at its highest closing price on record, having surged during August on fears that Moscow is squeezing energy supplies. CHART OF THE DAY: European benchmark natural gas (Dutch TTF) closes the day at €276. 75 per MWh, a record high settlement price (There were higher **intraday** prices in early March, but TTF never closed the day with a **settlement** as high as today) pic. twitter. com/26nFVhUEzH — Javier Blas (@JavierBlas) August 22, 2022 Europe’s benchmark electricity price jumped more than 25% on Monday to pass €700 per megawatt-hour for the first time, around 14 times the seasonal average over the past five years. OOPS! German benchmark electricity price jumped >25% on Monday to pass €700 per megawatt-hour for the first time. The level is about 14 times the seasonal average over the past five years. pic. twitter. com/gMQZkk7ncB — Holger Zschaepitz (@Schuldensuehner) August 22, 2022 Jim Reid of Deutsche Bank told clients that the energy crisis had intensified. . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Starting in Europe, the energy crisis intensified yet further, after news over the weekend that Nord Stream would be shut for maintenance at the end of the month introduced fresh fears it would not re-open. European natural gas prices ratcheted +14. 59% higher to €280/MWH, a record high. German power prices surged +18. 60% to another record as well, closing at €663 and breaching €700/MWH intraday for the first time ever. This summer’s heatwaves have already strained Europe’s energy supplies. Such high prices will hurt households badly, while disruption during the winter months could be devastating for business activity. Tapas Strickland , a director of economics at National Australia Bank , says: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “Europe’s dire energy situation suggests the peak of inflation is not here yet and the risk remains that high inflation is sticky for longer without further aggressive central bank action. “No surprise then to see the dollar at near multi-decade highs against a falling euro and British pound. ” this is looking exponential now: pic. twitter. com/5eGpdCC6Ac — BionicBanker (@BrokenBanker) August 22, 2022 While energy shortage fears hit the euro, the dollar is in demand. Traders are anticipating the Federal Reserve will continue to lift US interest rates to battle inflation, despite the slowdown in the global economy. Traders on the floor of the New York Stock Exchange last night. Photograph: Brendan McDermid/Reuters Wall Street saw its worst day since June last night, with the Dow Jones Industrial Average dropping 2% as the summer rally fizzled out. Also coming up today The latest surveys of purchasing managers across Europe will show the damage caused by soaring energy prices and extreme weather this summer, including low water levels on the Rhine . August’s flash purchasing managers surveys are expected to show that eurozone factories shrank again this month, while the services sector struggled. Michael Hewson of CMC Markets has the details: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Surging energy prices, along with sharply declining water levels on the Rhine have cut the rug out from the manufacturing sector in Germany with today’s August flash PMI expected to see a further decline from 49. 3 to 48, while services activity is also expected to slip further from 49. 7 to 49. In France the picture isn’t any better, although the services sector is benefitting from a bit of a tourism boost, however the forest fires could well pull economic activity here down quite a lot more. In manufacturing economic activity is likely to slip to 49, from 49. 5, while services could slip from 53. 2 by a lot more than the 53 that is currently being forecast. In the UK , the picture is slightly better, but the PMI survey could show a slowdown in growth. . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} With August being a slow period due to holidays, we could well start to see economic activity on the PMI level start to slide into contraction territory, from 52. 1 for manufacturing in July and from 52. 6 for services in July. The agenda 9am BST: Eurozone flash manufacturing and services PMI survey for August 9. 30am BST: UK flash manufacturing and services PMI survey for August 11am BST: CBI survey of industrial trends 2. 45pm BST: US flash manufacturing and services PMI survey for August 3pm BST: Eurozone consumer confidence survey for August 3pm BST: US new home sales for July Updated at 07. 53 BST Key events 6m ago Japan's private sector output falls for the first time in six months 15m ago Gatwick returns to profitability 38m ago Energy crisis: UK expands gas emergency exercise ahead of winter 49m ago Pound hits lowest since March 2020 1h ago Why European natural gas prices hit new record high 1h ago Introduction: euro at two-decade low Filters BETA Key events ( 7 ) UK ( 5 ) Russia ( 3 ) now 08. 37 Australia has racked up its first fall in private sector output since January – another sign that the global economy weakened this month. The flash Australia PMI Composite Output Index dropped to 49. 8 this month, down from July’s 51. 1, and the first contraction in seven months. Australia’s services sector saw a drop in activity, while manufacturing output growth slowed. ???????? Australia PMI figures for August showed the economy shrinking for the first time since January (49. 8; Jul: 51. 1), led by a deterioration in service sector activity. Business confidence slumped to the weakest since April 2020. Read more: https://t. co/NkbmgejKF1 pic. twitter. com/VH3AdZOYlH — S&P Global PMI™ (@SPGlobalPMI) August 23, 2022 Australia’s central bank has raised interest rates four times this year, including its biggest hike in 30 years earlier this month , which could now be curbing demand. Laura Denman , economist at S&P Global Market Intelligence, explains: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “A renewed contraction in Australia’s private sector economy indicates that recent interest rate hikes made by the RBA, as well as sustained inflationary pressures, have begun to take a toll on overall demand levels. Should new order growth remain subdued, this may help reduce demand-pull inflation factors, but survey data continue to highlight the supply issues that remain prevalent globally, which will continue to keep price levels elevated for the foreseeable. As such, the RBA will likely continue along its rate-hiking path, which bodes ill for the wider economy given the latest survey data highlight clear signs of underlying weakness. ” 6m ago 08. 32 Japan's private sector output falls for the first time in six months Japan’s private sector output has fallen for the first time in six months, as companies were hit by rising costs of energy and raw materials, and weakening global demand. The au Jibun Bank Flash Japan Composite PMI, which measures activity across the manufacturing and services sectors, has dropped to 48. 9 this month, from July’s 50. 2 final. Any reading below 50 shows a contraction. Activity in the services sector fell for the first time in five months, while Japan’s factory activity growth slowed to a 19-month low in August as output and new order declines deepened. ???????? Japanese private sector activity declined for the first time in 6 months in August, flash #PMI results show (48. 9; Jul: 50. 2), as both services and manufacturing saw contractions in output amid falling customer demand. Read more: https://t. co/zH1WtOn7C2 pic. twitter. com/TtCtXtc8vT — S&P Global PMI™ (@SPGlobalPMI) August 23, 2022 Usamah Bhatti, economist at S&P Global Market Intelligence , adds: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “Business confidence eased to the joint-lowest for five months during August amid the growing economic headwinds. The strongest concerns among Japanese private sector firms were the impact of the Ukraine war, inflationary pressures due to rising raw material and energy costs, and a global economic slowdown. ” 15m ago 08. 22 Gatwick returns to profitability Gatwick South Terminal in June. Photograph: Stephen Jones/PA Britain’s second biggest airport has returned to profit, thanks to the easing of travel restrictions this year. Gatwick made an EBITDA profit of £148. 3m in the first half of 2022, and a profit after tax of £50. 6m. That’s a turnaround on 2021, when Gatwick reported a £244. 6m loss for first six months and negative EBITDA at -£50. 2m. It also lifted its passenger forecast despite the travel chaos that disrupted many holidays, and now expects 32. 8m passengers in 2022. However, Gatwick also warned that inflationary pressures on costs, and passenger demand for the winter season may impact these forecasts. Gatwick adds that it doesn’t plan any “further moderation of flying programmes”, having recruited over 400 new security staff to reduce delays. Back in June, it cut its summer capacity to avoid the last-minute cancellations that wrecked some holidays over the Jubilee and half-term break. Stewart Wingate, chief executive officer of Gatwick Airport said demand has ‘bounced back’ : . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “We still have some considerable way to go, but strong demand has fast-tracked Gatwick’s recovery from the pandemic, particularly in the last quarter since all UK travel restrictions were removed. Air traffic volumes have reflected this strong passenger demand and have bounced back to around 75% of pre-COVID levels. “The unprecedented growth in traffic lead to short term operational issues in June, however our decisive early action to limit the airport’s capacity in the crucial school holiday period of July and August has ensured passengers have experienced reliable flight timetables over the summer months. We are now very much operating business as usual and do not see any reason to extend the capacity declaration. ” 32m ago 08. 06 John Healey MP , the UK’s shadow defence secretary, has warned the country is facing “economic warfare”, with the energy crisis linked to the war in Ukraine. He told LBC that the surge in energy prices is partly caused by the “economic warfare that Russia has been waging on Europe. ” Healey explained: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “It’s no coincidence that in the year before they invaded Ukraine, they cut the supply of gas to Europe over those 12 months by half - forcing up prices, putting on pressure and it’s part of what military specialists would say [is] a form of hybrid warfare and aggression. ” The opposition Labour Party are also calling for Britain’s price cap to be frozen over the winter, rather than be lifted by an estimated 80% in October. Healey said: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “People are facing a winter emergency crisis over the next six months . . . the crisis is immediate, the need for action is urgent, and we’ve said we would freeze it over the winter so that we would stop the energy price cap rising as it will be announced on Friday. Shadow Defence Secretary John Healey says Labour would freeze the energy price cap and 'bring down bills'. @TomSwarbrick1 pic. twitter. com/02ljXez2Xq — LBC (@LBC) August 23, 2022 38m ago 07. 59 Energy crisis: UK expands gas emergency exercise ahead of winter The UK’s National Grid has doubled the size of its regular emergency planning drill, at a time when fears of energy supply shortages are rising. The emergency gas shortage planning exercise, in which various scenarious including electricity rationing are war-gamed, will run for four days instead of the usual two, the BBC reports this morning. Here’s the details : . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} The government insists there is no risk to UK energy supplies and consumers should not panic. But industry say ministers need to do more to secure supplies this winter. The National Grid exercise, which gets under way next month, will involve government agencies, regulators, lobby groups and major energy firms. Called Exercise Degree , it will simulate scenarios in which a loss of gas supply triggers an emergency situation for the UK’s energy system. The BBC also reports that business Secretary Kwasi Kwarteng does not appear to have sought any advice from government officials on the possibility of rationing energy - a BBC Freedom of Information request found he had not done so before the end of June. Energy crisis: UK expands gas emergency exercise ahead of winter https://t. co/tzJocsNmAX — BBC News (UK) (@BBCNews) August 22, 2022 49m ago 07. 49 Pound hits lowest since March 2020 Sterling is also under pressure against the US dollar this morning. The pound has dropped by almost half a cent to $1. 172 against the dollar, the weakest since March 2020 (when the Covid-19 pandemic rocked global markets). The pound vs the US dollar Photograph: Refinitiv Britain’s surging energy costs and weakening economy have weighed on the pound, with families facing rocketing energy bills. As Jane Foley , head of FX strategy at Rabobank in London, explained yesterday: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “The weak UK growth outlook continues to weigh on the pound. News that Ofgem is set to announce on Friday that UK average annual household energy bills are likely to rise to more than £3,500 pounds reinforces the headwinds facing consumers. ” 1h ago