European stock indexes fell on Monday, the euro dropped below 99 cents for the first time in twenty years and European gas prices surged after Russia said gas supply down its main pipeline to Europe would stay shut.
Gas deliveries had been due to resume on Saturday but Russia scrapped that deadline on Friday and did not give a new timeframe for re-opening. The news stoked fears of a recession in Europe, with businesses and households hurt by sky-high energy prices.
European gas prices jumped as much as 30% as the market opened.
Germany announced on Sunday around $65 billion of support to help protect Germans from rising costs.
Finland and Sweden announced plans to offer liquidity guarantees to power companies. Finland's economic affairs minister warned of the possibility of "kind of a Lehman Brothers of energy industry," referring to the 2008 collapse of what was then the fourth-largest U.S. investment bank.
At 1123 GMT, the MSCI world equity index, which tracks shares in 47 countries, was down 0.4% on the day. Europe's STOXX 600 was down 1.2%, not far from a seven-week low .
London's FTSE 100 was 0.6% lower and Germany's DAX was down 2.6%.
A public holiday in U.S. markets means lower liquidity, which could lead to outsized market moves.
The euro was trading around $0.99175, down 0.4% on the day. It slid during Asian trading hours and hit $0.9876 in early European hours, its lowest since 2002.
Euro zone government bond yields rose, with Italian 10-year yields heading towards 4%.
The European Central Bank (ECB) meets later this week and is expected to deliver its second big rate hike in an attempt to combat inflation, which is running at more than four times its 2% target.
"Sky-high energy prices, the risk of gas shortages and the fiscal and regulatory response will shape the outlook for Eurozone GDP and inflation much more than anything the ECB may do with rates," Berenberg chief economist Holger Schmieding said in a client note.
In the UK, Liz Truss was named as Britain’s next prime minister, taking power at a time when the country faces a cost of living crisis, industrial unrest and a recession. In her victory speech Truss said she planned to cut taxes and deal with energy bills.
The British pound was down around 0.2% at $1.1495, but flat against the euro at 86.27 pence.
The U.S. dollar index was steady and the risk-sensitive Australian dollar was near a seven-week low.
Oil prices rose more than $2 a barrel as investors waited for an OPEC+ meeting later in the day. Since March's multi-year highs, oil prices have fallen due to concerns that interest rate rises and COVID-19 curbs in parts of China, the world's top crude importer, may slow global economic growth.
China's service sector growth rebound eased slightly in August, data on Monday showed, but business confidence rose to a nine-month high.
Euro area PMI survey data showed that Germany's services sector contracted for a second month running in August, Spain's services sector expanded at its slowest rate since January and France's service sector eked out modest growth, though purchasing managers there said the outlook was bleak.
"PMI surveys signal that the euro area is entering recession earlier than we previously thought, led by its largest economy Germany," Peter Schaffrik, a strategist at RBC Capital Markets, said in a client note.
"We now see the euro area ‘enjoying’ a longer, three quarter recession, beginning in Q3 2022 and lasting to Q1 2022 which is also deeper than we previously projected."
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