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LGT Navigator: Energy crisis in Europe intensifies further

September 5, 2022

Russia has not resumed gas supplies via the Nord Stream 1 Baltic Sea pipeline after maintenance work as initially announced. This further exacerbates the energy crisis in Europe with a view to the coming winter. In the US, meanwhile, employment growth remained robust, but the unemployment rate rose unexpectedly in August and the pace of wage growth slowed somewhat. In conclusion, it must nevertheless be assumed that the U.S. Federal Reserve is likely to see its restrictive monetary policy stance confirmed. In the new week, the ECB will now take center stage when it communicates its interest rate decision on Thursday.

Energy crisis in Europe intensifies further

The latest escalation in the conflict with Russia is likely to cause additional uncertainty on the capital markets at the start of the week. The Russian state-owned company Gazprom had announced that the ongoing interruption of gas supplies was due to an oil leak at a compressor station. Gas was expected to start flowing through Nord Stream 1 to Western Europe again from Saturday. The euro suffered from the Russian gas freeze and continues to trade around parity against the US dollar.

On the New York Stock Exchange, the Dow Jones Industrial closed Friday at 31,318.44 points, down about one percent from the previous day, posting a loss of about three percent for the week. The S&P 500 also left Friday's trading session one percent lower at 3,924.26 points. On the Nasdaq, the indices lost about -1.5%. The latest labor market data from the US offered no relief, because it must continue to assume a strong increase in key interest rates by the Fed. On the bond market, the yield on ten-year US government bonds held steady at 3.20%. In Asia, equity markets trended inconsistently at the beginning of the week.

Employment growth in the US remains robust and the Fed on track

In the United States, +315,000 new jobs were created in August, slightly more than analysts expected with an average of +298,000. On the other hand, however, the Labor Department in Washington had to revise the two previous month's figures downward by a total of 107,000 jobs. In addition, the unemployment rate climbed from a low level of 3.5% to 3.7%. At the same time, the pace of wage growth slowed in August. Average hourly wages still increased by +0.3% monthly (consensus +0.4%), compared with +0.5% in July. Compared with the year-earlier period, hourly wages increased +5.2% in August. The background is likely to be labor shortages.

Record price increases at producer level in the euro area

Producer prices in the euro zone rose more strongly again in July. Over the year, a price increase of almost 38% was recorded for the first time since the introduction of the euro in 1999. Prices in the energy sector increased particularly strongly, almost doubling year-on-year and rising by +9% compared with the previous month. Also, significantly more expensive were intermediate goods, which are important for production. Developments in producer prices generally pass through to consumer prices in part with a slight time lag.

Inflation expectations of consumers in the eurozone increased further

According to a survey by the European Central Bank (ECB), consumers in the eurozone countries expect inflation to rise somewhat further over the next three years. Expectations rose from +2.8% to +3.0% in July. On average, the private households surveyed continued to expect an annual inflation rate of +5.0% over the next twelve months. At the same time, consumers anticipate an even more pronounced weakening of the economy. Accordingly, a decline in economic output of -1.9% is now expected, compared with the previous survey value of -1.3%. Accordingly, unemployment is also expected to rise. In the ECB's Consumer Expectations Survey, around 14,000 private households in the euro countries are questioned.

Economic Indicators September 5

MEZ Country Indicator Last period
00:00 US Labor Day Holiday
09:00 SZ GDP Q2 (q/q) +0.5%
09:15 ES PMI Services (August) 53.8
09:45 IT PMI Composite (August) 47.7
09:50 FR PMI Composite (August) 49.8
09:55 GE PMI Composite (August) 47.6
10:00 EZ PMI Composite (August) 49.2
10:30 UK PMI Composite (August) 50.9
10:30 EZ Sentix Economic Perspectives (September)  -25.2
11:00 EZ Retail Sales (July, m/m) -1.2%


Earnings Calender September 6

Country Company Period
NL DSM Investor Day


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