Take Five: Navigating the energy shock

FAN Editor

(Reuters) – The Bank of England will ponder implications of the government’s record-breaking energy package as the country mourns the passing of its queen.

Leaders across Europe are scrambling to keep the lights on and U.S. inflation data should provide the last piece in the puzzle ahead of the Federal Reserve’s September meeting.

China meanwhile is trying to get banks to help spur the economy and Volkswagen seems set to embark on listing luxury car maker Porsche against a volatile markets backdrop.

Here is a look at the week ahead in markets from Kevin Buckland in Tokyo, Emma-Victoria Farr in Frankfurt, Bill Schomberg, Vincent Flasseur and Karin Strohecker in London, and Lewis Krauskopf in New York.

1/ BANK OF ENGLAND

The Bank of England meets on Thursday and must gauge the implications for inflation from the government’s huge energy bill bailout of households. The measures will bring down price pressures in the short-term but could stoke them further ahead as consumers are spared the worst of the hit to their finances.

Many economists think the BoE will raise interest rates by a further 50 basis points – normally a huge increase but less than the 75 bps rate hike that investors had been betting on increasingly until a few days ago.

Policy makers will have a few more datapoints to chew over before then, including economic output figures for July on Monday, the latest job market readings on Tuesday and August inflation on Wednesday.

Bank of England under pressure https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/movanewmkpa/chart.png

2/RUNNING OUT OF GAS

Faced with soaring energy prices that threaten to spark social unrest, necessitate rationing and inflict a recession, Europe’s leaders are scrambling to pull together radical plans to counter Russian President Vladimir Putin’s gas cut-off.

Governments are spending hundreds of billions of euros to help consumers and businesses cope with runaway bills. A plan from Britain’s new government could cost as much as 150 billion pounds, sending its currency to near-four decade lows.

Euro zone energy ministers gather on Friday in Brussels to set plans in motion and discuss options – including gas price caps and emergency credit lines for energy market participants, though there are no pain free solution in sight.

Meanwhile more oil-importing countries – for example India – are considering joining the Group of Seven wealthy nations’ plan to cap the price of Russian oil, Washington said.

Put a cap on it https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/egpbkrjngvq/chart.png

3/PRICING POWER

    Tuesday’s U.S. inflation data is one of the last – and perhaps the most important – pieces of data that will help the Fed decide how aggressively it needs to hike rates in September.

    July’s CPI report showed a surprising moderation in prices that helped spur a rebound in stocks. That rally has since faded with Fed chair Jerome Powell warning that the Fed’s single-minded fight to tame inflation could lead to economic pain.

    On an annual basis, CPI increased by a weaker-than-expected 8.5% in July, with the inflation gauge coming in flat, month-over-month. Early estimates for August call for a 0.1% decline on a monthly basis, but wildcards such as volatile energy prices are keeping investors on edge.

U.S. inflation https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/egpbkraxmvq/chart.png

4/ PUSHING ON A STRING? A downside surprise on Chinese inflation data on Friday cheered markets because it seems to afford policymakers plenty of room to ease and help boost a flagging economy. But loan figures out shortly afterward pointed to the dilemma: who wants to borrow in a downturn? Loan growth is scarcely budging, and a meagre rise in August was below analysts’ hopes. The central bank has already flooded the system with cash, without improving confidence, since there is no clear path out of a deepening property crisis or COVID-19 lockdowns. More help has been promised, but is yet to meaningfully arrive, leaving the Hang Seng lingering near major lows and the yuan close to a two-year trough.

Data on industrial production, house prices and retail sales due on Sep. 16 will give more indications on the state of the world’s second largest economy.

Yuan decline https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/jnpwemaobpw/chart.png

5/BOLD DEBUT

It’s been a bleak year for capital markets. But that might not detract Volkswagen from listing luxury car maker Porsche.

Volkswagen fired the IPO starting gun even as European stock markets reeled from record inflation and the Russia energy standoff. The next three weeks will be crucial as bankers gather investor feedback and begin book building.

At the high end of estimates – investors expect a valuation between 60-85 billion euros ($60.4-$85.5 billion) – the IPO could be the largest in German history and the biggest in Europe since 1999, Refinitiv data showed.

Porsche will only backtrack on its stock market debut if “severe geopolitical problems arise”, the sportscar brand’s chief financial officer said on Tuesday. The Frankfurt Stock Exchange has only seen two SPACs and one small primary listing in 2022.

European IPO volumes https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/akvezbegxpr/chart.png

($1 = 0.9939 euros)

(Compiled by Karin Strohecker, editing by Elaine Hardcastle)

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