Morning Bid: Struggling for energy

A look at the day ahead in European and global markets from Anshuman Daga

Global equity markets are stabilising from the carnage earlier this week caused by hot U.S. inflation data but European investors need to climb a wall of worry for any meaningful near-term recovery.

Policymakers in Europe are caught in a bind as they face the delicate task of balancing unprecedented rate hikes with risks of sharp slowdowns in their economies, which are battling high energy costs.

As the 27-member European Union grapples with an energy crisis that shows no signs of easing, the bloc’s executive proposed windfall levies on energy firms to shield consumers from soaring energy prices.

Still, ECB policymaker Francois Villeroy de Galhau said interest rates could reach the level where they neither stimulate nor slow the economy by the end of the year.

Last week, the ECB raised rates by 75 basis points, just weeks after a 50 basis point move and promised many more steps over the coming months as euro zone inflation stays at its highest rate in nearly a half a century.

The ECB has just begun its cycle of rate increases as opposed to the Fed that started earlier this year.

Barclays’ global chairman of research, Ajay Rajadhyaksha expects a recession in Europe in the first half of 2023, with the economy contracting more than 1% over the calendar year.

But he said: “There is a line between gloom and doom, and that is where we believe the global economy sits.”

Wednesday brought some good news for UK markets after British inflation fell for the first time in almost a year in August, with a drop in fuel prices offering some respite to households and the Bank of England.

Meanwhile, data showed that Japan posted a record trade deficit in August as energy imports surged.

And while Queen Elizabeth’s funeral on Monday will be observed across Britain, thousands of people will grapple with shut supermarkets and cancelled doctor appointments because of a surprise national holiday.

Key developments that could influence markets on Thursday:

Economic data: euro zone trade data and Q2 wages, France CPI, Germany wholesale price index

U.S. Aug import/export prices, Philly Fed Sep business index, Aug retail sales