US Markets were closed for the long Labour Day weekend, so global trading was reserved. European markets were shaken by the indefinite closure of the Nord Stream 1 gas pipeline from Russia to Germany. The Germans have lead the charge on Russian sanctions and fight an economic war against Russia, in response to the invasion of the Ukraine. The closure of the Nord Stream 1 gas pipeline is a progression of these sanctions. Germany has worked to fill reserves of gas, to ensure the necessary energy, is available over the winter months. The German Government has been planning the separation from Russian energy and food supplies for more than six months, so we will see the calibre of the leadership skill and preparation. German industry is heavily dependent on gas to run their factories and major upheaval would have dramatic consequences, in the engine-room of Europe.
German Services and Composite PMI data sunk dramatically below 50, signalling large contractions in those sectors, dragging the overall EU Services and Composite PMI into contraction mode also. The EUR sunk below 0.9900 and faces severe challenges ahead of the EU meeting later in the week, while the GBP slipped under 1.1500.
Japanese Services and Composite PMI data also slipped into contraction territory, while Australian and Chinese data held barely above 50, indicating marginal growth. The RBA is set to raise rates by a further 50 basis points, in their quest to fight rapidly surging inflation, while they address the impact of inflation on the Australian economy. Interest rate differentials remains negative, with most major Central banks, so the currency will not benefit these rises. The RBA have been slow to act, as inflation remained reasonably subdued up to 2022, but the global inflationary pressures are having a big impact and the RBA must be aggressive and reduce the liquidity in the markets. Central Bank around the world have been raising rates but the must hit the QT button hard and severely cut their massively bloated balance sheets. Fiscal recklessness by Western Governments have put Central Banks between a rock and a hard place.