Wait And See Mood On Financial Markets As Countries Grapple With Energy Crisis

Published on
  • Investors remain cautious amid worries about the slowing global economy
  • German factory orders drop amid deepening energy crisis
  • Investors assess new UK Prime Minister’s monumental task ahead
  • Shoppers prepare for bleak winter ahead with retail volumes dropping
  • Retailers among the biggest risers in early trade, as hopes rise of help with bills
  • Trading to resume on Wall Street after Labor day holiday
  • FTSE 100 rises at the open and pound lifts slightly to $1.158.
  • Cap on gains for Brent Crude despite small OPEC cut.
  • DS Smith boxes clever despite inflationary headwinds

There is a wait and see mood hanging over markets, as investors kick their heels before power is handed over to the UK’s new Prime Minister and Wall Street re-opens after the Labor Day holiday.

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q2 2022 hedge fund letters, conferences and more


The FTSE 100 has opened higher and US Indices are expected to lift slightly but caution is expected to reign this week as worries about a global slowdown persist and investors look ahead to a key European Central Bank meeting.

With inflation still such a threat to stability policymakers are expected to lift the benchmark interest rate by 0.5%, even though it’ll heighten the chances of a recession in the eurozone.

Deepening Energy Crisis In Europe

A sharp fall in German factory orders in July will add to fresh concerns about the resilience of Europe’s largest economy in the face of the deepening energy crisis.

Activity fell 1.1% month on month in July 2022, the sixth month in a row of lower orders with firms grappling with painful inflation and supply chain snarl ups.

Business confidence was already evaporating and with the Nord Stream pipleline of essential gas closed indefinitely, optimism is set to seep away further amid worries of potential energy rationing ahead.

Liz Truss has a pile-on of problems to deal with, but she has promised that easing Britain’s energy crisis will be a priority.

The pound has lifted slightly against the dollar now some certainty has been injected into government but investors are still largely treading water in the absence of any detail of what her plans may be, mindful of the monumental task she faces.

British shoppers have already become more wary as they prepare for their budgets to be squeezed dry. Growth in UK retail sales slowed in August following July’s holiday blow out on clothing and picnics.

Consumers are clearly anxious about the months ahead, spending less even on goods once deemed essentials like back-to-school supplies.

Instead they are preparing for a bleak winter ahead by stocking up on warm knitwear and buying appliances like air fryers to in a desperate bid to cut their energy usage.

The small rise in the value of sales in August due to rising prices, masks the bigger picture of a drop in volumes, with shoppers making hard choices about where they spend their dwindling resources.

However NEXT plc (LON:NXT) and JD Sports Fashion PLC (LON:JD) are among the biggest risers in early trade with investors assessing that help will be on the way to ease the cost-of-living crisis which could put more money back in the pockets of their customers.

Drop In Crude Prices

The push-pull forces of supply and demand have kept a lid on crude prices even though the powerful OPEC cartel agreed to a small cut in production, and mulled futher limits to stop the descent in prices.

But worries about the rapidly weakening global outlook are still dominating sentiment for now and Brent Crude has dipped back slightly to below $96.

Packaging giant DS Smith still appears to be boxing clever despite the headwinds of inflation. It’s had to navigate a storm of rising input costs but efficiency drives and a long-term energy hedging programme has kept it nimble.

The company’s resilience shines through in this update, given that it’s still expecting a significant improvement in performance, despite the easing off of e-commerce sales and a darkening economic outlook.

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown