ASX set to edge higher, European stocks rattled as energy woes worsen

European stocks slumped and the euro fell as the region’s worsening energy crisis added to risks for a global economy already facing high inflation and a wave of monetary tightening.

The Stoxx Europe 600 Index dropped after Russia’s Gazprom PJSC halted its key gas pipeline indefinitely, although the benchmark gauge recovered from its worst levels as energy stocks rallied.

Wall Street was closed for the Labor Day holiday but equity futures edged higher after the worst week for world shares since June. The Australian sharemarket is set to open higher on RBA day, with futures at 4.49am AEST pointing to a rise of 16 points, or 0.2 per cent. On Monday, the ASX added 0.3 per cent.

The euro retreated to a two-decade low, while the dollar strengthened. The pound was steady after the UK’s Conservative Party named Liz Truss as its leader, clearing her way to become prime minister. Her plan to “turbo-charge” the economy by slashing taxes is already worrying investors amid double-digit inflation. London’s FTSE added 0.1 per cent, Germany’s DAX lost 2.2 per cent and France’s CAC retreated by 1.2 per cent.

Oil gained as OPEC+ unexpectedly agreed to make a token oil supply cut for October. Elsewhere, Bitcoin dropped below the $US20,000 level. Gold was little changed.

Gazprom announced its move after Group of Seven leaders agreed to implement a price cap on Russian oil as the Kremlin continues its war in Ukraine. Natural gas surged more than 30 per cent in Europe and nations there could roll out special steps at the end of the week to rein in power costs. Germany plans a $US65 billion ($96 billion) package to shield consumers.

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“Economies have been preparing for some sort of energy constraint and the prospect of rationing, but obviously compared to expectations at the beginning of the year, this is pretty close to the worst outcome,” Wei Li, BlackRock global chief investment strategist, said on Bloomberg Television. “So as we head into rest of the year, underweight equities at this juncture feels appropriate.”

Monetary authorities including Europe’s central bank are set to keep hiking interest rates this week to fight inflation despite the darkening global economic outlook due to risks such as power shortages. The escalating energy crisis comes ahead of unprecedented tightening expected from the European Central Bank on Thursday in the form of a 75-basis-point rate increase.