The euro has fallen to a 20-year low today, quickly cutting through this year's bottom (set in May) and the 2017 low.
The main fear is that the eurozone is heading for a tough recession and the catalyst is likely to be natural gas prices, which feed into power costs. Russia has tapered gas supplies, ostensibly for maintenance issues but there's an intensifying fear that 'maintenance' will become permanent.
If supply “doesn’t come back after maintenance because President Putin plays games or wants to hit Europe while it hurts, then the plan to fill up gas storage by the end of summer will probably not work,” Henning Gloystein, director of energy, climate and resources at Eurasia Group, told CNBC via telephone.
Here's a look at benchmark TTF prices, which spiked in late winter on low supplies and fear of a cutoff. This time the jump has been driven by more forward-looking buying, as supplies are now near the average. The problem is that supplies might flatline from here and not be filled ahead of the normal October inventory top.
In addition, the Freeport LNG facility in the US suffered an explosion in mid-June. That has removed 2 bcf of US export capacity and diminished the US's ability to supply Europe.
Today's services PMI numbers highlighted that eurozone inflation might have peaked in April, particularly when excluding energy. The eurozone jobs market is much looser than the US, mostly due to structural reasons but also due to Ukrainian refugees, who added 0.3 pp to Germany's unemployment rate in the latest report.
In addition to eurozone worries, the market is increasingly concerned about global growth and central bankers will tighten into a recession.
