Daily Brief: When Russia Acts, The Euro Falls

Daily Brief: When Russia Acts, The Euro Falls

over 1 year ago3 mins

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The euro dropped to its lowest in 20 years against the US dollar on Monday, after Russia shut off the gas.

What does this mean?

Russia’s been slimming the Nord Stream’s capacity in recent months, and it went a step further on Friday: the country announced that a “technical fault” will keep the key gas pipeline between Russia and Europe shut indefinitely. Suspect timing, cynics say, as the shut-off came only hours after the G7 confirmed price caps on exported Russian oil.

Europe gas prices

Those extremely well-founded conspiracy theories aside, the shutdown sent European gas prices up over 30% on Monday, worsening an energy crisis that’s already hampering the region’s economy. Some economists even think the European Central Bank (ECB) might opt for lower-than-expected rate hikes in a desperate bid to limit the damage. Layer on the ever-mounting risk of a recession, and that might be why the euro dropped to below $0.99 for the first time since 2002.

Euro vs dollar

Why should I care?

The bigger picture: The Fed has it easy.

The ECB, in fairness, probably has a tougher job than the Federal Reserve (the Fed): inflation’s sitting at a similar rate in the US, sure, but Europe’s is more driven by a short supply of things like energy while high demand plays a relatively bigger part in America's. That means the Fed can count on interest rate rises – which typically dent demand – more than the ECB can. Not to mention the Fed doesn’t have the impossible task of setting one interest rate across different economies with very different needs.

Zooming out: Lightning fast.

Europe was quick to roll out support after the shutdown: Germany unveiled a consumer relief plan worth $65 billion, while Finland and Sweden introduced new funding to bolster struggling utility companies. That won’t be the end of it either, since the European Commission’s set to meet at the end of this week to discuss more special energy cost-cutting measures.

Keep reading for our next story...

Volkswagen Wants To Share Porsche With The World

Porsche image

Volkswagen said on Monday that its plans to list Porsche on the stock market are still on track, and investors can hardly wait.

What does this mean?

Volkswagen started gearing up to list Porsche on the stock market all the way back in February, but all-out war in Europe and the resulting market downfalls haven’t exactly set the scene for success. Well, try telling that to investors: they seem as keen as ever, with reports out late last month showing they’ve been lining up round the block to get their share of one of the carmaker’s most prized brands. In fact, there have been more share pre-orders than there are shares on offer, which could help value Porsche at as much as $85 billion. The sky’s the limit: Volkswagen’s apparently thinking about opening up share sales to retail investors across Porsche-addicted Europe too, which could give the listing even more clout.

Why should I care?

The bigger picture: Why wait?

If demand is that strong for Porsche’s initial public offering during these miserable conditions, just imagine it when the economy’s booming. Literally, you’ll probably need to imagine it: the world’s second-biggest carmaker needs the cash from this listing soon for its revamped strategy, which includes turbo-charging investments in electric vehicles by 50% over the next five years, rolling out new cars, and ramping up software investments.

Zooming out: Porsche is special.

Not all luxury carmakers are in investors’ good books right now: Aston Martin’s shares nosedived by 14% on Monday, after the loss-making carmaker announced it was selling heavily discounted shares to new and existing investors to pay down debts and invest in new models. Those shares have already lost over two-thirds of their value this year, and this news will hardly appease analysts who believe Aston Martin could end up booted from the FTSE 250 index later this year.

Aston Martin stock
Source: Google Finance
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