By
Tolu Ajiboye
July 10th, 2023
European markets saw a drop in value across the board as energy costs intensify and the euro nears dollar parity.
European markets experienced a drop in several indexes as the euro approaches parity with the US dollar for the first time in two decades. The underperformance of European stocks to begin the week comes as the dollar rallies from risk-averse investor sentiments. In addition, all these developments also preclude key inflation data expected from the US on Wednesday this week.
The drop in European markets includes the pan-regional Stoxx 600 index trading down 0.6% as of Tuesday. In addition, an overwhelming majority of its sectors remain in negative territory. At the moment, the only exceptions are utilities and oil and gas stocks.
French electricity company Electricite de France SA (EDF) was the best performing stock on the index, with a 5.9% share price increase. This came about after two sources revealed key information on the company to Reuters. According to reports, the French government will spend over 8 billion euros ($8 billion) to assume full control over EDF. The French government currently owns 84% of the power giant and announced last week that it would nationalize it.
On the other end, Swedish cloud communications company Sinch was the worst performer on the index. The company is currently down by approximately 20% as it saw an extension of the losses from Monday. This hit was intensified following Sinch’s gloomy Q2 profit forecast after reassessing the cost of goods sold.
European Community Has Been Facing Rising Energy Costs amid Broader Markets Drop
Europe is currently under growing pressure from surging energy costs since the Russian invasion of Ukraine. These higher gas prices have also hiked inflation across the region, and now see the continent eyeing a higher inflation forecast. Commenting on the situation, Valdis Dombrovskis, executive vice president at the European Commission, said:
“What we see [is that] economic growth is proving quite resilient this year, still one can expect some downwards revision and even more so for the next year because of many uncertainties and risks. Unfortunately, inflation continues to surprise on the upside, so it’s once again going to be revised upwards.”
Due to rising inflation and energy costs, France’s Economy Minister Bruno Le Maire has suggested that Europe’s energy production be independent. According to Le Maire over the weekend, the EU community needed to totally wean itself off Russian gas supplies.
Energy analysts opine that the risk of temporarily interrupting Russian gas flow remains high. This is especially so considering the Eastern European powerhouse’s 60% supply drop in recent months. Europe is heavily dependent on Russian energy supplies and has been for several years.
Meanwhile, amid the growing energy supply crisis, the euro remains in the investor spotlight as it approaches parity with the dollar. On Tuesday, the region’s common currency was trading 0.35% lower at around $1.0004 in the early hours of London time.