Europe's stock markets and Britain's pound both clawed higher on Tuesday as the rampant surge in gas prices stalled, though it could not stop bond market borrowing costs rising again or save the Japanese yen from a new 24-year low.
The mood was notably calmer after Monday's spooked reaction to Russia's latest gas cuts. Wall Street was expected to reopen with a post-holiday spring in its step , talk of 50 basis point rather that 75 basis point European Central Bank rate hike on Thursday helped too, but the energy crisis still smarted.
The euro was sliding again having failed to get back above parity against the dollar /FRX. The STOXX 600's (.STOXX) bounce remained a modest 0.5%, while a dip in euro zone bond yields sparked by the ECB chatter did not stop U.S., British and other European ones from climbing again. , ,
"Maybe it's natural that we take a bit of a breather here, but it's hard to see where the good news will come from," Abrdn investment director James Athey said.
Russia's gas would remain the "Damocles sword" hanging over Europe's economy, he added, while the scale of interest rate rises likely to come and the risk of recessions was still not fully reflected.
"We are still in a strong dollar, weak risk environment for the foreseeable future," Athey said.
Sterling, which has been one of world's weakest major currencies over the last month, rose 0.5% as Liz Truss's installation as new UK prime minister fed expectations of a big energy relief package there.
U.S. stocks looked set to open around 0.5% higher as well after Monday's Labor Day holiday, while China's yuan had popped off a more than two-year low against the dollar overnight after Beijing's latest stimulus effort had cut foreign exchange reserves requirements again.
The main Asian stock markets had barely budged however. MSCI's gauge of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) finished 0.02% down and Tokyo's Nikkei ended almost exactly where it started.
Yen sellers had continued to hog all the action, sending the currency to another 24-year low of 142 against the dollar.
"So long as (yield curve control) is in play, and so long as interest rate divergence is in place, one of those side effects would be a weaker yen."
The ECB is widely expected to lift rates sharply when it meets on Thursday, while the next U.S. Federal Reserve rate decision comes on Sept. 21 and European energy ministers are due to hold an emergency gas crisis meeting on Friday.
European benchmark natural gas prices were down around 10% on the day, but they had gone up as much as 30% on Monday and at 222 euros per megawatt-hour , they are almost five times the level they were a year ago.
