PARIS, January 6 – Global stock markets held onto New Year optimism on Tuesday even as the euro suffered fresh losses amid signs of Europe\’s deepening recession and a looming energy standoff with Russia drove up oil prices.
Global energy markets were rattled after Russian energy giant Gazprom cut back on gas supplies to Ukraine, a key transit route for Europe-bound natural gas, over a payment dispute, affecting deliveries to Central Europe and the Balkans.
The disruption in supplies to Europe sent oil prices above 50 dollars a barrel in morning trade on London\’s InterContinental Exchange. Prices had plunged 54 percent last year, dragged lower by the global economic downturn.
"Russia continues to play hardball" on gas supplies, said Petromatrix analyst Olivier Jakob, as the European Union declared the situation "unacceptable."
European stock markets rose in early trading, shrugging off an overnight retreat on Wall Street, after Asian markets closed generally higher extending their positive start to 2009, fuelled by hopes of a bold US stimulus plan two weeks from president-elect Barack Obama taking office.
The benchmark Nikkei-225 index gained 0.42 percent to 9,080.84, the highest close since November 10, powered also by the weak yen.
Europe\’s single currency slid further to 1.3406 dollars in late morning trade in London, down from 1.3632 in New York late on Monday, as traders bet the European Central Bank would slash interest rates this month to curb the recession hitting the 15-nation eurozone.
"Given Europe\’s weak economic conditions and relatively higher interest rates (than in the US and Japan), the ECB will likely be forced to cut its rates further," Shinkin Central Bank dealer Jun Dato told Dow Jones Newswires.
Economic data supported the climate for a rate change with eurozone inflation slowing to 1.6 percent, its lowest in over two years, from 2.1 percent in November, according to an Eurostat estimate released Tuesday.
The eurozone service sector activity pulled back at the fastest pace on record in December, the seventh consecutive month of decline, driven by muted consumer spending and weaker activity in key export markets, according to a survey by data and research group Markit.
In France, which has so far avoided falling into recession, government figures showed consumer confidence weakened in December, while a composite index measuring economic health, compiled by purchasing managers, fell to a record low 37.6 in December, Markit research said.
"As long as the key economic players, consumers and businesses, are persuaded that the situation is going to get worse, they alter their habits," said Alexander Law at market analysts Xerfi.
"The equation is cruelly simple: less consumption and less investment mean less growth."
The deepening global economic crisis could also have a significant humanitarian toll, the United Nations warned Tuesday, raising infant mortality and malnutrition rates.
Anupama Rao Singh, director for East Asia and the Pacific at the United Nations Children\’s Fund (UNICEF), urged governments not to cut back on social spending, warning that infant mortality is expected to increase between 3.0 and 10 percent and the malnutrition rate among children could rise by 10 percent.
The incoming US government is looking for bold and swift action to combat the economic crisis with President-elect Barack Obama pushing lawmakers to back his near 800-billion-dollar stimulus plan. Mid-February is the new target date for the US Congress to take action.
In Japan, auto giant Toyota Motor Corporation said it would suspend production at all of its domestic plants for 11 days in February and March in response to a slump in sales.
Another sign that customers are tightening their pocketbooks could be seen in the bright lights of Broadway.
The curtain is coming down on no fewer than 16 shows in New York\’s famous theatre district by the end of February.
"Broadway is facing hard times as the economic meltdown pinches consumers and fewer tourists visit the city," the Daily News wrote.
"This year\’s slate of closings ranks among the biggest in memory."