Gas- and electricity prices are dropping FAST in Europe right now and they are likely going to drop further!
What is going on? 💲🪔A thread 1/n
Nat Gas prices have dropped from >300 EURs pr MWh to levels just north of 50 EURs and day ahead prices are even lower in many areas of Europe
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Prices in Spain have dropped as low as 27 EURs pr MWh for Gas as there is currently a queue of ships waiting to off-load outside of Spanish LNG ports
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This has led LNG within day prices to trade sub 25 (below the PVB price) as LNG operators are trying to get more room for the LNG waiting off-shore
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MIBGAS (Iberian market) daily spot PVB trades at 27.75 EUR pr MWh, but the curve is still fiercely sloping upwards in to November and December.
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Interestingly, the curve has a positive beta to spot developments, so even if the price action is currently driven by a short-term over-supply, it brings the ENTIRE curve down with it, even if it seems irrational
The same holds for TTF benchmark gas in the Netherlands
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Fill levels in European gas storages are approaching 100% way ahead of the deadline 1st of November and paired with milder than usual weather, this leads to a very low net spot demand for Gas
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Germany is for example still running large daily net injections into storage through mid-October as
1) The flow is decent 2) The temperatures are mild
and 3) The nat gas consumption among households and the industry is DOWN relative to 2021
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There is hence very limited scarcity risks for October/November and the arrow points clearly DOWN for prices as a consequence. LNG ships are queing up and there is nowhere to place it..
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This is likely going to bring the entire nat gas- and electricity curve DOWN in coming weeks at the very least until the heating season really kicks in through November..
The armageddon scenario is for now NOT worth talking about.. BUT...!
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The 2023 supply is much less certain! LNG makes up 40% of the current supply of gas in Europe, but we are still running 20-25% below usual flow levels due to the lack of Russian gas
The winter just ahead of us seems to be save, but in 23 we may be in for renewed turbulence
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WHY RISING FREIGHT RATES WILL LEAD TO HIGHER INFLATION IN THE US COMPARED TO EUROPE?
A thread
The goods inflation is typically more important in Europe than in the US, but the strenght of the consumer is important to assess the impact of rising freight rates
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The US consumption base is simply more geared for price increases than the European counterparts currently
US and UK retail sales close to all time wide levels based on December numbers, which is a strong hint of a big divergence between consumers
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We empirically observe a 3-5 month lag between freight rates and consumer inflation in the US, while the lag is a lot longer in Europe and elsewhere.
The most recent case study is 2021 when US inflation rocketed approximately 6-7 months ahead of European peers.
Ooooops, if you think soft data looks bearish compared to hard data, then wait till you look at the equity markets expectations of the future
A thread 1/n
Also... On the back of today's Philly manufacturing numbers the spread between prices paid and recevied reached its all time high. That bodes pretty well for SPX historically
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Another reason you should pay attention to the divergence between soft and hard data.. why??
What we know and what we think we know (From our Geopolitical team with strong Russia knowledge)
A thread 1/n
What we know:
-The Wagner mercenary with around 25,000 troops have taken up arms against the Russian army. Several Russian army units have joined the rebellion.
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Wagner have seized control over the key city of Rostov, which is basically the hub of the Russian war effort in Ukraine and appear to be attacking north against Voronezh and eventually Moscow.
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Large parts of the stock market have rallied recently, and whispers of a new bull market are steadily surfacing. Has the time come for caving in to bulls, or are we just seeing the results of impatience after 1,5 years of limbo?
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The surge in equities has been very top-heavy. On a YTD basis, the S&P 500 has delivered close to 15% while the equal-weighted counterpart has returned merely 5%. This just underpins the fragility of the current rally, but the breadth is becoming more robust.
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Two of the three industries (semis, homebuilders, and [transports]) in the S&P 500 which typically lead the broad index have just posted new highs. This rarely happens in bear markets.
On the back of Norway's 50 bps rate hike yesterday we decided to look at the Scandinavian FX massacre in NOK and SEK
NB revised its rate path >60 bps for Q4, with peak policy rate at 4.25% or a peak around 4.67% in NIBOR 3m terms which is the first major attempt to stabilize the NOK.
We consider the rates policy less relevant as a driver compared to Oil and the liquidity effects of the FX purchase/selling policy. Our tax proxy of oil and gas suggests NB should be closer to neutral / net long.
Will the Fed continue Hiking? When will the AI bonanza end? And what's going on with UK inflation numbers?
Here's some of the main points from our weekly '5 Things We Watch' where we take you through what to watch in the coming weeks:
The AI rally is still going, which is likely the driver behind the current rally. But divergences are building with the actual index posting a return 10 percentage points higher than the return of the average S&P 500 company (equal weighted index)
The market is desperately hoping for a pivot. But the housing market was the main reason behind RBA’s and BoC’s latest rate hike, and with US housing showing strength, Fed might be required to maintain a fairly hawkish tone to deal with shelter costs.