Gazprom, G7 & German Consumer Confidence

German Consumer Confidence Slumps to Record Lows

German consumer confidence slumped to its lowest on record yesterday, according to a GfK survey. This comes as the conflict in Ukraine has exacerbated already challenged supply chains along with adding further inflationary pressure which has seen headline inflation rise to 8.7% across Germany. Rolf Buerkl of GfK stated that "the ongoing war in Ukraine and disruptions in supply chains are causing energy and food prices in particular to skyrocket, resulting in a gloomier consumer climate than ever before”.

Yesterday’s consumer confidence print continued to stoke fears over the prospect of a recession in Germany – who’s economy grew just 0.2% over Q1 and shrunk 0.3% over Q4 2022. Given that Germany accounts for around a quarter of the EU’s GDP, all eyes will be on Eurozone Q2 GDP figures released on Friday where the general market consensus is forecasting an annualised print of 3.4% - representing a significant fall from Q1’s 5.4% print.

Gazprom at 20% Capacity

Gazprom has yet again curtailed supplies going through Nord Steam 1 to around 20% capacity as the European energy crisis continues to deteriorate. As such, the EU are holding emergency meetings to discuss the block’s response to a potential further reduction in supply and its impact on their target of filling gas storage to 80% capacity before the onset of winter. In recent month’s EU policy makers have been moving to increase LNG supplies from countries such as Qatar and the US and have ramped up building critical infrastructure such as LNG deepwater terminals.

Given that 40% of all gas exports from Russia to Europe flow through Nord Stream 1, investors and policy makers have been weighing on the prospect of this extended loss of supply (critical particularly to Germany’s gas security) which has seen TFF futures – the European benchmark – trade at highs of €320 per megawatt-hour within the last month. TTF futures are currently trading at around €170 per megawatt hour, having risen more than 10% yesterday.

Given yesterday’s developments, TTF futures are currently trading up at around 384% on last year and 40% on the month, having fallen around 4% during the last 24-hours.

Oil Rallies

WTI Crude futures are trading at around $98dpb this morning having risen around 1.8% over the last 24-hours. Crude futures have appreciated so far this week as investors weigh on G7 proposals of a price cap on oil exports from Russia. Thus far, little substantive information has been provided on what such a price cap may look like – however yesterday Russia’s Central Bank Governor Elvira Nabiullina stated that the country will not supply oil to countries which would impose a price cap on energy products. While oil has so far rallied this week’s, investors are nonetheless weighing on the prospect of a 75bpt rate hike along with fears of a recession in the States – and the wider global community. ?

Equities

European equities have traded lower during this morning’s session as investors grabble with concerns about the economic climate, firms’ plans to cut back on jobs, and warnings vis-à-vis corporate earnings. This morning, the Stoxx 600 has seen a decline of 0.2% while the DAX slid by around the same level.

In the UK, the FTSE 100 is trading up by around 2/3rds of a percent while the FTSE 250 has seen a fall of around 1/3rd of a percent. Investors continue to weigh on the high volume of profit warnings issued by UK-listed companies which jumped 66% in H1 2022 from H1 2021, with 62 such warning’s being announced in Q2 alone.