Gazprom Severs Supplies through Nordstrom 1 Indefinitely.

Gazprom Severs Supplies through Nordstrom 1 Indefinitely.

This morning, markets are chiefly focusing on the news that Gazprom have ceased sending supplies of natural gas through Nord Steam 1 indefinitely. While Nord Stream 1 has been subject to numerous shutdown in recent months and has efficiently been running at 20% capacity over the course of August, the implications of the Kremlin’s decision to sever supplies is hard to understate given that the pipeline usually accounts for 40% of Europe’s natural gas imports from Russia. Concerns, particularly in Sweden and Finland are now being voiced over the spill over effects that this could have on the countries’ financial system as politicians assess different courses of action vis-à-vis market intervention in the energy sector. ???

This news sent TTF gas futures soaring, with the European benchmark appreciating around 33% during this morning’s session and hitting intra-day highs of €281 per megawatt hour. TTF futures are currently trading at around €255 per megawatt hour – up around 44% on the month and around 416% on the year.

In the UK, Natural Gas jumped from 400 pence-a-them to 515 pence-a-them as it trades around 35%.

While markets weigh in on the impact that rising gas prices will have on output and consumption, some level of comfort will be taken in the fact that the EU are set to hit their target of filling natural gas storage to 80% capacity by 1st November. Indeed, last week we learnt that that reserves are filled to 79.4% capacity across the EU, while Germany will be at 85% capacity within the month – well ahead of their October target.

Nevertheless, though Germany is ahead of its stockpile storage targets, experts previously maintained that these reserves would last less than 3 months if Russia completely stopped gas supplies. As such policy makers are now reviewing further energy rationing measures as bailout talks continue over Uniper. The German energy giant is the largest importer of Russian gas into Germany which last week sought a further €4bn euros as part of a bailout package, bringing the total to €19bn euros highlighting the precarious energy situation for the EU’s largest economy.

European Equities in the Red

In Europe, the Stoxx 600 has fallen some 3% as investors weighed on further energy insecurity and subsequent recession fears. Despite the CAC 40 appreciating 2.2% on Friday, the French index is now 2.2% lower this morning, thus undoing the positive end to last week.

The FTSE 100 trading down by around one percent today, as markets turn their attention to the most recent developments in the energy crisis and its implications on property and wider financial stability.

UK Gilt Yields Continue to Rise

Concerns over the health of the UK economy and the increasing prospect of another 50bpt rate hike at the BoE meeting next year have sent 10-year gilt yields to their highest level since 2014 having risen to 2.8%. Meanwhile, yields on 2-year guilts have hit 3.12% – extending last weeks gains which saw it surpassed the 3% marker for the first time since 2008.

Markets Look at Thursday’s ECB Rate Decision.

As inflation in the Eurozone hits record highs of 9.1%, money markets have priced in around a 2/3rds chance of a 75bpt rate hike which would see the base interest rate move from 0.5% to 1.25%. This comes as senior economists at Goldman Sachs, Bank of America and JPMorgan are now predicting a 75 basis-point rate hike when Frankfurt re-convenes.