Fresh Legal Fight Erupts Over Nord Stream 2 As Europe Energy Costs Soar Ahead Of Frigid Winter
Just ahead of Monday’s announcement that the North Stream 2 Russia to Germany natural gas pipeline has begun filling with gas in the first line while awaiting approval from Germany regulators before it goes fully online and the taps are turned on, Russia’s Deputy Foreign Minister Alexander Grushko in weekend statements had warned that political opponents are ready to exploit “legal squiggles” to prevent it from finally going operational.
“I will stress once again: all the necessary steps, including in the legal field, have been taken and we firmly hope that this project will be implemented,” Grushko explained, while warning of the “rather complicated” process for receiving legal certification on the European side. Crucially signs of a final inter-EU political fight have already emerged, as Bloomberg details, European lawmakers “who supervised the European Parliament’s work on EU gas market legislation, said NS2 doesn’t meet the conditions for German certification because it fails to meet the unbundling criteria (which ensures as gas provider is prevented from simultaneously controlling the transmission side of the business).
“The structure of the company does not guarantee its independence as an operator in relation to Gazprom, a prominent gas supplier to the EU and a dominant supplier in the CEE,” European Parliament officials who oversee the body’s work on EU gas market legislation wrote in a recent letter. It was in response to Nord Stream 2’s efforts to be recognized as an independent transmission system operator. The lawmakers refused to authorize this status as it “puts at risk the security of energy supply within the EU,” they said – which has been a persistent argument of Washington in seeking to block completion of the pipeline.
Ultimately the final hurdle before NS2 will actually transit gas from Russia into northeast Germany via the Baltic Sea from the St. Petersburg region will be the moment German regulators issue authorization to turn on the taps for the gas to start flowing – but this is where the final political showdown is expected. Last month Ukraine said it will pursue all revenues of action against NS2 “even after the gas is turned on” – yet it’s been met with little more than a shrug in Europe, also amid recent US sanctions targeting companies involved in the construction. Ukraine stands to lose an estimated 1 billion euros ($1.2 billion) annually in transit fees from Russia as NS2 has effectively cut Kiev out as the “middle man”.
But it’s no secret that time is running out ahead of frigid winter temperatures, as many have noted the obvious that new pipeline provides an immediate relief from Europe’s gas crisis and dwindling supply, which has seen some prices in parts of Western Europe rise by some 250% amid persisting reserve shortages in a matter of weeks.
Gas prices have increased 600% over the last 12 months.
S&P Global has prepared this infographic on gas prices in Europe ahead of this winter.
Russia’s unwillingness to transit more gas via Ukraine is likely to maintain the price at a very high level for the foreseeable future pic.twitter.com/56VOzhGGQs
— Three Seas Initiative (@ThreeSeas24) October 3, 2021
According to a quick survey of the worsening situation in Bloomberg:
Global shortages of gas and coal are pushing energy prices higher, disrupting markets from the UK to China, as economies emerge from the pandemic. Surging costs are threatening to raise inflation and starting to weigh on industrial production, with some companies in Europe forced to cut output.
“The fiercely nervous sentiment on the market continues due to fears of reduced supply during the winter,” trader Energi Danmark wrote in a note Tuesday. “Everything looks set for another week of price climbs.”
Europe’s gas stockpiles are at their lowest seasonal level in more than a decade, while supplies from top seller Russia are limited and global competition for liquefied natural gas continue to be intense.
Also commenting on the record-setting supply crunch, an industry insider – Catherine Newman, chief executive officer of Limejump Ltd. told a conference on Tuesday: “If we have a cold start to the winter and we’re withdrawing gas, we’re not going to have any gas left by the time cold winter hits.”
2021 kicked off with European gas reserves already plummeting…
Meanwhile on Tuesday European natural gas contracts jumped to an unprecedented 111.70 euros per megawatt-hour, after last February being at a mere 15.49 euros.
The NS2 operator is at the same time seeking to assure that “Nord Stream 2 will contribute to meeting the long-term needs of the European energy market for gas imports, improving supply security and reliability, and providing gas under sensible economic conditions,” according to a company statement.
The U.S. Budget Deficit
#CKStrong The U.S. Treasury findly released their monthly statement on Friday, which closed the books on the government’s 2021 fiscal year (October to…
The U.S. Treasury findly released their monthly statement on Friday, which closed the books on the government’s 2021 fiscal year (October to September). The deficit came in at $2.8 trillion (12.0 percent of GDP, based on our Q3 GDP estimate) , a bit lower than FY 2020’s $3.1 trillion (14.8 percent of GDP). Those are some massive deficits, folks.
U.S. Deficit Larger Than 95 Percent Of Global Economies
In fact, the FY 2021 deficit was larger than Italy and Canada’s economy, bigger than 185 of the 192 country economies in the lastest IMF database. Take a look at the peak 12-month deficit of $4.1 trillion in March. The March deficit would have made the G5.
Financing The COVID Deficit
How can the U.S. Treasury finance $5 trillion in borrowing over the past 18-months without spiking global interest rates, crowding out investment and other asset markets, and tanking asset prices? They can’t.
The table below breaks down the financing in several different measures. Check it out.
The bottom line is that 23 percent of the COVID deficit borrowing has been financed by an increase in Treasury bill issuance, easy given the mass excess liquidty on the short-end where the Fed is soaking up over a trillion with overnight reverse repos in order to keep short-term rates postives. Most of that liquidity, by the way, was created from QE.
Of the remaining $4.1 trillion of non T-Bill debt issuance, 75 percent was taken down by the Fed, albeit indirectly.
There you have have it, folks, T-Bills and the Fed have financed the bulk of the COVID deficit and debt buildup. No judgment, but policymakers are now going to have engineer a soft landing in the economy and asset markets as we approach a fiscal cliff to normalize the budget deficit and tighten up monetary policy.
We are not throwing stones as they saved the world from a global economic castasophe.
We do criticize their continued irresponsible policies as inflation rages and stagflation sets in. It’s not wise, in our experience, to try and monetize supply shocks. We learned that hard and painful lesson by doing so with the OPEC oil shocks.
Narrow window for a soft landing. Stay tuned.
Email us or comment if you have questions.
An Anti-Inflation Trio From Three Years Ago
Do the similarities outweigh the differences? We better hope not. There is a lot about 2021 that is shaping up in the same way as 2018 had (with a splash…
Do the similarities outweigh the differences? We better hope not. There is a lot about 2021 that is shaping up in the same way as 2018 had (with a splash of 2013 thrown in for disgust). Guaranteed inflation, interest rates have nowhere to go but up, and a certified rocking recovery restoring worldwide potential. So said all in the media, opinions written for everyone in it by none other than central bank models.
It was going to be awesome.
Straight away, however, right from the very start of 2018 there were an increasing number (and intensity) of warning signs. Flat curves were a big one – which then later inverted. In global economic data, crucial contradictions were purveyed by Japan and Germany.
In other words, taking cues from those three – Japanese and German conditions augmented by consistent contortions in the US Treasury yield curve – before we even got to the end of 2018, while the mainstream narrative prevailed unopposed with Jay Powell still hiking rates, we said very differently. Here’s early November 2018, with already negative GDP in both those places:
This year is proving to be a trainwreck in too many important places. It was supposed to be the arrival of worldwide recovery. Worse, too many arrows are still pointing down for 2019. But you wouldn’t know it from the Bank of Japan, ECB, Federal Reserve, etc. Not until they are forced into some honest assessments for once.
Heads in the sands (or another orifice, if you prefer), “tightening” became the preferred if only option across the globe. The Fed, the ECB, others around the world rushed to get ahead of the (imagined) inflationary pressures “everyone” said were on the cusp.
Just a few months further on, March 2019, everything had already changed though it would take many more months for the stunned mainstream to even begin appreciating all the roughness.
As is standard practice, when weak data began showing up last year it was attributed to anything, everything else. Europe was downright booming, they said, so there was no possible way for a macro negative scenario…Europe isn’t the only place where manufacturing declines are showing up. Just as Germany is a bellwether for global trade and therefore global economy, Japan is in very much the same situation. Export-oriented, if Japan Inc. isn’t making new goods that’s because the rest of the world isn’t demanding them.
Germany. Japan. Yield curve. Twenty-eighteen.
Germany and Japan the economic bellwethers for the whole global economy (the importance of trade at the margins) along with the Treasury curve reacting to, and forecasting ahead from, the real global economy’s interior and insides. Economists are, by contrast, so removed from the realities of real-time facts so as to be modern day astrologers making claims based on little more than specious privileges.
Germany or Japan struggling isn’t really about Japan or Germany; nor the UST curve specific to US and Treasury. With a massive overflow of goods heading toward especially the US, however warehoused on the way, as I wrote earlier today, what might this trio bode with regard to the direction for future demand?
Many companies have claimed they are absolutely ready for “too many goods”, believing both their newfound penchant for individual supply chains as well as logistical consulting to manage more than ever. This so long as demand doesn’t “unexpectedly” fall off, even a little, which then might trigger the downside of the inventory cycle.
Three years ago, these three indications taken together were keen warning signs how demand was about to and would fall off “unexpectedly” (if it hadn’t already). And these ended up being highly accurate measures of the global economic direction that were completely, utterly contrary to the surefire, guaranteed inflation/recovery/BOND ROUT!!! no one ever challenged.
Is this time different? Hope so, but history keeps repeating because no one ever explains what happened last time. And the time before. And the time before. And…
S&P, Dow Jones climb to fresh highs ahead of big tech earnings
The S P 500 Index and Dow Jones closed at record highs on Monday October 25 ahead of quarterly earnings of big technology companies like Apple Amazon…
The S&P 500 Index and Dow Jones closed at record highs on Monday, October 25, ahead of quarterly earnings of big technology companies like Apple, Amazon, and Alphabet this week.
The S&P was up 0.47% to 4,566.48. The Dow Jones rose 0.18% to 35,741.15. The NASDAQ Composite rose 0.90% to 15,226.71, and the small-cap Russell 2000 rose 0.93% to 2,312.64.
Market participants are in high spirits as the third-quarter earnings season is in full swing. Several major financial and retail companies have reported robust growth in the quarter.
The earnings come in the backdrop of inflation, supply disruptions, and labor shortages. Hence, some analysts were initially worried over quarterly performance amid these factors.
Traders will now eagerly wait for the earnings of mega-cap technology companies that have around 30% weightage on the S&P 500 index by market capitalization.
According to Refinitiv data, some 165 S&P 500 companies are expected to report this week. Analysts expect the index to grow by 34.8% in the quarter YoY.
In addition, of the 119 companies reported so far, 83.2% beat Wall Street estimates.
On Monday, consumer discretionary and energy stocks led gains on S&P. Utilities and financial stocks were the bottom movers. Nine of the 11 stock segments of the index stayed in the green.
Shares of Tesla, Inc. (TSLA) jumped 12.66% at the market close on Monday, taking its market cap to more than US$1 trillion for the first time, as the car rental company Hertz said it placed an order for 100,000 Tesla vehicles. Morgan Stanley also raised its price target to US$1,200 from US$900.
PayPal Holdings, Inc. (PYPL) stock was up 2.70% after it said it had no plan to buy Pinterest Inc. (PINS). Media reports had earlier claimed that it was in talks to acquire the social media firm for US$45 billion in a stock-and-cash deal. The PINS stock fell 12.71% after PayPal’s clarification.
Facebook, Inc. (FB) shares jumped 3.78% in after-market trading after missing analysts’ expectations in the third quarter. Its revenue surged 35% YoY to US$29.01 billion in Q3, FY21, and its net income rose 17% to US$9.19 billion, or US$3.22 per diluted share. Analysts had predicted diluted EPS of US$3.19 on revenue of US$29.57 billion, Refinitiv data showed.
In the consumer discretionary sector, Home Depot, Inc. (HD) rose 1.44%, LOWE’s Companies, Inc. (LOW) rose 1.33%, and Target Corporation (TGT) gained 1.73%. TJX Companies, Inc. (TJX) and Aptiv PLC (APTV) advanced 1.71% and 1.13%, respectively.
In energy stocks, Exxon Mobil Corporation (XOM) increased by 1.95%, ConocoPhillips (COP) rose 1.06%, and EOG Resources, Inc. (EOG) gained 2.22%. Schlumberger N.V. (SLB) and Kinder Morgan, Inc. (KMI) ticked up 1.33% and 1.02%, respectively.
In the utility sector, Duke Energy Corporation (DUK) declined 0.91%, Dominion Energy, Inc. (D) fell 1.02%, and American Electric Power Company, Inc. (AEP) fell 1.06%. Xcel Energy Inc. (XEL) and WEC Energy Group, Inc. (WEC) plummeted 1.36% and 1.40%, respectively.
Also Read: Seven most anticipated IPOs this week
Futures & Commodities
Gold futures were up 0.71% to US$1,809.05 per ounce. Silver increased by 0.83% to US$24.652 per ounce, while copper rose 0.70% to US$4.5293.
Brent oil futures increased by 0.58% to US$85.13 per barrel and WTI crude was down 0.08% to US$83.69.
The 30-year Treasury bond yields was down 0.37% to 2.083, while the 10-year bond yields fell 1.36% to 1.633.
US Dollar Futures Index increased by 0.21% to US$93.817.
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