European markets have slipped back in the wake of last week’s announcement that Gazprom wouldn’t be reopening its Nord Stream 1 pipeline as was expected over the weekend.
Russia blamed problems with sanctions for the sustained closure, and that unless sanctions were lifted the closure was likely to remain permanent.
Europe
This in turn has seen gas prices shoot higher, however the rebound has been relatively modest in nature, probably because to some extent markets had expected this card to get played at some point, just not as soon as it has.
The DAX and FTSEMib have borne the brunt of the declines due to Germany and Italy’s greater reliance on Russian gas, while the FTSE100 has managed to claw back its intraday losses, after a similarly weak start.
The main sectors helping the FTSE100 have been the usual suspects of basic resources and energy on the back of the rise in crude oil and gas prices, while firmer copper prices have seen decent gains for mining stocks.
The decision by the German government to impose a windfall tax on their energy providers initially saw the share prices of RWE and Eon fall back sharply in early trade. These actions by the German government initially translated into similar weakness in the likes of National Grid, Drax Group, SSE and Centrica here in the UK, on a heightened expectation that they could be on the receiving end of similar treatment from the UK government.
These losses appear to have reversed after the confirmation of Liz Truss as UK Prime Minister, based on her previously stated reluctance to go down a similar route. Whether that position holds in the coming days remains to be seen once the scale of the task facing her new administration becomes apparent.
Aston Martinshares have slumped after the car company announced a 4-1 rights issue worth £575.8m at a hefty discount to Friday's close of 78.5% at 103p per share.
Dechra Pharmaceuticals has seen its shares fall sharply despite reporting an increase in full year revenues and profits. Revenues came in at £681.8m a rise of 13.8%, helping to drive a 16.2% rise in operating profits of £95.5m.
In other news, Housebuilder Vistry Group has agreed a deal to buy Countryside, valuing the business at £1.25bn. The deal is a part cash and a part stock deal, with Countryside shareholders receiving 0.255 Vistry shares as well as 60p per share in cash.
US
US markets are closed.
FX
The pound didn’t seem much of a reaction to today’s expected confirmation of Liz Truss as the new UK Prime Minister, given that it is already trading at its lowest levels since March 2020, when it briefly dropped to a low of 1.1415 against the US dollar, before rebounding. These March 2020 lows are the next key support level separating sterling from levels last seen in 1985
The euro has also been similarly weak, sliding below the 0.9900 level to a new 20 year low after Russia announced it was shutting down its Nord Stream 1 pipeline indefinitely due to an oil leak.
The Norwegian Krone has been the best performer, helped by the rebound in oil and gas prices.
Commodities
Crude oil prices had already been trending higher even before today’s unexpected announcement by OPEC+ that they would be cutting output by 100k barrels a day, reverting output back to the levels seen in August. This reduction would take effect from October, thus cancelling out the slightly higher levels in output we’ve seen this month. At the time the move to increase output was criticised as being too small to make a difference, even as prices fell quite sharply in August. This move lower in prices appears to be behind OPEC’s motives in dialling back its increase as they look to growth concerns in China, as well as central banks seemingly determined to drive inflation out of the global economy.
Volatility
Oil products saw a somewhat choppy end to the week with many prices pulling back from recent lows. US Heating Oil was one stand out here in terms of price action, with the underlying ranging around 5% during Friday’s session, in turn lifting daily vol to 71.15% against 50.41% for the month. With that OPEC+ meeting scheduled for later in the week and a raft of geopolitical factors to take into account when it comes to the supply side, further activity here is likely to be seen in the near to medium term.
The Euro briefly pushed out to six-week highs against the Swiss Franc on Friday and although the upside was short lived, this was sufficient to lift the cross into top place in terms of vol for fiat currencies. Overall expectations appear to be that a downward run will be seen here as the Swiss National Bank arguably has more capacity when it comes to tackling domestic inflation with monetary policy levers but daily volatility advanced to 9.95% on the usually liquid pair, which posted 7.21% on the month.
The German mid-cap equity index has been cropping up in terms of price action in recent days and Friday was no exception. The index has been on a downward trajectory for the last 12 months although may have found some technical support ahead of the weekend break. Daily vol here printed 45.91% against 31.26% on the month although with questions looming over the outlook for the German economy as it wrestles with the threat of energy shortages, downside pressures here could well resume.
