In this market commentary, the host provides a rapid overview of the key macro‑economic and geopolitical developments shaping the week of 5‑9 September 2022. The primary focus is the abrupt shutdown of the Nord Stream 1 pipeline, which triggered a 35 % surge in European gas futures, a sharp euro depreciation below 0.99 USD, and a pull‑back in gas prices after an initial spike. The fallout is reflected in German equity weakness (DAX down ~3 %) and a €65 billion German relief package aimed at capping energy company profits and supporting vulnerable households. The UK leadership race is highlighted, with Liz Truss positioned as the front‑runner; her prospective Chancellor Kwasi Kwarteng is said to be weighing a £100 billion loan scheme or a targeted subsidy to address the UK energy‑cost‑of‑living crisis. OPEC+ is expected to keep October oil output unchanged, though a modest cut is not ruled out. The host also notes rising US‑China tensions over tech investment, renewed COVID‑19 lockdowns in Chengdu, and upcoming Chinese trade and CPI data. A dense calendar of central‑bank actions follows: the RBA, BoC, and ECB are all slated to raise rates (the ECB possibly by 75 bps), while the Fed’s Beige Book, speeches by Loretta Mester and Jerome Powell, and other policy signals round out the week. The commentary ends with a reminder to subscribe and a teaser for upcoming evergreen finance content.
Chapters
Hello there and welcome back to the channel. Plenty for me to get you up to speed on, on the week ahead, not only to mention the issues of gas flow coming out of the Nord Stream pipeline, which has seen the euro fall below 99 against the US dollar. We've also seen European equities suffering, most prominent in Germany of course, who are highly susceptible and dependent on the flow of gas coming from Russia. So that's the main talking point, but also we've got updates on the likes of who's going to be the next UK Prime Minister. We're expecting that update at 12:30 today, London time. And of course, first thing to tackle in the intraday for the new PM is going to be this very significant energy crisis and cost of living issue that's impacting the UK at the moment. And then looking further forward to the week, we've got the ECB expected to hike rates, but they're not alone. We've also got the Bank of Canada and the Reserve Bank of Australia all looking to lift rates in the coming days. We've also got a European emergency crisis energy meeting happening at the end of the week as well. So plenty for me to get you up to speed on. Before I begin though, do please, uh, like and subscribe to the channel. It'd be much appreciated. And any questions at all, feel free to drop me a comment. Below. But let's get straight to it and talk about natural gas prices, which have surged after Russia halted its biggest pipeline to Europe indefinitely. Of course, this is a little bit of a political tit-for-tat that's been going on after what we had with that ruling from the G7 last week about Russian price caps, and this being then what Russia has done in retaliation on what otherwise was set to be just a 3-day maintenance period. Benchmark futures have jumped as much as 35%, talking about gas prices. As Gazprom made a last-minute decision late Friday not to turn the crucial Nord Stream pipeline back on. And what you can see here is pretty significant pullback, actually. A lot of these European gas prices were down almost 50% from their initial all-time highs, and this wild fluctuation all happening within the course of a week. And a lot of that pullback had come as Europeans have been, despite the price buying up as much gas as possible on the future risk of exactly this happening, looking to replenish their stockpiles going into the winter period. But the worst case is kind of materialized this morning, and that's what's really weighed on European sentiment today. And this being with the Americans out of the market for a US holiday today. A couple of things to be aware of then going further forward: European energy ministers are going to discuss radical proposals to cut power prices when they convene at a special meeting this Friday. It includes talk of gas price caps and the suspension of power derivatives trading as well. So a lot of this being speculation, looking out for more details in the coming days to emerge. As I've mentioned, the euro has traded below 99 against the US dollar. That's the weakest than it's been since the year of 2002. So further compounding this inevitable recession and the depth of it going to impact with record high inflation that we're seeing in the eurozone at the moment. The German DAX is been down as much as 3% in early trade. Talking of Germany then, given that they're feeling economically a large brunt of this more than most other European peers, the German Chancellor Olaf Scholz coalition agreed on a relief plan worth about €65 billion at the weekend to help millions of households obviously deal with soaring prices that's impacting their lives in this current moment in time. Key measures include a vow to cap and even redistribute huge profits made by energy companies on the back of the current crisis, of which we've seen in the most recent quarterly earnings season for the likes of TotalEnergies, for Shell, BP, Saudi Aramco— phenomenal-sized profits that they've seen. And the government's here looking to redistribute some of that. Increased payments to pensioners, students, parents, and the unemployed is what Germany are looking to do, and actions to rein in astronomical pace at which electricity prices are rising. The country also is considering relaxing several of its core energy and environmental policies in order to mitigate the fallout, excluding the operation of nuclear and coal power plants that it planned to close as well. So a lot of this very interesting, of course, not only because of the European meeting happening at the end of the week, but also because we are also expecting when the new PM gets confirmed in the UK later today, They start in office Tuesday, and then actually we're looking for an energy speech to happen very quickly on Thursday. And do some of the elements that we are seeing proposed in Germany appear in the likes of the UK? Now, talking of the UK, of course, Liz Truss is seen as the outright front-runner here and very much expected to win. If Rishi Sunak did turn it around last moment, that would be a somewhat surprise for markets. The main things then that we're looking out for here are two major options, which the FT article this morning was suggesting are being spoken about, and this has come from the likely Chancellor if Liz Truss wins, Kwasi Kwarteng, who's talked about two real main ways to approach the energy crisis. One being a £100 billion government-backed loan scheme that would hold prices constant for all households, or secondly, a more tailored approach which would cap the number of subsidized units of energy to target poorer households. If Liz Truss wins the leadership contest, again, we'll be looking for her to take office as soon as tomorrow. And then, as I said, the first thing that's going to be probably spoken about of the greatest importance will be what are their intentions to do. Lots of speculation in different formats on this energy crisis to be confirmed. Then, talking of energy markets, quick word on OPEC+. Uh, you know, everything really that ties all of the news stories together is energy prices. And OPEC+ is likely to keep oil output quotas unchanged for October at a meeting happening today, according to 5 OPEC sources on Reuters, although some sources would not rule out a small production cut to bolster prices, which have slid of course in recent times given this idea of a more impactful economic slowdown under the strain of rising inflation. So we'll be looking out for that confirmation later. In terms of other news headlines to be aware of, there are a few things starting with China. We've got this one where the Biden administration is considering moves that would restrict US investment in Chinese tech companies. This is in the ongoing row between the US and China, citing people familiar with the situation. For China themselves domestically, we're also seeing at the moment then that the COVID situation is basically equating to further, more onerous lockdowns in very large geographic cities. The western megacity of Chengdu, which is the 6th largest city in China, has ordered more mass testing there from Sunday as it tries to contain the latest outbreak. And do be aware that from an economic data perspective, you do have Chinese trade data coming out on Wednesday and CPI inflation metrics coming out at the end of the week on Friday as well. Looking at the overall though week ahead, what have we got on the agenda? As I mentioned, it is actually US Labor Day holiday today, so definitely quite interested to see how the market's going to react over this 24-hour period, particularly when the US starts to come back in tomorrow. But on Tuesday, we do get the services PMI data. That's expected to have slowed in August to the lowest reading since May of 2020, so really in the immediate aftermath of COVID taking hold. And it comes as economic growth decelerates amid aggressive rate increases that we're seeing implemented by the Federal Reserve to tackle the persistent inflation issue at the moment. As I mentioned earlier though, it's not just the ECB with interest rate decision this week. We're going to get first the, the RBA. They're expected to hike by another 50 basis points on Tuesday. Then on Wednesday we get the Bank of Canada. As you can see here, they're expected to hike by 75 basis points after a 100 basis point hike in July. Inflation is still well above target, the economy is growing strongly, and with the BoC having openly talked about the need for front-loading policy tightening. And so expectations are still for an aggressive 75 basis point move there. And then for the ECB, just flipping over to Thursday, that's going to be one of the main events of the week. Up until last week, expectations have really been coalescing around the prospect of a 50 basis point move. However, a sourced report that we had on the 26th of August revealed that some policymakers wish to discuss the 75 basis point rate rise due to the deterioration in the inflation outlook, i.e., hitting new record highs and approaching double digits and likely to move higher beyond that point. And that's led to the likes of Goldman's, Credit Suisse, JPMorgan, Bank of America, they are all gunning for 75 basis point rate hike, which would be obviously a larger than their first clip move of 50 that we saw at the prior meeting. Markets are heavily leaning in that direction, with around an 80% probability in favor of going 75 rather than 50. And in terms of the rest of the week from a Fed perspective, couple of speaking events to look out for. The Beige Book comes out on Wednesday. We also get on the same day voting member of the FOMC and leaning hawk Loretta Mester speaks on that same day. And you've got Jerome Powell giving a speech as well on Thursday. So that is it. Thanks for listening. And again, remember to subscribe to the channel if you're not already done, do so. I've got some new content, more evergreen pieces, particularly on the investment banking, corporate finance side that I'm working on with my new colleague Stephen. So watch this space and have a great week ahead. Take care.
