The price of gas has been rising, yet one more headwind for the world economy will likely loom
A global economy is getting back on its feet after the coronavirus shock, but rising gas prices that threaten to push up winter fuel bills and exacerbate the rising price of inflation are another blow.
The gas market chaos, which has led to the rise of prices in the United States this year by 80% and increased the yearly increase in prices, is blamed on a range of factors, from low storage to carbon prices to reduced
So high are tensions that a number of European Parliament lawmakers demanded an investigation into what they said could be market manipulation by Russia's Gazprom. Read more.
The surge carries huge market implications, no matter what the cause, the biggest market impact is the surge.
Analysts say it's too early to downgrade economic growth forecasts but a hit to economic activity looks inevitable.
Morgan Stanley reckons that the impact in the United States, the world's biggest economy, should be small. The US energy industry used a lot of the energy consumed by natural gas in 2020, although it noted that over one third of U.S. energy consumption was produced by the natural Gas generation, but users were mostly industrial.
Even higher gas prices raise the risk of stagflation - high inflation and low growth.
Increasing numbers of companies plan to look ahead to the prospect of rising costs, said Michael Hewson, chief market analyst of CMC Markets.
2/INFLATION - INTERESTION.
The wholesale power prices of the Euro zone are at record highs, thereby lowering the inflation pressures caused by COVID-related supply bottlenecks. According to the data on Monday, 310,000 households face an 11,5 % increase in gas bills in Germany. read more about this article.
A study found that German factory gate prices were already the highest since 1974, Citi analysts predicted 5% hikes in electricity and gas prices in January, adding 0.25 percentage points to consumer inflation next year.
The increase in food costs are another side effect due to the need for the production of carbon dioxide in slaughterhouses, and to prolong the shelf life of food. Cuts in fertiliser production could also increase food prices.
Goldman Sachs predicts a higher oil demand, with statewide demand of 58 per barrel ($8 per gallon) rising in the fourth quarter 2021. Brent price forecasts suggest he's 80 per bar Brent is trading at approximately $74 at the moment.
3/CENTRAL BANKS: 3 CENTRALE BUYS.
The Central Bank is not a temporary inflation spike -- Isabel Schnabel said on Monday that she was happy with the broad-based inflation rise.
The gas prices will be on the radar of central banks as the market- and consumer-based inflation forecast rises.
There will be a very difficult situation for markets and central banks to assess, navigate and communicate, says Piet Haines Christiansen, chief strategist at Danske Bank.
The central bank meetings this week could test policymakers' resolve. Since the inflation has just hit a nine-year high, the Bank of England meeting on Thursday is particularly focussed.
The rise in demand for oil prices and the soaring cost of shipping and rising commodity prices, and a resuscending vacancy rates, adding 1% of employees, but the growing risk is that higher prices will stick
"If they do, more members of the Board of Directors may vote swiftly to rate a higher than expected rate, but this would be hardly an unpopular course of action, she said.
BAILOUTS 4/ STATE.
Britain is considering offering state-backed loans to energy firms after big suppliers requested support to cover the cost of taking on customers from companies that went bust under the gas prices. The company, Bulb, is reportedly seeking a bailout. read more.
France plans to give millions of households one-off 100 euros (118) of tax dollars to help with energy bills. read more, meanwhile, France aims to provide money to the power sector, to alleviate the energy bill.
"The story emerging from the UK energy sector will be more relevant to the European market than Evergrande," said Althea Spinozzi, senior fixed income stray at Saxo Bank.
And in a week full of central bank meetings, she added that markets are "right to fret."
Spain flooded the utility sector last week by redirecting billions of euros in energy companies' profits to consumers and capping gas prices. RBC estimated the revenue hits at Iberdrola and Endesa were at one billion euros and the shares in the companies went off heavily.
Since the move, the investors have fretted about the possibility of contagion to other countries, Morgan Stanley said. While the bank considered the fears overdone, the risk of margin squeezes at European utilities in the coming months was still low.
The sector shares are down for the third week straight (.SX6P) week.