Global gas markets eased and equities climbed on Thursday, as investors banked that Russia would help Europe avoid a full-blown energy crisis.
European and UK gas prices fell in morning trades after a chaotic Wednesday that saw UK futures contracts climb almost 40 per cent before Russian president Vladimir Putin said his country was prepared to stabilise the market.
Russia, a major supplier of gas to Europe, has been accused by some European politicians of deliberately withholding supplies in an effort to win approval of the controversial Nord Stream 2 pipeline, which would send the fuel directly to Germany.
Alexander Novak, Russia’s energy minister, said late on Wednesday that certifying the recently completed pipeline would give a “positive signal” that could “cool down the current situation somewhat”.
Novak also suggested that increasing gas trading volumes on an electronic platform in St Petersburg run by Gazprom, Russia’s state-owned energy company, “could curb the speculative effect” on prices.
Hopes of Russian assistance helped European equities to rebound from losses on Wednesday. The benchmark Stoxx 600 share index gained 0.9 per cent while London’s FTSE 100 rose 0.8 per cent.
UK gas contracts for November delivery, which reached more than £4 per therm on Wednesday, fell 18 per cent to £2.23 on Thursday. The European TTF contract for November delivery dropped 21 per cent to €90.50 per megawatt hour.
Surging gas prices, unleashed by a combination of the global economy’s recovery from the pandemic, a shortage of supplies and longstanding efforts to reduce the use of fossil fuels, are threatening to slow economic growth and fuel inflation.
Olivier Marciot, cross asset investment manager at fund manager Unigestion, cautioned that while power prices could moderate, markets would remain vulnerable to broader inflationary pressures hitting consumers and prompting central banks to raise interest rates.
“It is not just about gas,” he said, referring to increases in the prices of commodities from cotton to coffee alongside pandemic-related worker shortages in the US, Europe and the UK.
Headline consumer price inflation in the US has topped 5 per cent for three months and hit a 29-year high in Germany.
Meanwhile, US energy secretary Jennifer Granholm told the Financial Times on Wednesday that the White House may release strategic oil reserves to stop the gas shortage dragging crude prices higher. Brent crude fell 1.4 per cent to $79.88 a barrel after approaching $83.50 on Wednesday.
Energy price swings and prospects of Russia gaining more influence in Europe was “developing a geopolitical lens over markets,” that had been absent since the start of the Covid-19 crisis, when debt and equity valuations became dominated by central banks’ stimulus spending, said Edward Park, chief investment officer of Brooks Macdonald.
“The first order event was a supply and demand imbalance coming out of the pandemic,” that caused energy price rallies, he said. “Now the geopolitics are coming out because of the prices.”
Government bonds were steady on Thursday following volatile trading in recent sessions, as traders held back from bets ahead of Friday’s US non-farm payrolls report. US employers are predicted to have hired almost half a million workers in September, which analysts believe could prompt the Fed to decide the economy has healed enough from the pandemic to reduce its $120bn a month of crisis-fighting bond purchases.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price and influences borrowing costs worldwide, was flat at 1.529 per cent. It has climbed from about 1.3 per cent in late September.
The UK’s 10-year gilt yield, which last week topped 1 per cent for the first time since March 2020 as traders anticipated stagflation and interest rate rises, was steady at 1.07 per cent.