Russia firmly holds the lifeline of Europe, and Europe, as always, knows nothing about the future...
On July 11, the "Beixi 1" pipeline entered a 10-day scheduled maintenance, which made this The precarious European energy market is facing a greater impact. European leaders have recently warned that the pipeline may be extended maintenance periods or even shut down completely.
Previously Deutsche Bank strategist George Saravelos predicted that if the pipeline closure issue is not resolved in the coming weeks, it will lead to wider energy disruptions, have a material upfront impact on economic growth, and of course lead to inflation. Increased substantially. Saravelos said:
"In addition to the market's concerns about a slowdown in global economic growth in recent months, what has happened in Europe in recent days is a new large negative supply shock."
Deutsche Bank strategist Jim Reid said, July 22, the day when the Nord Stream 1 natural gas pipeline is scheduled to come back online, may be the most important day for global markets this year. He said:
"While the market has spent most of its time thinking about the Fed's interest rate hike path and the possibility of an economic recession, I suspect that Russia's natural gas supply cuts will be the more impactful event in the second half of this year. Of course, , by July 22, Canada may have returned parts, and supply may begin to normalize. Everyone is just guessing, but in case the plan does not catch up with the change, everyone in the market must at least be prepared first.”
Facts. On the first day of the maintenance period of the "Nord Stream 1" pipeline, the flow of natural gas to Europe was basically zero.
Prepare for the worst
In the worst case scenario, Russia will cut off all natural gas supplies to Europe as soon as July 22nd. Some foreign media call this a "doomsday scenario" for Europe.
Economists at UBS Group AG expect European stock markets to plummet by 20% by then. Junk credit spreads will widen beyond 2020 crisis levels. EUR/USD will fall to 0.9 before a full US recession. Frenetic demand for safe assets will push benchmark German Bund yields to 0%.
Right now, the fate of Europe is in the hands of Russia, which, as always, knows nothing about it.
Of course, it's important to note that there are many variables, such as the length of time the pipeline is shut down, the extent of supply cuts and the extent to which countries will wean themselves off Russian energy. Even so, July 22 could still be the beginning of disaster.
Soaring electricity prices in Germany threaten energy security
UBS Chief Economist Arend Kapteyn wrote:
"We stress that these forecasts should be viewed as rough approximations and by no means a worst-case scenario . We can easily imagine that the economic disruption will lead to more negative growth outcomes."
Europe is already "severely injured"
To be sure, the market has already priced in some of the news, and the euro hit a 20-year low against the dollar on Tuesday. Parity with the US dollar. German stocks have fallen 11% since June, and German gas giant Uniper has plunged 80% this year.
"Europe is currently in a vicious cycle," said Charles-Henry Monchau, chief investment officer of BanqueSyz. Rising energy prices are hurting the European economy, pushing the euro lower. In turn, a weaker euro makes energy imports more expensive.
Practet Asset Management portfolio manager Prashant Agarwal said another concern is that the ECB will not be able to do much to help the economy with inflation already at a decade high. He said:
"I am not sure whether central bank tools will be effective in this situation. In the past, they have had room to maneuver to deal with this situation because inflation was very low."
Joachim Clement, head of strategy at Liberum Capital ( Joachim Klement) said:
"The big unknown is how the shock that started in Germany, Poland and other central European countries will affect the rest of Europe and the world. There are simply no alternatives to Russian natural gas."
What do other investment banks think?
BNP Paribas
Strategists including Sam Lynton-Brown and Camille de Courcel wrote that a full gas outage would push the Stoxx 50 index to 2,800 points, about 20% below current levels. They believe that the automotive, industrial and chemical sectors will come under pressure and recommend hedging risks by buying shares of high-quality companies or buying options linked to the movement of European stock indexes.
Nomura International
Since April, the bank’s currency strategists. Jordan Rochester has been urging clients to short the euro. He writes that if Nord Stream 1 does not resume operations, EUR/USD could fall to 0.9 this winter. He said:
"We think Europe may not be able to store enough gas for the winter. , so energy rationing has to be implemented. If this is not the economic crisis of and , what is?
JPMorgan
Strategists led by Matthew Bailey said that if Russia shuts down natural gas supplies, European corporate bond spreads will be more volatile than during the first wave of the coronavirus outbreak in 2020. High-grade debt Spreads on bonds could surge to 325 basis points, while spreads on junk bonds could widen to 1,000 basis points.
Goldman Sachs
Strategists including Christian Mueller-Glissmann said the euro has priced in a lot of negative factors, but if the market Priced "Nord Stream 1" completely closed, the currency could fall another 5%
Bank of America
Last week, Bank of America, which has always been bullish on copper prices, also lowered its forecast, warning of widespread natural gas shortages in Europe. In the worst-case scenario, copper prices may fall to as low as $4,500 per ton. Copper prices fell 2% to $7,429 on Tuesday.
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