Fire causes European gas price to jump further

14 June 2022

The noise

  • The European Central Bank took its first step to the removal of negative interest rates by taking its first rate hike in over a decade, committing to a 25-basis point rate hike in July. The hawkish move means the bank will put an end to asset purchases on July 1st. They also signalled a further 25-basis point hike in September, which will put an end to an 8-year stretch of negative borrowing rates.

  • European gas jumped after a fire broke out at an export terminal in the US, which led to an outage at the plant and wiped-out deliveries. The plant comprises around 20% of total U.S. liquefied natural gas processing capacity and is expected to be out-of-action for 90 days.

  • Investors continue to be wary of Italian bonds with prices selling off more than German government bonds so that the extra yield to compensate for the risk has increased from 1% now 2.2% above German bonds.
     

The numbers


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The nuance

After a brief and overdue bounce in equity markets, investors once more turn their attention to the stagflationary environment and attempt to understand what will happen as central banks around the world tighten liquidity and finally compensate savers with interest rates.

We continue to be patient and note that there are a number of unusual price movements in financial markets, as central banks step back from manipulating markets. Weakness resumed in the Japanese Yen where yield curve suppression is looking increasingly untenable. Peripheral European sovereign risk, suppressed since the European crisis of 2011, has also resurfaced.

Whilst we don’t know exactly how much of this will play out, we do know that high quality companies whose products and services are essential and are needed by society will do well despite the background noise in the economy.

Quote of the day

“A freezing fogbow! Unfogettable”

Bureau of Meteorology

A rare and stunning weather phenomenon has been sighted in Queensland as Australia experiences a widespread cold snap.The 'fogbow' seen near Toowoomba occurs when soft, silver, semi-halo shapes form from heavy amounts of fog rolling in directly opposite the sun.

The foggy phenomenon occurs for similar reasons that a rainbow does, but the lighter fog droplets scatter the sunlight and drains the fogbow of most of its colour.

Fog forms much like clouds do, except at low levels in the atmosphere when the temperatures fall and moisture in the air begins to turn into water droplets, the BOM explained on its website.

Source: The Daily Mail

Phil Smeaton
Chief Investment Officer


 

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