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 early trading 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.
Signs that Russia may be prepared to help were enough for European equities to rebound in morning trading on Thursday. The benchmark Stoxx 600 share index gained 1.1 per cent while London’s FTSE 100 rose 1 per cent.
UK gas contracts for November delivery, which shot up almost 40 per cent to reach more than £4 per therm on Wednesday, were down 18 per cent at £2.23 per therm on Thursday. The European TTF contract for November delivery was down 21 per cent at €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 may continue to be alarmed by fears of high inflation hitting consumers and prompting central banks to raise interest rates to curb inflation.
“We still think inflation will remain high and stay with us for longer than investors and central banks expected it to earlier in the year,” he said. “It is not just about gas,” he added, 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 last month.
Meanwhile, US energy secretary Jennifer Granholm told the Financial Times on Wednesday that the White House was considering releasing strategic oil reserves to stop the gas shortage dragging crude prices higher. Brent crude fell 1.2 per cent to $80.13 a barrel after approaching $83.50 on Wednesday.
Government bond markets 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 start reducing its $120bn a month of bond purchases that have boosted debt and equity markets throughout the coronavirus era.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price and influences borrowing costs worldwide, was flat at 1.517 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, fell 0.02 percentage points to 1.055 per cent.
Sterling added 0.1 per cent against the dollar to $1.3596. The dollar index, which measures the greenback against six major currencies, fell 0.1 per cent.