AFP

European natural gas prices climbed Thursday towards a record peak on heightened fears over Russian supplies, while equities rose on the eve of a key speech from Federal Reserve chair Jerome Powell.

Europe’s benchmark Dutch TTF gas contract advanced to 322 euros per megawatt hour, not far from the record high 345 euros struck in March shortly after key gas producer Russia invaded Ukraine.

Prices have spiked in recent days as a three-day halt in Russian deliveries to Germany via the Nord Stream 1 pipeline approaches amid fears that Moscow will not turn the taps back on afterwards.

At the same time, one-year forward contracts for electricity prices in both France and Germany surged on Thursday to record pinnacles on worries over a winter energy crunch.

– ‘Unstoppable march upwards’ –

“Gas is on a seemingly unstoppable march upwards again, a dramatic move which will intensify the energy crisis,” said Hargreaves Lansdown analyst Susannah Streeter.

“Already plans are being brought in to save energy which will darken streets across Germany and make public buildings colder, but much tougher measures may have to be enforced given dwindling gas reserves.”

In stock market trade, European equities mostly advanced, with Frankfurt drawing some strength from news that the German economy expanded by an anaemic 0.1 percent in the second quarter.

That was upgraded from the prior projection of zero growth, but analysts remain downbeat.

“I’m trying to find a reason to be optimistic on the back of that, but in reality it just means the economy may take a little longer to fall into recession,” warned OANDA analyst Craig Erlam.

“With the energy crisis unlikely to improve, this likely means another quarter of flat growth at best before the economy falls into recession later this year.”

Wall Street also pushed higher as traders looked to central bankers meeting in Jackson Hole in the US state of Wyoming this week.

All eyes are on Powell’s Friday speech for clues about the Federal Reserve’s plans to tame runaway inflation with higher borrowing costs.

Central banks around the world are trying to find a delicate balance between curbing inflation and avoiding recessions.

The challenge has been compounded this year by Russia’s invasion of Ukraine, which has sent energy and food prices skyrocketing.

There are concerns that the Fed’s fight against soaring inflation could lead to a recession in the United States, which could, in turn, hit a global economy that is still recovering from the Covid pandemic.

But the latest data out Thursday showed a continuing drop in first time claims to 243,000 last week, suggesting the US economy remains strong.

“A reading below 250,000 certainly indicates that labor market conditions remain tight, which means the potential for sticky wage-based inflation pressures also remains tight, and that is unlikely to be a comforting indication for Fed officials,” said Briefing.com analyst Patrick O’Hare.

US second-quarter GDP figures were also revised higher, to a 0.6-percent contraction from the initial estimate of a 0.9-percent contraction.

– China stimulus –

Asian indices rose after China unveiled fresh measures to boost its economy.

The moves to shore up the economy were announced by China’s State Council on Wednesday, including steps to encourage lending, consumption and investment, according to the official Xinhua news agency.

They also included support for electricity producers and agriculture, two sectors hit especially hard by the heatwave, though Xinhua’s readout of the State Council meeting did not mention the extreme weather.

– Key figures at around 1530 GMT –

New York – Dow: UP 0.1 percent at 33,001.63 points

EURO STOXX 50: UP 0.2 percent at 3,674.05

London – FTSE 100: UP 0.1 percent at 7,479.74 (close)

Frankfurt – DAX: UP 0.4 percent at 13,271.96 (close) 

Paris – CAC 40: DOWN less than 0.1 percent at 6,381.56 (close)

Tokyo – Nikkei 225: UP 0.6 percent at 28,479.01 (close)

Hong Kong – Hang Seng Index: UP 3.6 percent at 19,968.38 (close)

Shanghai – Composite: UP 1.0 percent at 3,246.25 (close)

Euro/dollar: UNCHANGED from Wednesday at $0.9970

Pound/dollar: UP at $1.1814 from $1.1799

Euro/pound: DOWN at 84.36 pence from 84.47 pence

Dollar/yen: UP at 136.71 yen from 136.36 yen

West Texas Intermediate: DOWN 0.6 percent at $94.30 per barrel

Brent North Sea crude: DOWN 0.4 percent at $100.83

burs-rl/kjm

European natural gas prices climbed Thursday towards a record peak on heightened fears over Russian supplies, while equities marked time on the eve of a key speech from Federal Reserve chair Jerome Powell.

Europe’s benchmark Dutch TTF gas contract advanced to 318 euros per megawatt hour before paring gains.

That was not far from the record high 345 euros struck in March shortly after key gas producer Russia invaded Ukraine.

Prices have spiked in recent days as a three-day halt in Russian deliveries to Germany via the Nord Stream 1 pipeline approaches amid fears that Moscow will not turn the taps back on afterwards.

At the same time, one-year forward contracts for electricity prices in both France and Germany surged on Thursday to record pinnacles on worries over a winter energy crunch.

– ‘Unstoppable march upwards’ –

“Gas is on a seemingly unstoppable march upwards again, a dramatic move which will intensify the energy crisis,” said Hargreaves Lansdown analyst Susannah Streeter.

“Already plans are being brought in to save energy which will darken streets across Germany and make public buildings colder, but much tougher measures may have to be enforced given dwindling gas reserves.”

In stock market trade, European equities were broadly steady, with Frankfurt drawing some strength from news that the German economy expanded by an anaemic 0.1 percent in the second quarter.

That was upgraded from the prior projection of zero growth, but analysts remain downbeat.

“I’m trying to find a reason to be optimistic on the back of that, but in reality it just means the economy may take a little longer to fall into recession,” warned OANDA analyst Craig Erlam.

“With the energy crisis unlikely to improve, this likely means another quarter of flat growth at best before the economy falls into recession later this year.”

Wall Street opened mixed, with the Dow dipping, as traders looked to central bankers meeting in Jackson Hole in the US state of Wyoming this week.

All eyes are on Powell’s Friday speech for clues about the Federal Reserve’s plans to tame runaway inflation with higher borrowing costs.

Central banks around the world are trying to find a delicate balance between curbing inflation and avoiding recessions.

The challenge has been compounded this year by Russia’s invasion of Ukraine, which has sent energy and food prices skyrocketing.

There are concerns that the Fed’s fight against soaring inflation could lead to a recession in the United States, which could, in turn, hit a global economy that is still recovering from the Covid pandemic.

But the latest data out Thursday showed a continuing drop in first time claims to 243,000 last week, suggesting the US economy remains strong.

“A reading below 250,000 certainly indicates that labor market conditions remain tight, which means the potential for sticky wage-based inflation pressures also remains tight, and that is unlikely to be a comforting indication for Fed officials,” said Briefing.com analyst Patrick O’Hare.

US second quarter GDP figures were also revised higher, to a 0.6 percent contraction from the initial estimate of a 0.9 percent contraction.

– China stimulus –

Asian indices rose after China unveiled fresh measures to boost its economy.

Fresh measures to shore up the economy were announced by China’s State Council on Wednesday, including steps to encourage lending, consumption and investment, according to the official Xinhua news agency.

They also included support for electricity producers and agriculture, two sectors hit especially hard by the heatwave, though Xinhua’s readout of the State Council meeting did not mention the extreme weather.

– Key figures at around 1330 GMT –

London – FTSE 100: UP less than 0.1 percent at 7,478.02 points

Frankfurt – DAX: UP less than 0.1 percent at 13,230.34 

Paris – CAC 40: DOWN 0.2 percent at 6,373.08

EURO STOXX 50: DOWN 0.1 percent at 3,663.21

New York – Dow: DOWN less than 0.1 percent at 32,956.25

Tokyo – Nikkei 225: UP 0.6 percent at 28,479.01 (close)

Hong Kong – Hang Seng Index: UP 3.6 percent at 19,968.38 (close)

Shanghai – Composite: UP 1.0 percent at 3,246.25 (close)

Euro/dollar: DOWN at $0.9966 from $0.9970 on Wednesday

Pound/dollar: UP at $1.1807 from $1.1799

Euro/pound: DOWN at 84.42 pence from 84.47 pence

Dollar/yen: UP at 136.78 yen from 136.36 yen

West Texas Intermediate: UP 0.4 percent at $95.29 per barrel

Brent North Sea crude: UP 0.6 percent at $101.86

burs-rl/lth

Grain prices have dropped sharply from the record highs they reached following Russia’s invasion of Ukraine, but another menace to global food security remains: a shortage of fertiliser.

The conflict sparked fears of famine in poorer countries reliant on agricultural goods from Ukraine and Russia, two nations that were responsible for nearly a third of global wheat exports last year.

Wheat prices reached a peak of nearly 440 euros ($440) a tonne on the European market in mid-May, double the level of one year ago, as crucial Ukrainian shipments were stuck at port due to a Russian naval blockade in the Black Sea.

But prices have fallen to around 300 euros in August.

“The situation began to calm down at the end of May, beginning of June with the first reassuring harvest forecasts for Europe and the resumption of Ukrainian exports, first by road and rail, then by sea,” said Gautier Le Molgat, analyst at consultancy Agritel.

Kyiv and Moscow reached an agreement in July, brokered by the United Nations and Turkey, that allowed Ukraine to resume grain shipments in the Black Sea.

The agreement opened a shipping corridor for 20 million tonnes of maize, wheat and sunflower seed oil stocked in Ukraine. According to the Joint Coordination Centre which manages the sea corridor, more than 720,000 tonnes have already left Ukraine.

“Thanks to intensive international cooperation, Ukraine is on track to export as much as four million metric tonnes of agricultural products in August,” a senior US State Department official told AFP on Tuesday.

– Strong ruble –

In addition to more supplies reaching markets and helping lower prices, the deal has led to a drop in insurance premiums, reducing transport costs.

But the reduction in tensions is, for the moment, benefitting Ukraine more than Russia, which is expecting a bumper harvest of 88 million tonnes of wheat.

Russian wheat exports in July and August are running 27 percent lower than last year, according to estimates by the Russian market research firm SovEcon.

That is due to fierce competition on the international grain market, as well as the strong value of the ruble and a high Russian export tax. 

“As a result, farmers remain reluctant sellers,” said Andrei Sizov, SovEcon’s managing director. 

The low volume of Russian exports is one of the main reasons why wheat prices have remained so high, said Sizov.

– Fertiliser costs a growing problem –

One of the reasons prices have not come down further is the surge in energy prices, due to the post-pandemic recovery and the war.

Higher oil prices impact transportation costs, while natural gas is a feedstock for manufacturing the chemical fertilisers that most farmers now use.

“Fertiliser prices have tripled in the last 18 months and the hard part of my job is forecasting what they will do in the next 18 months,” Joel Jackson, a fertiliser analyst at BMO Capital Markets, said at an analyst conference in July in the United States.

With European gas prices soaring above 300 euros per megawatt hour, compared to an average of 20 euros over the past decades, “we’ve got a big problem as it’s untenable for ammonia manufacturers,” said Nicolas Broutin, head of the French subsidiary of Yara, the Norwegian firm which is Europe’s largest fertiliser producer. 

Yara announced Thursday it was reducing once again its production in Europe of ammonia, which is made using hydrogen obtained from natural gas and which provides the nitrogen in synthetic fertilisers.

The firm will only be using 35 percent of its production capacity in Europe. A number of other European manufacturers have either reduced or halted output.

Although fertilisers do not fall under international sanctions, farmers are also at risk of shortages of another major element of fertiliser — potassium or potash — as both Russia and Belarus are major producers. 

BMO Capital Markets’ Joel Jackson said fertiliser manufacturers worry that the high prices will prompt farmers to reduce or eliminate their use.

“We’re already seeing that throughout Europe,” said Yara’s Nicolas Broutin.

CyclOpe, a French-based commodities research firm, said “it’s in 2023-2024 that the rise in fertiliser prices and eventually their reduced use will be felt.”

Farmers will try to pass on higher fertiliser costs to consumers, driving up food costs.

Meanwhile, reduced fertiliser use will result in lower crop yields and harvests, which will also drive up food prices.

CyclOpe expects in particular “considerably reduced” output in Africa, where farmers and consumers are both more sensitive to prices.