Markets are trying to come to grips with the surprise ECB 50 bps, the Transmission Protection Instrument, flows resuming in Nord Stream 1 and Italy dissolving parliament.
That’s a lot to take in and it led to a choppy day of trading
Global markets are having a nice rally in the past week or so but Italy isn’t participating.
The euro has jumped on the decision with EUR/USD moving up from 1.0195 to 1.0250 as the ECB chooses to frontload its interest rate increases. In my view, it is a bit careless as their communication through all these months have been to push for a 25 bps rate hike but it is what it is.
The takeaway from the news today is that the Nord Stream 1 pipeline has seen gas flows restart and capacity has returned to before the maintenance period shutdown i.e. 40% or 67 million cubic metres per day. But as mentioned earlier here, a second turbine will be due for repairs next week and that is likely to see capacity halved to 30 million cubic metres per day.
For now, the resumption of the gas flows will buy Germany some time and slight relief but the overall gas situation remains tense. The gas shortage in Europe is already being exacerbated by a multitude of factors and Russia cutting supplies is a major one in that regard. As much as markets are holding some calm on the news today, it is going to be a brutal winter for Europe with gas rationing potentially on the cards.
That pretty much reaffirms that they are not really in the mood to shift their policy thinking one bit for the time being. It’s the finger-pointing way of justifying it but hey, whatever it takes. USD/JPY now trading up by 0.3% to the highs for the day at 138.65.
Getting a couple of reports on this via the dpa news agency and NDR.de, both citing a spokesman for the pipeline. The preliminary data points to gas deliveries that were about as large as before the Nord Stream 1 pipeline was shut down due to maintenance i.e. roughly 40% capacity. The announced quantity can still change until shortly before delivery though so that will be something to watch.
The European Central Bank will be raising rates tonight. Expectations are roughly split on a 25bp or 50bp hike. Of even more interest though will be details of the Bank’s proposed anti-fragmentation tool:
ECB announcement is due at 1215 GMT (note the new scheduled times)
Also coming up Thursday 21 July 2022, Italian politics
And, Nordstream flows are expected to recommence, but in a limited state (I’ve seen credible forecasters tipping as low as 20% of capacity):
European stocks added strongly to gains after a report that Russia plans to turn the Nord Stream 1 pipeline back on. That led to a strong day and boosted the DAX to its best levels of the month.
