Russian Gas Pipeline Worries Leave the DAX Struggling
Another day, another Putin influenced problem for Europe. This time the focus is on energy, as Russian giant Gazprom announced on Monday that it would halve the natural gas flowing through its main pipeline to Germany.
As European countries are looking at building up energy supplies in time for winter, this throws a huge weight of uncertainty around the continent, with Germany’s Ministry for the Economy and Climate stating they were “monitoring the situation very closely”.
Influencing German business confidence
And the decision by Gazprom has had its effect on a downswing of the European markets at the beginning of the week. Michael Hewson, Chief Market Analyst for CMC Markets UK said: “The DAX has struggled due to a combination of a dreadful German IFO business survey which slipped to a two-year low and reports that Gazprom has slowed gas flows into the country due to a turbine problem.”
And the worries over gas flows have influenced German business confidence, which has slumped. The head of the IFO now saying that the German economy is on the verge of a recession.
The actions of the Russian energy giant have influenced the FX too. Mr Hewson said on Monday: “The euro has found upside constrained on the back of this morning’s disappointing IFO survey, as well as reports that Gazprom will have to slow gas flows due to a turbine problem at its main compressor station in Nord Stream 1.”
The problem is being spoon-fed by the inconsistent actions from Gazprom. Only last week, with scheduled maintenance work on the 760 mile long Nord Stream 1, it was unknown if the gas supply would be turned back on. The gas did start pumping again on Thursday, but at a very reduced flow. A problem with the turbines was initially cited as the reason for the low flow, but it becomes clearer that is unlikely to have been the case.
If the gas supply should completely cease, most economists expect the eurozone’s economic powerhouse to experience a severe fall in output.
Analysts at believe that if there was a gas supply cut-off this winter a “deep recession” would be triggered, and that would bring an almost 6 per cent wipe off of GDP by the end of next year. And the Bundesbank warned that the knock-on effects on global supply chains would “increase the original shock effect to two-and-a-half times the size”.
After the news of the low supply broke, the FTSE 100 ended up 29.93 points (see the derivative price), and the FTSE 250 index lost 21.78 points. The AIM All-Share index ended down 2.95 points, or 0.3%, at 902.14. In mainland Europe, the CAC 40 stock index in Paris rose 0.3%, though the DAX 40 (see the derivative price) in Frankfurt ended 0.3% lower.
The German Ifo business climate index fell to 88.6 points in July from a reading of 92.2 in June and missed expectations of a score of 90.1. So, people will be keeping their eye on the situation in Russia, not just from a markets point of view, but also to make plans for a potential gas-free winter.