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European Union countries agree on a ceiling for gas prices to contain the energy crisis, by Reuters

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1 month ago

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© Reuters. FILE PHOTO: The gas compression terminal, part of the Polish section of the Yamal pipeline linking Russia with western Europe, is owned by a joint venture between Gazprom and BGNIG but operated by Polish state-owned gas transporter Gas -sis.

Written by Kate Abnett

BRUSSELS (Reuters) – European Union energy ministers agreed on Monday on a gas price cap after weeks of talks on the emergency measure, which has divided opinion among European Union states as it seeks to calm an energy crisis.

The cap is the latest attempt by the 27-nation European Union to lower gas prices, which have pushed up energy bills and pushed inflation to a record high this year after Russia cut off most gas shipments to Europe.

Ministers agreed to set a cap if prices exceed 180 euros ($191.11) per megawatt-hour for three days in the Dutch Gas Transfer Center (TTF) first-month contract, which serves as the European standard.

The TTF price should also be €35/MWh higher than the reference price based on current three-day LNG price assessments.

“We have succeeded in reaching an important agreement that protects citizens from skyrocketing energy prices,” said Josef Sekela, Minister of Industry of the Czech Republic, which holds the rotating presidency of the European Union.

The cap can start from February 15, 2023. The deal will be formally approved by the states in writing, after which it can enter into force.

Once operational, trades will not be permitted in first-month, three-month and first-year TTF contracts at a price more than €35/MWh above the LNG reference price.

This effectively sets the price at which gas can be traded, while allowing the maximum level to fluctuate in tandem with global LNG prices – a system designed to ensure EU countries can continue to bid competitively for gas from global markets.

Germany voted to back the deal, despite raising concerns about the impact of the policy on Europe’s ability to attract gas supplies on competitively priced global markets, three EU officials said.

An EU official told Reuters that Germany agreed to the price cap after countries agreed to changes to another regulation on accelerating permits for renewable energy, and stronger safeguards were added to the cap.

These safeguards include suspending the cap if the EU encounters a gas supply shortage, or if the cap causes a drop in fund trading, a jump in gas utilization, or a significant increase in margin calls for gas market participants.

Soaring energy and gas prices have rattled energy companies across Europe, forcing utilities and traders to secure additional money from governments and banks to cover margin call requirements.

German company Uniper incurred billions of euros in losses in derivatives, exacerbating the crisis as it scrambled to fill the remaining gap after Russia cut supplies.

The front month TTF contract rarely closes above €180/MWh, said Jacob Mandel, senior fellow at Aurora Energy Research, noting that this has happened in 64 days in its history. All of those were in the year 2022.

Debate months and meeting weeks

Two EU officials said that only Hungary had voted against capping prices.

The Netherlands and Austria abstained. Both resisted capping off during the negotiations, fearing it would disrupt Europe’s energy markets and jeopardize Europe’s energy security.

“Despite the progress made in the past two weeks, the market correction mechanism remains likely to be unsafe,” said Dutch Energy Minister Rob Gettin.

“I remain concerned about the major turmoil in the European energy market, about the financial implications, and most of all, I worry about the security of European supplies,” he added.

The EU proposal also met with opposition from some market participants, who said it could cause financial instability.

The Intercontinental Stock Exchange (NYSE: ), which hosts TTF trading on the Amsterdam Stock Exchange, said last week that it may move TTF trading out of the European Union if the bloc limits prices.

On Monday, it said it would assess whether it could continue to operate in fair and orderly markets for the TTF gas center trade. For now, the ICE TTF markets will continue to trade as normal.

Refinitiv Eikon data showed that the first-month gas price TTF closed trading Monday down 9%, at €107/MWh.

The contract reached a record high of €343 in August – a price hike that prompted the EU to push ahead with capping its price.

Its chairman, Stefano Pesegini, said on Monday that Italy’s energy authority expects further increases in gas prices as winter begins.

Meanwhile, Russian Kremlin spokesman Dmitry Peskov said the cap is an attack on market prices, and is unacceptable, Russia’s Interfax news agency reported.

The deal comes after months of wrangling over the idea and two previous emergency meetings that failed to reach agreement among EU countries that disagreed over whether the price cap would help or hinder Europe’s attempts to contain the energy crisis.

Nearly 15 countries, including Belgium, Greece and Poland, have demanded a cap of less than €200/MWh – far below the €275/MWh trigger limit proposed by the European Commission last month.

The Polish prime minister said the price cap would end the ability of Russia and Gazprom to distort the market.

“In the recent meetings in Brussels, our majority coalition managed to break resistance – mainly from Germany,” Mateusz Morawiecki wrote on Twitter. This means an end to market manipulation by Russia and its company, Gazprom.

($1 = 0.9419 euros)

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Economic

We need to pay more attention to skewed economic signals

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3 weeks ago

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January 11, 2023

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

Video: Divided Markets: The Great Threats to the Financial System

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Economic

Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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3 weeks ago

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January 10, 2023

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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Economic

German automakers point to easing supply chain problems

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3 weeks ago

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January 10, 2023

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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