Europe welcomes US nat gas deal
The EU has struck a natural gas agreement with the US in effort to wean its self off of Russian energy. European economies like Germany and Italy rely heavily on natural gas imports from Russia so the deal should help them limit their exposure to the country in question. From the markets point of view, it is a shrewd move by the EU because it won’t irk the Moscow administration as much as sending Western troops into Ukraine. European equity markets such as the DAX and the FTSE 100 are on track to finish fractionally higher on the day. By and large, stocks have been rallying in the past two weeks. To a certain extent, the markets have become immune to the ongoing violence in Ukraine. For the time being, it appears the war is just confined to Ukraine, and that is a factor behind the positive sentiment too.
Stock markets in the US have come under pressure due to rising bond yields. On a few occasions this week, central bankers talked about the possibility of hiking interest rates by 0.5%. Earlier today, John Williams of the Fed announced, “we should do it”, if it is warranted. As a result of the chatter about rising interest rates, the US 10-year yield hit 2.5% - its highest mark since May 2019. Like at the start of the year, we are back to the days of technology stocks suffering as a result of higher yields. Broadly speaking, tech companies have high levels of debt, and they stand the most to lose in the event of higher rates. The NASDAQ 100 is down 0.7% and the S&P 500 is flat.
Even though the moves in yields are having an impact on stocks, the US dollar hasn’t gained that much ground. EUR/USD is off by 0.1% but seeing as the euro is lower versus a host of currencies, it is more of a euro weakness story than a strong greenback.
Gold and silver are lower this afternoon as the metals are taking a breather from this week’s positive run. Yesterday, the commodities hit their highest levels in over one week, and today they are incurring a pullback. Concerns about rising inflation has helped the assets in recent weeks.
Oil was in the red earlier today following the EU-US natural gas story, but WTI and Brent crude are now in positive territory on the news that a Saudi Aramco oil storage facility in Jeddah was hit by a missile. Fears about supply levels are driving up the price.
