Here’s a challenge to conventional wisdom, courtesy of
: Europe has “resolved” its winter natural-gas crisis, and prices could drop by half over the next six months.
Fuel costs have soared, setting records in Europe last month, just before Russia shut down the Nord Stream 1 pipeline to Germany. Some analysts expect European electricity bills to triple by early next year, necessitating a government bailout. Traders expect prices to remain high in 2023, with a slight softening by the end of the year. Gas futures for the first quarter of 2023 are trading at 199.50 euros ($199.05) per megawatt hour.
But Goldman analyst Samantha Dart expects prices to fall below €100 in the first quarter of 2023. Europe, she says, has stockpiled up to 82 percent of the capacity—and will have more than 90% by the end of October. Europeans are using less gas due to new regulations and a slowing economy. There are warnings. Winters can be harsh, forcing countries to use more gas to heat. Russia may reduce more gas in the form of supplies to Italy. And consumer subsidies could encourage gas consumption.
Next summer could be tough. Storage will drop by 22% after winter, she says, forcing countries to buy the costly fuel, potentially imported liquefied natural gas. Therefore, prices could rise to €235 per MW—higher than what traders expected.
US prices are lower than in Europe, but they are still more than three times the long-term average. Some analysts believe that prices on this side of the Atlantic are also falling. With exports limited, US producers will largely supply the domestic market, which has a relative gas fill. It makes no sense that prices here will change dramatically on a change in Europe, because the US cannot increase exports, writes Christopher Looney, analyst at RBC Capital Markets.
Reports results for the fourth quarter of fiscal year 2022.
National Association Home builders released its housing market index for September. Economists forecast a 48.5 reading, even with figures for August. This year the index has declined every month and in August broke the crucial break-even measure of 50 for the first time since May of 2020.
census Bureau Reports new residential construction figures for August. There are expectations for a seasonally adjusted annual rate of 1.45 million privately owned housing starts, matching the July figure.
National Association of Realtors Reports current-domestic sales for August. Consensus estimates are for a seasonally adjusted annual rate of 4.7 million existing homes, about 100,000 less than in July.
Host Investor Day.
federal open market The committee announces its monetary policy decision. Just two weeks ago, Wall Street was debating whether the FOMC would raise the federal-funds rate by 50 or 75 basis points. After another strong jobs report and a higher-than-expected hot print for the August Consumer Price Index, an interest rate hike of three-quarters of a percent is certain. This would raise the fed-funds rate to 3.0%-3.25%. Traders are also pricing in a 25% chance that the central bank will raise its key short-term rate by a full percentage point, the biggest move in nearly four decades.
FactSet Research Systems, and
Call conference to discuss quarterly results.
Catch Investor Day.
bank of japan Announces its monetary policy decisions. The central bank is expected to maintain its ultralow interest rate policy and keep its target rate unchanged at negative 0.1%, as of early 2016.
Unlike the hawkish US Federal Reserve, the yen has fallen to its lowest level against the US dollar since 1998.
conference board releases its key economic index for August. The consensus call is for 0.1% month-on-month growth, after a 0.4% drop in July. The index has been falling for five consecutive months, indicating that the risk of a recession in the near future is increasing.
S&P Global Release Both its Manufacturing and Service Purchasing Managers’ Indexes for September. Economists estimate 51 readings for manufacturing
and 45.3 for Services PMI. This compares with 51.5 and 43.7 respectively in August.