Euro Stocks Are Up, While Natural Gas Keeps Falling

Ending the year, the European stocks are all on the rise.  Looking at the pan European Stoxx 600 Index, we see that it is having a fantastic 2021:

Chart courtesy of Google

More localized markets are also performing well to end things, with the German Dax, and France’s CAC 40 both having end-of-year climbs of between 0.5% and 1%.  The U.K. and Ireland markets have remained closed for the Christmas festivities but will likely follow suit when they reopen. 

Trading for Europe is thinned due to the Christmas holiday; however, this rally started with a report out of South Africa that the Omicron variant is less severe than the Delta variant.  This news caused recovery stocks such as the travel and leisure sector to jump the most, with airlines such as the British Airways parent IAG and the Hungarian budget carrier Wizz Air rising about 2%. 

Market traders worldwide have spent recent weeks juggling concerns over the new Covid restrictions and tighter central bank policies with the early omicron variant research and infection data. 

On the other spectrum is the price of Natural Gas (LNG) which is now starting to slump finally.  The price of LNG hit a premium in mid-December, exacerbated by nuclear plant outages in France which amplified concerns over natural gas supplies.  This premium was enough that ships with different destinations were diverted to Europe.  By December 23^rd, there were over 25 LNG carrying vessels that had declared their intention to go to Europe.  This increase in supply from the U.S. and elsewhere was combined with an end-of-December heatwave for the continent that reduced demand.

Looking at the next ten-day forecast Maxar’s weather desk, across Western Europe, temperatures are expected to run “well above normal” for 1-5 days, as a regional ridge of high pressure builds, with the following 6-10 day period also expected to warm across Spain, the UK, France, Germany, Poland, Italy, and southeastern Europe while “upper ridging remains parked over the region.”

 

LNG fundamentals are still strong; the temperatures in Russia, Asia, and the U.S. have remained low.  Russia hasn’t nominated any natural gas delivery for the Yamal-Europe pipeline since last Tuesday.  U.S. demand has also increased, so there will likely be a bounce for LNG in Europe if January/February weather turns cold again. 

We will continue to watch what the central banks choose to do about rates and inflation and the changes in demand for LNG.