Here’s a challenge to conventional wisdom, courtesy of
: Europe has “solved” the winter natural gas crisis, and prices could fall by half in the next six months.
The cost of fuel soared, setting records in Europe last month, before Russia shut down the Nord Stream 1 pipeline to Germany. Some analysts expect European energy bills to triple early next year, necessitating government bailouts. Traders expect prices to remain high until 2023, moderate slightly by the end of the year. Gas futures contracts for the first quarter of 2023 are trading at €199.50 ($199.05) per megawatt-hour.
But Goldman analyst Samantha Dart sees prices falling below €100 in the first quarter of 2023. She says Europe has built storage space at 82% of its capacity – and will exceed 90% by the end of October. Europeans use less gas, due to new rules and a slowing economy. There are caveats. Winters can be harsh, forcing countries to use more gas for heating. Russia could cut back on more gas, such as supplies to Italy. Subsidizing consumers may encourage gas consumption.
Next summer could be tough. It says storage will drop to 22% after winter, forcing countries to buy more expensive fuels, which are more likely to import LNG. Therefore, prices could rise to 235 euros per megawatt-hour – higher than dealers expect.
Prices in the US are lower than in Europe, but still triple the long-term averages. Some analysts see prices on this side of the Atlantic dropping as well. With exports limited, US producers will largely supply the domestic market, where there is a relative glut in gas. Christopher Looney, RBC Capital Markets analyst, wrote that it does not make sense for prices here to fluctuate significantly with changes in Europe, because the US cannot increase exports.
Announces the results of the fourth quarter of the fiscal year 2022.
National League Home Builders releases its housing market index for September. Economists expect a reading of 48.5, even with the August data. The index has fallen every month this year and in August it broke its 50 key break-even bar for the first time since May 2020.
Census office New Residential Construction Statistics reports for August. The forecast is a seasonally adjusted annual rate of 1.45 million privately owned construction, matching the July figure.
National Association of Realtors Existing Home Sales Reports for August. The consensus estimate is for a seasonally adjusted annual rate of 4.7 million existing homes sold, about 100,000 less than in July.
Host Investor Days.
Federal Open Market The Committee announces its decision on monetary policy. Just two weeks ago, Wall Street was debating whether the Federal Open Market Committee would raise the federal funds rate by 50 or 75 basis points. After another strong jobs report and hotter-than-expected CPI data for August, three-quarters of a percentage point rate increase appears to be quite certain. This will raise the fed funds rate to 3.0%-3.25%. Traders are even seeking a 25% chance that the central bank will raise its key short-term interest rate by a full percentage point, which would be the biggest move in nearly four decades.
FactSet Research Systems, and
Hold conference calls to discuss quarterly results.
Hold investor days.
Bank of Japan announces its decision on monetary policy. The central bank is expected to maintain its ultra-low interest rate policy and keep its target interest rate unchanged at -0.1%, as it has been since early 2016.
Bank of Japan
Unlike the hawkish US Federal Reserve, it has sent the yen down to its lowest level against the US dollar since 1998.
Conference Board It releases its leading economic indicator for August. The agreed call is a 0.1% increase month over month, after a 0.4% drop in July. The index has fallen for five consecutive months, indicating that recession risks are on the rise in the near term.
S&P Global Publications Both manufacturing and services purchasing managers’ indices for September. Economists expect a reading of 51 for manufacturing
and 45.3 for the Project Management Index for Services. This compares with 51.5 and 43.7, respectively, in August.