European natural Gas prices jumped 30% yesterday but moves of as much as 100% to 300% higher are entirely possible.
Even then, prices would not be back anywhere near the initial crisis levels, and this would merely be a reasonable price rebound let alone another crisis.
Asia is bidding up to get Natural Gas supplies from the USA and US suppliers are enjoying the higher prices available there. Europe has been working hard to maximise its energy reserves, but now has significantly increased competition from Asian buyers.
Not only will this global race for energy security intensify a strategic process we have been forecasting for some time, it will spread across food supply markets as well.
The gloves are coming off, as governments everywhere decide their energy and food supply are probably more at risk than previously thought.
At first, supply was secured, and now it is a race to build far larger reserves.
China has been doing this for some time, The US announced its intention to rebuild its oil reserves but has not really begun yet. In Europe, the additional race of getting ready for winter is focussing minds.
Russia has offered to resume supply of gas to Germany to avoid any energy crisis there. It has re-built some reduced capacity flow via the pipeline. For the moment, Germany has declined, and politically will avoid accepting.
Nevertheless, the risks for another winter of reduced factory activity and energy rationing is likely for Germany. Having already moved into recession, this winter could be a particularly bleak economic period.
These global energy manoeuvrings inevitably mean higher energy prices across the world. Coming on top of expensive alternative energy replacement and increased demand from EVs driving up business and home energy prices.
Now we move to interest rates.
US Mortgage rates just hit their highest level since November, and on the price chart look ready to explode from 7.09%, to 7.8% or 8.0% in the not too distant future. No wonder Mortgage Applications are continuing to collapse.
Higher interest rates for American consumers and businesses did not end with the Federal Reserve going on hold. From this new greatly elevated platform level, the private sector is now building in greater economic risk parameters and yields will continue to trend higher.
The ECB has made it clear it intends to maintain the pressure to bring inflation under control. At least in China, there is room for stimulus as the slow-down there deteriorates further.
The US economy is going to be incredibly squeezed further by both higher energy costs and interest rates. This is an economy already stalling out with a long recession already in place in manufacturing and other sectors. It is highly unlikely that in its weakened state the economy will hold under these increasing pressures over coming months.
We may be witnessing the serious unravelling of the US economy under such pressures.
Stock valuations are currently above long-term averages, while the economic reality is far below such performance averages. It is not rocket science to recognise that there is a growing risk of a significant fracture lower in equity markets.
There is no turnaround in sight for any of the three major economic regions of the world. One of these two characters, stocks or the economy, have to break back toward the other
It looks far more likely that we will see a serious stock market capitulation in regards to an intensifying global slow-down under on-going pressures from energy prices and interest rate levels.
In this, there is much opportunity. I continue to suggest defensive strategies.
Market commentary and analysis from Clifford Bennett, chief economist at ACY Securities
