Pre-Market Stocks: Natural Gas Market Turmoil Portends Trouble Ahead

Natural gas prices in Europe are almost 10 times higher than last year.

Prices in the United States are significantly lower, but they are also going up. On Monday, they hit their highest level in 14 years. They have been driven by increased energy use during heat waves, demand from Europe as countries try to stock up for the winter, and lagging production.

Salomon Fiedler, an economist at Berenberg Bank, told me that the sharp rise in natural gas prices this week makes him confident that Europe is already slipping into recession.

The S&P Global Purchasing Managers’ Index released on Tuesday, which measures the economy’s service and manufacturing sectors, showed trade activity among the 19 countries that use the euro contracted for the second month in a row.

There was a reason for optimism. S&P Global said “there were signs again that inflationary pressures in business have passed their peak, with rates of increase in both input costs and output prices softening across the board.”

But Fiedler expects this relief to be “short-lived.”

“With the recent increase in energy prices, particularly wholesale gas prices, we will probably see a little more inflation for the rest of this year,” he said.

This is not just bad news for Europe. Citi has said British consumer inflation could peak at 18% in 2023, or nine times the Bank of England’s target.

High fuel demand and limited supply are also driving up natural gas prices for buyers in Asia and, to some extent, in North America. Global businesses could take a hit as mind-boggling bills weigh on demand for goods and drive up their own costs. And while central banks have no control over energy prices, they could be forced to keep raising interest rates if the shock ripples through the economy and they need to fight a new wave of inflation.

One caveat: Oil prices have been moving in the opposite direction. A barrel of Brent crude, the global benchmark, is down 16% since the beginning of July. US oil prices are 15% lower over the same period.

Other factors are driving that part of the energy market, as traders focus on forecasts that slower global growth will reduce fuel demand.

However, crude oil prices could remain volatile in the coming months. Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, told Bloomberg this week that “extreme” volatility in markets is disconnected from fundamentals and that OPEC and its allies may be forced to cut output as a result. production.

Stocks fall as Fed fears return

Hopes that the Federal Reserve would rein in aggressive interest rate hikes were dashed on Monday. Stocks fell as investors once again began to worry that the central bank will announce a big hike next month and strike a hawkish tone at its Jackson Hole annual meeting this week.

Latest: The Dow I finish the day 1.9% lower, reports my CNN business colleague Paul R. La Monica. The S&P 500 and the Nasdaq Composite fell 2.1% and 2.6%, respectively.

All 30 Dow Jones stocks were down, with only 25 of the S&P 500 Index stocks trading higher on Monday.

the CNN Business Fear and Greed Index, which measures seven indicators of market sentiment, is approaching “fear” levels. The index inched toward “greed” territory just a week ago.

What changed: Over the summer, traders have been betting that the Fed could relax as inflation peaks and that a US recession could be averted.

But that illusion has been met with muscular rhetoric from Federal Reserve officials and the reality that policymakers will be wary of declaring victory prematurely.

Markets now put the odds of a third consecutive three-quarter percentage point interest rate hike in September at 57%, according to CME Group. That’s an increase from 41% a week ago. A series of such large hikes is unprecedented in the Fed’s modern history.
Nearly three out of four economists recently surveyed by the National Association of Business Economics expressed reservations that the Fed can bring inflation back down to its 2% target without causing a recession in the next two years.

“The summer party in stock markets appears to be coming to an abrupt end, as central bank hawks hover like unwelcome guests, reminding revelers that inflation remains a huge risk,” he told reporters. clients Susannah Streeter, analyst at Hargreaves Lansdown. on Tuesday.

Bed Bath & Beyond runs out of steam

When struggling companies become meme stocks, they can offer a lifeline to their declining businesses. But the window of opportunity for Bed bath and beyond (bbby) is closing fast as its stocks fall again.

The shares rose more than 350% between the beginning of August and last Wednesday, at one point reaching $30 each. In the past few days, the stock has tumbled again, ending Monday at $9.24.

Fueling the liquidation: Investor Ryan Cohen, the founder of Chewy and chairman of GameStop, has divested most of his stake in the company. Cohen’s backing had helped fuel the initial rally.

Now, Bed Bath & Beyond must face a sad reality: it is in trouble. Sales for the quarter ending in May fell 25% compared to the same period in 2021, and you need cash. There are reports that some of the company’s suppliers have stopped shipping products due to late payments for those goods.

However, with its stock down again, it will be much harder to raise extra money to turn your fortunes around.

Bed Bath & Beyond “is in an unenviable position as it faces steep market share losses, an overabundance of inventory and shrinking cash reserves,” Seth Basham, an analyst at Wedbush Securities, said in a recent note to investors. customers.

The bottom line: Traders coordinating online have become a powerful force in the markets, and the phenomenon shows signs of continuing. But support from Reddit and other corners of the internet can be fickle, and leveraging stock gains to overhaul physical businesses is no easy feat.

Until next time

Dick’s Sporting Goods, Macy’s, JD.com and JM Smucker report results before the US markets open. Nordstrom, Toll Brothers and Urban Outfitters follow after closing.

Also today →

  • US PMI data for August releases at 9:45 am ET.
  • New home sales for July come in at 10 am ET.

Coming tomorrow: Petco, Nvidia, Salesforce, and Snowflake earnings.

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