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LGT Navigator: The energy tap from Russia is turned off

March 9, 2022

Financial markets remain overshadowed by the ongoing war in Ukraine, rising energy prices and, with them, growing fears of rampant inflation and potential economic stagnation. Meanwhile, political pressure is mounting to restrict or even completely halt oil and gas supplies from Russia. For Europe, and Germany in particular, this could have a delicate impact on energy supplies. However, the EU Commission is already working on a plan with measures to reduce Russian gas imports by two-thirds within a year.

The energy tap from Russia is turned off

On Europe's stock exchanges, initial attempts at recovery failed, and in New York, too, prices once again went into a tailspin in view of the ongoing geopolitical uncertainties and energy policy issues. The Dow Jones Industrial initially achieved a plus of about +2%, but then finally lost -0.56% to 32'632.64 points. The broad S&P 500 declined -0.72% and ended up at 4'170.70 points. On the Nasdaq yesterday, the losses were still limited with about -0.4%. The trade was characterized by uncertainty, nervousness, and volatility. The yield of ten-year US government bonds climbed meanwhile to 1.86%.

US imposes embargo on oil from Russia – the EU “cannot” follow suit

Against the backdrop of the embargo of Russian oil supplies announced by the United States, oil prices remained at high levels near the recent highs not seen since 2008. A barrel (159 liters) of North Sea Brent is currently trading at just under USD 131. At the beginning of the week, the Brent price had risen to around USD 139. The price of the US variety West Texas Intermediate (WTI) is now around USD 126. OPEC warned that global oil production would not be sufficient to compensate for a complete shortfall by Russia. US President Joe Biden stressed that the Americans' oil embargo was coordinated with the Europeans and would deal another heavy blow to Putin's war machine. Given Europe's high dependence on Russian oil and gas supplies, the EU "cannot" join the Americans' import ban. After all, the EU Commission already presented a plan to reduce Russian gas imports by two-thirds within a year. Germany's Economics Minister Robert Habeck warned of severe damage to the German economy in the event of a complete embargo on Russian supplies. Meanwhile, the United Kingdom announced it would stop importing Russian oil from the end of 2022. In response to Washington's oil embargo, the Kremlin, for its part, threatened to halt gas deliveries through the Nord Stream 1 Baltic Sea pipeline.

More and more major companies say goodbye to Russia

The British oil company Shell announced that it would stop buying Russian oil and gas with immediate effect and would not renew existing contracts. In addition, Russian crude oil will be removed from its own supply chains and all Shell gas stations in Russia will be closed, and other local business activities will be discontinued. Oil companies are not the only ones turning their backs on Russia. Apple, Coca-Cola, Starbucks, and McDonald's have also announced that they are pulling out. 

German industry fears oil and gas embargo

An import ban on Russian oil and gas would have a direct impact on German industry, according to the industry association BDI. For many branches of industry in Germany, energy is a major cost factor and it is therefore becoming increasingly difficult to still produce in a cost-covering manner. This escalation must be prevented at all costs, even if it is emotionally difficult, said BDI President Siegfried Russwurm.

Italy wants to reduce dependence on Russian gas

Italy is striving for more independent gas supply and accordingly wants to reduce its dependence on Russia. Italy imports more than 40% of its gas from Russia each year. Alternatives must now be found through suppliers from other parts of the world, such as Qatar, but this will take some time.

Looking in the rearview mirror – euro economy grows minimally in final quarter of 2021

The economy in the 19 eurozone countries grew by an average of +0.3% quarter-on-quarter in the fourth quarter of last year. grew moderately at the end of 2021. For 2021, the eurozone reported a growth rate of +5.3%. In view of the distortions caused by the war in Ukraine, economic development could slow again in the current year, due to the impact of rising energy costs and ongoing supply chain bottlenecks.

  

Economic Indicators March 9

MEZ Country Indicator Last period
00:50 JP GDP Q4 (q/q) +1.3%
10:00 IT Industrial Production (January, m/m) -1.0%

 

Earnings Calender March 9

Country Company Period
SZ Geberit Annual
GE Adidas Annual
GE Deutsche Post Annual
GE Continental Annual
FR Vivendi Annual
IT Prada Annual
UK Prudential Annual

 

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Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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