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Originally published on ZeroHedge
Two weeks ago, when previewing the scheduled 10-day shutdown of the Nord Stream 1 pipeline – which supplies the bulk of European nat gas usage courtesy of Russia – for maintenance, we quoted from DB FX strategist George Saravelos that if the gas shutoff is not resolved in coming weeks this would lead to a broadening out of energy disruption with material upfront effects on economic growth, and of course much higher inflation, or as he puts it, “beyond the market’s worries about slower global growth in recent months, what is unfolding in Europe in recent days is a fresh big negative supply shock.”
As such, DB’s Jim Reid said that July 22, the day gas is supposed to come back online, could be the most important day of the year: “while we all spend most of our market time thinking about the Fed and a recession, I suspect what happens to Russian gas in H2 is potentially an even bigger story. Of course by July 22nd parts may have be found and the supply might start to normalize. Anyone who tells you they know what is going to happen here is guessing but as minimum it should be a huge focal point for everyone in markets.”
Fast forward to today when, one day after the start of the scheduled 10-day shutdown period which has already sent flows through to NS 1 pipeline to basically zero…
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… and the market is now focusing on the worst case scenario: what happens if Russia cuts off all gas on July 22, the day even Bloomberg has now dubbed Europe’s “doomsday scenario.”
Here is a sample of what Wall Street expects to happen then: European stocks plunging 20%. Junk credit spreads widening past 2020 crisis levels. The euro sinking to just 90 cents, before a full-blown recession slams the world’s 2nd biggest economy.
And all this power in the palm of Putin’s hand, almost as if he knew precisely how much leverage he had back in February while Europe was – as always – completely clueless.
So to help Europe’s braindead bureaucrats, where energy policies have been dictated by a petulant Scandianvian teenager and a bunch of German “greens”, strategists across Wall Street have tried to put numbers on a scenario that would be unthinkable in normal times. The caveat of course is that there are so many variables, such as the length of any shutdown, the extent of supply cuts, and how far countries would go to ration energy, that anyone’s prediction is a guess at best. Even so, the scenarios are catastrophic.
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“The big unknown is how the shock that starts in Germany, Poland and other central European countries will reverberate throughout the rest of Europe and the world,” said Joachim Klement, head of strategy at Liberum Capital. “There simply is no substitute available for Russian gas.”
In an analysis this week (available to pro subscribers), UBS economists laid out a detailed vision of what they see happening if Russia halts gas deliveries to Europe: It would reduce corporate earnings by more than 15%. The market selloff would exceed 20% in the Stoxx 600 and the euro would drop to 90 cents. The rush for safe assets would drive benchmark German bund yields to 0%, they wrote.
“We stress that these projections should be seen as rough approximations and by no means as a worse-case scenario,” wrote Arend Kapteyn, chief economist at UBS. “We could easily conceive economic disruptions that lead to more negative growth outcomes.”
To be sure, markets are already pricing in some of the damage starting with the euro which today traded at a fresh two-decade low and briefly touched parity with the dollar, something it hasn’t done since 2002.
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Meanwhile, German stocks have lost 11% since June. German gas giant Uniper SE is the biggest corporate casualty, with the stock plunging 80% this year as it seeks a government bailout.
To be sure, even though French and German leaders are warning populations to “prepare for total cut-off of Russian gas“, many investors still believe there’s reason to believe Russia will turn gas supply back on when maintenance on the Nord Stream 1 pipeline ends on July 21. But, as UBS points out, if European countries start voluntary gas rationing to fill up on storage, the hit to economic growth will be severe.
“Europe is currently being caught in a vicious circle,” said Charles-Henry Monchau, chief investment officer at Banque Syz. Higher energy prices are hurting Europe’s economy, driving the euro lower. In turn, the weaker euro makes energy imports even more expensive, he said.
The other worry is that the ECB will be unable to do much to help the economy – which is about to slide into a recession – with inflation already running at decade-highs, said Prashant Agarwal, a portfolio manager at Pictet Asset Management.
“I am not sure central bank tools work in this scenario,” he said. “In the past, they had leeway to address the situation because inflation was low.”
Courtesy of Bloomberg, here’s a round-up of other strategist views:
BNP Paribas SA
A full-blown gas disruption would drive the Euro Stoxx 50 to 2,800, about a 20% plunge from current levels, wrote strategists including Sam Lynton-Brown and Camille de Courcel.
They recommend hedges, such as high-quality companies and buying options skew on the European stock index. Auto, industrial and chemical industries will be under pressure, they wrote.
Nomura International Plc
Currency strategist Jordan Rochester has been urging clients to short the common currency since April. If Nord Stream 1 doesn’t resume operations, the euro may drop to 90 cents over the winter, he wrote.
“We believe Europe may fail to build up sufficient gas storage for the winter and this may lead to energy rationing,” he said. “If that’s not an economic crisis, what is?”
JPMorgan Chase & Co.
The moves in European corporate bond spreads would be bigger than the first wave of the Covid pandemic in 2020 if Russia shuts off gas supplies, according to strategists led by Matthew Bailey.
Spreads on high-grade debt may surge to 325 basis points, they wrote. For junk-rated bonds, the spread could widen to as much as 1,000 basis points.
Goldman Sachs Group Inc.
The euro is already reflecting a lot of the negativity, but the currency could fall another 5% if markets price in a full shutdown of Nord Stream 1, said strategists including Christian Mueller-Glissmann. They recommend a defensive allocation, with overweights on cash and commodities.
Bank of America Corp.
Former copper bull Bank of America also slashed its forecasts last week, warning that in a worst-case scenario where Europe experiences widespread gas shortages, prices could plunge to as low as $4,500 a ton. Copper sank 2% to $7,429 on Tuesday.
Not sure if this would be physically doeable, but Serbia and Hungary should be the only countries in Europe being supplied with Russian gas.
All the other US-Schwabb-Soros-Gates-Bilderberg puppets can go fuck themselves.
I’m an American and I endorse “Z FOR VICTORY’s” message!
As an Australian i am also for Z victory, and fuck america
I’m Polish, i’m not for Z for victory, but fuck america too.
US has been killing million of innocent peoples in The Middle East lol.
Why lol about people being killed, you retarded punk?
American from Brazil?
Agree.
That would be the sensible thing to do at least for 3 months and see how the NATO warmongers cope without gas. It may cost Russia a bit in revenues but defence of the motherland is priceless.
I am not sure, but that gas for us and Hungary might be stopped by Ukraine or Bulgaria. EU is in complete mess and delusion, they still don’t understand USA and UK pushed them from the cliff…
Russia is now selling excess production to Spain, replacing Algeria, which in turn is selling to Italy, replacing Russia, etc. It’s a game of pretense.
It will be an international resale deal for the near future and an interesting game to watch.
I seldom watch games. I like playing, not watching. Watching is for losers.
One easy and simple way to avert the imminent catastrophe is to lift all EU’s russophobic sanctions and start NordStream2 gas operation… And pray to heavenly God for Putin’s merciful pardon.
That would help the EU Citizens but totally piss off the west who talked the EU into the sanctions with the West having zero at stake in the sanction game.
Russia certainly has a lot of leverage here with the ability to turn off the gas supply to Western Europe. Poland and Germany along with several other vassal states need to be taught a lesson in good manners .As for the euro as a currency how long before it ends up as worthless as the German weimar mark notes. It all going to come crashing down on the Brussels elite
Germany is not “Western Europe”: it is Central Europe.
I hope Putin pulls the plug or at least says the Nord 2 will be the only pipeline that will supply the EU, period.
I’m guessing President Putin isn’t a spiteful person. There’s plenty of other customers. In fact just over half a planets worth. The nato poodles will be left out in the cold. The US have their fracked gas, so they’ll be OK.
Due to bidens blunders, any gas from the US would come from what is already being used domestically, driving our prices up too.
The one thing this supply issue will finally out is the fact that the US is not energy independent…at least not in the way we have been led to believe. When Putin said that we would see just how energy independent the US really is, he wasn’t kidding. That fracked gas? Those wells produce for how long? They are notoriously short lived and expensive. All the BS about supplying the EU will impact us in a very big way, because as you said, it will come from our gas pool…and not over production. This is going to out the shell game the petro’s have been playing for years. The biggest question is how long will the US maintain it’s arm twisting? It will likely continue it right to the bitter end because they always double-down. When the US is finally FORCED to relent, it will be far too late. Seems that the exclusion of Venezuelan and Iranian oil/gas set up this whole scenario. If they were still producing on the scale they are capable of, Russia would have a lot less leverage and the EU many more options. Is the US setting up the EU for disaster? Sure, it seems the plan all along, bringing the great reset or as I like to call it, the great re-alignment. But it has to get a lot worse…and it will, it’s the plan.
that’s insightful, thank you
Serves them right for supporting Nazis.
with all BS in economy aside, russia has as big an economy as yanquis.
economy not relevant–however according to French economist Jacque Sapir Russia is the only indispensable nation on earth after Gramsci departed Moscow for Vienna he observed how sad and depressed people were, Russians full of joy
There is this thing, by the trolls on the net, about measuring the gdp ( without taking into account parity purchase power ) and saying all kind of bullshit about how small russian economy is.
Obviously they don’t understand at all the ppp, the fact that the gdp IS NOT a a way to compute the industrial output of a country or the size of its economy, the fact that russian economy is in big part black economy.
They were spouting the bullshit about Russia coming out of missiles and whatnot just because they are idiotic gdp followers ( all the globalist economists are ). They really thought that low gdp means that Russia hasn’t the resources, the manpower and the factories to build weapons.
After all they are convinced that wealth is fiat money!! This is why they thought the sanctions would cripple Russia. These trolls are ignorant beyond comprehension.
Who runs bartertown?
Vlad the bad.
A new Eurasian set of currencies is replacing the worthless US dollar and Euro, which is par with the dollar due to EU economic collapse. Russia is trading vigorously with Asia, Africa, Latin America and even many European states like Hungary, Serbia etc in Rubles, Rials, Yuan and Rupee. The US and Europe with boomerang sanctions have shot themselves in the proverbial annus horribillis.
now Brazil buy vast amounts of Russian gas/diesal—nazi poko molo traumatized
Brazil largely runs on sugar cane (alcohol). They also have vast oil reserves and Venezuela is just nearby. The alternative markets for Russian fuel are not there but rather in Asia… once the pipelines are built, because Russian LNG is as expensive as any other LNG.
Good old Bloomberg, wheeling out the usual suspects. Most of these corporations are partly, if not wholly, responsible for the mess western finance is currently in.
Care for a bail-in sir? Prepare to say goodbye to everything you own.
Ain’t it funny how capitalism works? First, private companies buy the gov, who in turn creates conditions (laws, etc) for companies to acquire public property (or simply gut them) for the resources. Then they get tax breaks, subsidies and get the gov to provide infrastructure. Once that is done, then they use the gov to control commerce, create monopolies and generally have the people by the nads. Add to this the ‘banking system’ and gee, golly, wow, the options and opportunities are endless. Then they do as they please, creating crisis after crisis (real or manufactured) and using their puppets to control the narrative, demand bail-outs through the threat of even worse national crises, which they created. What a nice cushy scam. I’d feel safe in saying that less than 1% of the population realize just what a scam the entire economy is. The western economies are, in reality, nothing but a massive money-laundering operation.
Russia makes the rules—civilized people reject ameri-cannot immorality and nazi values
So what’s this about? “a special session of the directly elected Russian lower house has been scheduled for Friday (July 15)”
The 22nd is when the maintenance works on North Stream 1 are set to end. There’s reasonable doubt about whether Russia will find yet another pretext to hold on German supplies but, honestly, who cares: I blame Germany for behaving like the US poodle’s and allowing Poland to run unleashed.
Putin should shut down the gas and oil supply until the end of 2022 and destroy the EU completely. The EU is a scourge on the face of this planet.
“Putin” is selling more gas to Spain than ever before. The EU is not just Germany.
The brits came out of the EU to destroy it
It certainly appears so, Britain was divided on Brexit and the clown Boris was the most ardent supporter of leaving Europe as the Anglo-Saxons are supposedly so “superior” to the fractious mongrel Europeans. However, due to imperialist Britain’s voracious animosity towards Russia since Peter the Great, and racist condescension towards the “inferior” Slavs, Britain all of sudden has become the champion of Europe and vanguard of NATO efforts to defeat Russia and Balkanize it for global multinationals plunder. British can not accept the fact that we are no longer even a middle power, but still have delusions of imperialist grandeur tagging on tattered US coattails..
UK’s Brexit strategy was to leave EU (which was their next door neighbor and biggest trading partner ) and declare they would trade with the rest of the world. They they sanctioned Russia, China, and declared them enemies them via NATO (no trade deals there) They are now desperately trying to get trade deals with Australia and new Zealand (the other side of the planet) and USA to buy the GMO poisoned food that no one else wants. Now they realize what a predicament they are in they want to help USA destroy the EU and rebuild it with UK as leader.
Well, destroying this EU is necessary in order to build a new EU. I for one welcome the destruction of the Ivory Tower at Brussels and agree that Poland must go. Also the capital should be moved to Marseilles.
It is remarkable how they all talk about money and markets when gas gets shut off. No one talks about the population and what burden they would have to deal with. That really shows how inapt and clueless the collective western world really is. All they ever cared about and always will were/are money and profits.
That’s should tell us all we ever need to know.
the anglo west wants comfort—despises freedom “the wolf cares not how many the sheep there may be”. Virgil USA #1 sheeple nation
Oh, the Austrian Chancellor, a conservative dork, talked about us: apparently this winter we will heat by drinking schnapps. What he didn’t clarify is whether he will pay for our drunkedness out of his pocket or will ask his cadre Von Der Leyen for a subsidy.
The end of EU with cheap enegy.
The end of history never happens, you know. So the end of EU is the beginning of EU, you can’t destroy Europe and its need to fusion into a single power just by dismantling this EU, you’d need to nuke Europe out and nobody seems like doing that in the foreseeable future.
EU/anglosphere descending into Stone Age pre-electric society—no showers in EU—stinky morons…blackouts across USA most recently Texas….sexually repressed obese USA females will use Russian gas for douche====lgbt will swallow…now US surgeons perform liposuction only ameri-cannot cranium, since no brain found–but good for Macdonalds freedumb fries
The russian people are like a bull that can pull every Waggon!!!!
No matter what sanctions you put on russia, you will never break the russian people. A hard lesson the western countries have to learn these days.
The more you hit them, the more they get angry. Then they suddenly unleash all of their anger in a brutal way. Ask the nazis during WW2.
Don’t poke the bear is a golden rule.
Russians mistakenly compared to bears when in reality we are Volk! impossible to tame
Keep it shut down Russia!
now Russia will provide citizen ship for all Ukrainians I advise all my clients to become Russian citizens and collaborate in liberating all ukraine from amerikan nazis…bye bye lgbt USA wokestan
This article is stupid. A Trumptard monkey probably wrote it with their arse or something. EU policies are not “dictated” by ecologists, they are dictated by the USA and the hardcore right wing of Von der Leyen, Merkel, Macron and that crazy Austrian who wants all to get drunk instead of using heating.
Sure: there are some fake “Green” camp followers… but the army of doom is made up of the Grosse Koalition: Christian Dems, Social Bourgeois and ultra Liberals (Reaganists).
The article is from Zero hedge, always apply a large pinch of salt but I agree with everything you say.
The EU is just appendage for the US empire, with this unelected Nazi woman gynaecologist bureaucrat at the helm and cocksucker Stoltenberg doing America’s NATO bidding, Europe isn’t in a good place. Time for a reboot, time for people to take control, we need to build more Execution Docks for the treacherous elites.
Collapse is complete victory for the NeoCons and the WEF satanic groups. Now get ready to tear down all those cathedrals and other monuments to Jesus of Nazareth and build new temples to satan…
And “don’t forget to thank the big guy” Pedo Pete and his corrupt family of collaborators with Treason against the United States, along with the 17 separate spy agencies of the US government that stood by and did nothing to warn against, or take action against, that Treason. Be sure to do exactly as they say when it comes to your “health” too, since satanic minions always know what’s best for Gods Creation… the Bible and Koran tell humanity the satanists intend to destroy all of Gods(Allahs) Creation.
Lol putin has the whole of Europe by the balls 🤣 😆
And not one word about Trudeau stopping Canadian Siemens Energy from shipping back the rebuilt turbine pumps to Portovaya to increase EU supplies to Europe due to “Canadian Sanctions” until recently when he agreed to allow the pumps to be shipped to Germany Siemens Energy so his country would not violate Russian Sanctions.