1st August 2022: Fridays closed orders given -0.282%; What will happen to Europe in winter; The bear market is not over yet; Problems in China’s economy
Symbol: AUDUSD; Type: SELL; Open Price: 0.68968; Close Price: 0.69163; Profit: -0.282%.
What will happen to Europe in winter
When Russia began severely restricting gas supply, Olaf Scholz’s administration was sluggish to respond. To prevent catastrophe, communities are reducing the number of lights and hot water available. A significant portion of Europe is under hardship as a result of Russia’s restriction on gas supply. However, no other nation is as vulnerable as Germany, as the heating needs of roughly half of all residences in the country are met by natural gas. As long as there is a standoff over Ukraine, it is quite probable that the Kremlin will continue to restrict crucial gas deliveries to Europe to minimum levels.
Because of this, it is expected that the region will continue to have shortages, even if gasoline costs for every year through 2025 have already reached a record high. Russia has been steadily reducing its supply as a prominent form of retribution against the sanctions. The cost of electricity in Europe’s two largest countries reached all-time highs the week before last. One in four people in Germany is now considered to be living in energy poverty, which means that the prices of heating and lighting have a negative impact on their capacity to afford other bills. The onset of cold snaps across Europe and Asia would compel energy companies to compete for supplies of liquefied natural gas, which is already in short supply.
A situation like this might force businesses to shut down their facilities during the winter, eliminating around 17 percent of the industry’s fuel needs. If Russia were to stop providing Germany with gas, the International Monetary Fund (IMF) believes that this would lose 4.8 percent of Germany’s economic output. The potential loss has been estimated by the Bundesbank to be 220 billion euros (around 225 billion dollars). Some leaders in the chemical sector believe that manufacturing might relocate to Turkey. It is expected that energy-intensive enterprises would migrate to places with access to renewable sources of electricity, such as the windy coast of Germany or solar-rich regions in the Mediterranean.
The cozy energy connections that Germany has maintained with Russia are being investigated by the incoming administration led by Olaf Scholz. Officials misjudged Putin’s readiness to use the power while he still had it, and as a result, they failed to see a critical warning sign. Gazprom held around twenty percent of Germany’s gas storage capacity before the war, but the company did not refill inventories in time for the catastrophe that occurred over the previous winter. Ursula von der Leyen, the current head of the European Commission and a former defense minister, stated, “Russia is blackmailing us.” Joachim Scholz, the energy minister of Germany, recently gave the impression that he would be willing to withdraw his support in the event of an assault.
After fighting broke out in Ukraine, Germany found it difficult to respond because government policy and businesses were reluctant to give up access to low-cost gas. Because it does not adhere to EU requirements to diversify energy sources, it needs backing from the EU because it poses a risk of reopening existing fault lines within the bloc. Germany’s heating and industrial demand have put the country in a far more complex situation. The nation is only starting to construct its LNG infrastructure, but the first floating terminal won’t be finished in time to be helpful to the country in 2018. The European Union member states have come to a political consensus to reduce their use of natural gas by fifteen percent over the winter if Russia turns off the faucet.
The bear market is not over yet
As investors assessed the likelihood of a recession, the price of US futures fell in tandem with oil and the currency. As a result of HSBC Holdings Plc reporting higher earnings than expected, the Stoxx 600 Index increased by 0.2 percent. This increase was led by the banking sector. After falling by about 7 percent in July, the price of a West Texas Intermediate crude oil barrel fell below $97. Since late 2020, this was the first instance of consecutive monthly losses. After statistics indicated that the economy of the United States contracted during the second quarter, market participants have speculated that the Federal Reserve may choose a slower path of rate hikes and tone down its anti-inflation effort.
James Athey, an investment director at Aberdeen, said, “the bear market is certainly not done.” This prediction is based on the assumption that the Federal Reserve will not perform a miracle. On Saturday, the price of bitcoin fell after reaching its highest level since the middle of June. This occurred despite the widespread belief that the market may have already recovered from its lowest levels.
Problems in China’s economy
As consumer trust in China’s real estate market plummets, the country’s banks might be on the hook for mortgage losses of 350 billion dollars in the worst-case scenario. According to estimates provided by S&P Global Ratings, the proportion of vulnerable mortgages amounts to 6.4 percent, or 2.4 trillion yuan ($356 billion). At least seven percent of mortgages, according to a warning from Deutsche Bank AG, may be in jeopardy. The exposure of Chinese banks to the real estate market is far higher than their exposure to any other business. At the end of 2021, mortgages accounted for around 34 percent of the total loans made by the Postal Savings Bank of China Co. and the China Construction Bank Corp.
China might use the extra capital and surplus loan provisions offered by its 10 largest lenders to mitigate the situation’s impact. The decline in housing prices that began in 20 of China’s main cities in January had expanded to 48 of the country’s 70 major cities by June. The rise of disposable income is stagnating, which makes it even more difficult for homebuyers to make their monthly debt payments. During the course of the past year, about 28 of the top 100 developers in terms of sales have either defaulted on bonds or negotiated debt extension deals with creditors.
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