Gazprom threatens to turn off the gas.Credit…Dmitri Lovetsky/Associated Press
Europe faces a winter without Russian gas
There is still no official explanation for what caused the explosions that ruptured the Nord Stream 1 and 2 pipelines, sending natural gas gurgling to the surface of the Baltic Sea. But that hasn’t stopped some E.U. officials from calling the episode an “act of sabotage,” with Prime Minister Mateusz Morawiecki of Poland publicly blaming Russia. Then last night, the pipelines’ operator, Gazprom, threatened to shut down the only pipeline that’s still pumping Russian gas to Western Europe.
The escalation caused natural gas prices to jump once again in Europe. The price of the benchmark Dutch TTF future contract for October has shot up by 20 percent over the past two trading sessions. Fearing further energy disruptions, investors sold off European stocks this morning, while the euro fell to a multidecade low against the dollar.
Here’s what we know about the apparent attack, and its effect on the energy markets:
The Baltic Sea is a highly monitored waterway. Swedish seismologists said they had detected underwater explosions on Monday, The Times’s Melissa Eddy reports. Ships were warned to steer clear of the waters as combustible gas was seen roiling patches of the sea. In response to the episode, Denmark and Norway announced increased security around their energy infrastructure.
It will have no immediate effect on European energy supplies. Nord Stream 2 never went into service, and Nord Stream 1 has been shut down since August. But the timing and location are worrying. The explosions occurred not far from the path of the Baltic Pipe project, a new gas transmission line that is slated to bring Norwegian gas to Poland and neighboring countries.
There’s good news. Eurozone countries have reduced their reliance on Russian gas to less than 10 percent from about 40 percent last winter, according to Zongqiang Luo, a senior analyst at Rystad Energy. He added that European countries were two months ahead of schedule in filling their gas storage reserves to above 80 percent — and, in some cases, above 90 percent.
But there’s also reason to worry If Gazprom follows through on its threat to shut down the third pipeline to Western Europe, businesses and homeowners would feel it. “Whether Europe can survive the winter will be highly dependent upon voluntary gas cuts,” Luo said. Any cuts to business output could leave the economic bloc more vulnerable to recession.
HERE’S WHAT’S HAPPENING
Florida braces for Hurricane Ian. The Category 4 storm was expected to make landfall there this afternoon, as state officials continued to urge residents in Ian’s path to evacuate. Disney and Universal Studios moved to close their Orlando theme parks as a safety precaution, and Amazon shut some of its warehouses.
The Senate approves a stopgap funding measure. Legislation to keep the federal government running past Friday passed the chamber yesterday, staving off a shutdown threat. Key to its passage was dropping a provision to ease the building of energy projects that had been championed by Senator Joe Manchin, Democrat of West Virginia.
Our Coverage of the Investment World
The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.
- Discordant Views: Some investors just don’t see how the Federal Reserve can lower inflation without risking high unemployment. The Fed appears more optimistic.
- Weathering the Storm: The rout in the stock and bond markets has been especially rough on people paying for college, retirement or a new home. Here is some advice.
- College Savings: As the stock and bond markets wobble, 529 plans are taking a tumble. What’s a family to do? There’s no one-size-fits-all answer, but you have options.
- Enduring Meme Stocks: The frenzy that saw traders congregate on social media and push stock prices for companies like GameStop higher can no longer be explained as simply a pandemic phenomenon.
G.M. delays its return to the office. The carmaker backed away from a call for corporate workers to return to offices at least three days a week starting later this year, after pushback from employees, according to CNBC. G.M. said it wouldn’t mandate specific days for in-person attendance and wouldn’t require a return until next year.
Apple reportedly calls off production bumps for its new iPhones. The tech giant told suppliers to cancel plans to increase manufacturing of the iPhone 14 line, after expected heightened demand didn’t come to pass, Bloomberg reports. Rising inflation and fears of recession may be to blame. Shares were down nearly 4 percent in premarket trading this morning.
Fallout from Britain’s fiscal plans widens
The Bank of England moved this morning to calm markets as the pound and government bonds remained under pressure. Criticism of the government’s new fiscal policies — from both inside Britain and abroad — grew, and troubling consequences of the unpopular moves appear to multiply for Britons.
As of pixel time, the pound was below $1.06, while prices in British shops hit their highest level since at least 2005.
The Bank of England suggested it may need to sharply raise interest rates, to counteract any inflation arising from the government’s tax cuts and increased spending. Such policy would have “significant market consequences,” the central bank’s chief economist said yesterday. That suggests the Bank of England will make a huge hike in early November.
In the interim, the bank said today it would temporarily buy longer-dated government bonds, while delaying sales of its existing holdings, in an effort to tame soaring yields.
The I.M.F. sharply criticized the British government’s plans. In a rare rebuke, the lender urged Prime Minister Liz Truss to “re-evaluate” what it called an “untargeted” plan that risked stoking inflation. The credit ratings agency Moody’s offered similar criticism, though it held off on changing Britain’s debt rating.
The housing market is spooked. Economists now expect average mortgage rates to surpass 6 percent next year. Many lenders have temporarily suspended new mortgage offers or withdrawn existing ones, leading some to worry about a crash in housing prices and sales. Credit Suisse analysts said house prices could “easily” fall as much as 15 percent.
It’s unclear whether the Truss government will change course. Britain’s chancellor of the Exchequer, Kwasi Kwarteng, is set to meet with top bank executives today to discuss the fiscal plans. In meetings with other business leaders, Kwarteng professed confidence in the policy moves, though he added that the government would maintain “fiscal discipline.” Growing unease among lawmakers in the governing Conservative Party may force a shift, however, as polling shows the Tories falling behind the opposition Labour Party.
Wall Street banks fined $1.8 billion for private app use
U.S. securities regulators fined more than a dozen financial firms, including eight major Wall Street banks, close to $2 billion for failing to monitor their employees’ use of private apps and personal devices to discuss work matters.
The S.E.C. announced the charges yesterday after a monthslong investigation uncovered “pervasive off-channel communications” by employees at various levels of authority, including senior and junior investment bankers and debt and equity traders, report The Times’s Matthew Goldstein and Emily Flitter. The agency imposed fines totaling $1.1 billion against 16 firms. Separately, the Commodity Futures Trading Commission disclosed yesterday an additional more than $710 million in penalties on 11 financial firms. Some of those firms were also charged by the S.E.C.
Bank of America, Barclays, Citigroup, Goldman Sachs and Morgan Stanley are the biggest banks to admit wrongdoing. In settlement agreements, they will pay $125 million to the S.E.C. and $75 million to the C.F.T.C.
Federal law requires broker-dealers and other financial firms to monitor and preserve official communications. But that is difficult to abide by when the communication is happening more on personal devices. From 2018 to 2021, the S.E.C.’s investigation found, bank employees frequently discussed business matters with their colleagues and people outside the office using private apps instead of official forms of communication.
“I regret that my continued role as C.E.O. has become an increasing distraction. I am very sorry about the difficult financial circumstances members of our community are facing.”
— Alex Mashinsky, explains why he is resigning from the cryptocurrency network he founded, Celsius Network. Celsius filed for bankruptcy in July, and it’s disclosed it owes customers $4.7 billion.
A new congressional investing bill is released
House Democratic leaders late yesterday finally unveiled the text of a bill to bar lawmakers, other government officials and their immediate family members from trading in stocks and cryptocurrencies. It’s a long-awaited proposal to address years of complaints about questionable trades and potential conflicts of interest.
What’s in the bill: Officials in all three branches of government, as well as spouses and dependents, would be barred from trading in stocks, futures and commodities, as well as cryptocurrencies and other “digital assets.” Trading in other assets, like mutual funds and E.T.F.s, would still be permitted.
It’s notable that the legislation covers judges, who have also faced accusations of conflicts of interest in stock trading. Affected individuals must either divest their holdings within 180 days of the bill passing or put them in qualified blind trusts.
Some critics were unimpressed.Walter Shaub, a former director of the Office of Government Ethics, questioned the provision for blind trusts and whether they would truly head off conflicts of interest.
Its fate is uncertain. While Speaker Nancy Pelosi has pledged to hold a vote on new investing rules this month, the House has only this week to make that happen. And some Democrats, including Representative Steny Hoyer of Maryland, the majority leader, are considered likely to oppose the bill.
THE SPEED READ
FTX.US won the assets of the bankrupt crypto brokerage Voyager Digital with a roughly $1.4 billion bid. (Bloomberg)
Cathie Wood’s Ark Investment has started a venture fund — and it’s open to retail investors. (WSJ)
Speculation is growing that Treasury Secretary Janet Yellen might step down after the midterm elections. (Axios)
Meta said it had removed a Chinese effort to interfere with U.S. elections and an extensive Russian campaign to influence anti-Ukraine sentiment. (NYT, Protocol)
Phil Mickelson and three other golfers associated with LIV dropped out of an antitrust lawsuit against the P.G.A. Tour. (WSJ)
Best of the rest
A late-stage clinical trial showed promising results for an Alzheimer’s drug developed by Biogen and Eisai. (NYT)
“How a self-proclaimed Satoshi sold investors and S.E.C. officials on his coin scheme.” (The Verge)
A superyacht seized from a Russian oligarch has been sold for more than $35 million to satisfy legal claims by JPMorgan Chase. (Guardian)
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