Natural gas prices in Europe have risen due to low stock levels and cold weather conditions. While markets are closely monitoring the possibility of a return of Russian gas, the faster-than-expected depletion of stocks is increasing price pressure. Trump’s trade policies are creating new volatility in the markets. US bond yields are squeezed between growth concerns and the risk of inflation from trade wars. Powell reiterated that they are not in a hurry to cut interest rates, stressing that the fight against inflation should be managed carefully. The Fed Chair stated that they will remain patient thanks to the balanced course of the labor market.
European natural gas prices have increased by 30% in the last month, straining storage levels due to colder weather conditions, weak renewable energy production and supply concerns. While stock levels have fallen to their lowest levels since 2022, replenishment costs are rising. While Germany is considering subsidies to increase its gas stocks, markets are closely monitoring the possible return of Russian gas flows. On the Dutch Title Transfer Facility (TTF), the benchmark natural gas market in Europe, natural gas futures rose to €59 per megawatt hour on Tuesday, reaching a two-year high. Storage levels for natural gas across the EU have fallen to an average of 48.48%, well below what they should be for this time of year.
“The recent price increase has been driven by unseasonably cold weather, reduced renewable energy generation and low stock levels,” said ING commodity analysts Warren Patterson and Ewa Manthey. Normally, spring and summer are the time to fill up storage due to lower demand and more favorable prices. But this year, the market is making this strategy increasingly costly. Goldman Sachs estimates that Europe will need to increase LNG imports by 8% more than expected to raise its stockpile to at least 85% by October. “Europe’s gas balances are much tighter than we expected,” said Samantha Dart, commodity analyst at Goldman Sachs.
One of the biggest uncertainties that could completely change the market is the possibility of Russian gas returning to Europe. If a peace deal is reached between Moscow and Kiev, increased Russian gas shipments could push prices down. Goldman Sachs predicts that European gas prices could fall by 36% to 56% by summer 2025 compared to current estimates if Russian pipeline flows return to pre-war levels.
The changing expectations in the US bond market are striking. Initially, expectations that Trump would increase inflation and raise interest rates pushed the yield on the 10-year US Treasury note to 4.8% in January, the highest level in the bond market since late 2023. However, as investors became more concerned about growth, bond prices rose and yields fell to 4.54%. “The market is currently caught between two fundamental fears,” said David Kelly, chief global strategist at JPMorgan Asset Management. On the one hand, there is fear that the trade war will increase inflation, and on the other hand, there is concern that US and global economic growth may slow down.”
US President Donald Trump postponed the tariffs he planned to impose on Mexico and Canada in January at the last minute. However, he imposed an additional 10% tariff on goods imported from China and announced that he may consider imposing new tariffs on Japan. In addition, he announced that he would impose a 25% tax on steel and aluminum imports. This uncertainty regarding President Trump’s trade policies has caused investors to reassess the possible effects on global trade. Last year, emerging markets were expected to be among the hardest hit during Trump’s second term. However, I see an unexpected recovery in emerging market currencies starting in early 2025.
US Federal Reserve Chairman Jerome Powell stated that there is no need to rush to adjust interest rates, and once again emphasized that authorities will be patient in reducing borrowing costs. “Our policy stance is now significantly less restrictive than it was prior, and the economy remains strong. Therefore, we are in no hurry to change our policy stance,” Powell told the Senate Banking Committee. He added that easing too quickly or too much could hinder progress in the fight against inflation, but easing too slowly or too little could unnecessarily weaken economic activity and employment.
Powell’s comments were largely consistent with his remarks after the Fed left its policy rate unchanged in January. The Fed has cut interest rates at three meetings through 2024. But Powell and other Fed officials emphasized that they will not continue to cut rates without seeing more progress in reducing inflation. They also said they are waiting for more details on President Donald Trump’s economic policies. Powell said the U.S. labor market remains healthy, allowing the Fed to be patient in considering rate cuts. Describing the labor market as “generally balanced,” Powell said that this has not put significant pressure on inflation.
