On 2 January, wholesale natural gas prices in Europe fell to their lowest level since the Russian invasion of Ukraine, which took them to record levels the previous year. The mild winter allowed EU countries to use less gas from stocks that had been built up in preparation for possible supply cuts from Russia, hitherto Europe's main supplier before the war. Faced with this situation, European countries filled their gas storage facilities and launched educational campaigns to encourage consumers to save energy during the winter. Could this situation prove to be an opportunity for the European market?
Source: Conotoxia MT5, XNGUSD, Daily
Which countries have been most affected by the energy crisis?
According to Statista, among Europe's seven largest economies, only Switzerland hardly saw an energy crisis. This may be due to the fact that Switzerland uses different sources of electricity. Hydraulic (hydro) energy is the most important source of electricity in Switzerland, accounting for 62% of the country's total production. Nuclear energy accounts for around 29% of production. Switzerland is one of the greenest and most self-sufficient countries in Europe in terms of the share of renewable energy in electricity production. For this reason, the Swiss Market Index (SWI20), which gives exposure to the 20 largest listed companies in Switzerland, appears to have fallen by 14.3% year-on-year. (The S&P 500 Index (US500) fell by 18.3% year-on-year during the period). A number of factors appear to be having a positive impact on this economy, including relatively low CPI inflation of 3% y/y and the PMI business sentiment index being the highest in Europe.
Source: Conotoxia MT5, SWI20, Daily
The European Union country with the highest electricity price during the crisis was Italy. The average energy price in August 2022 was as high as EUR 543/MWh (currently it is EUR 225/MWh). For this reason, the iShares MSCI Italy ETF (EWI), which reflects the Italian financial markets, appears to have fallen by 17.2% year-on-year. It appears that this could be one of the worst indexes of 2023 due to the country's problems with rising debt servicing costs and CPI inflation of 11.8% y/y.
Source: Conotoxia MT5, EWI, Daily
Making the German economy more independent of Russia
Germany's natural gas imports from Russia fell to zero in September, according to Eurostat data. It should be recalled that as recently as 2020, imports of this resource accounted for more than 55% of the country's total demand. This has also had an impact on the country's electricity prices, which have slumped from their August 2022 peak of €470/MWh to below €170/MWh. Decoupling from Russia, stalling inflation and warming economic sentiment seem to have led to gains on the DAX index (DE40). It should be borne in mind that this economy in particular appears to be geared towards cost aspects due to its industrial structure. Industrial companies account for 20% of the index. In second and third place, accounting for 16% of the index capitalisation each, are companies from the financial and materials sectors. Therefore, any news of falling inflation or a warming economy could bring potential upside to the index.
Source: Conotoxia MT5, DE40, Daily
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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