27 April 2022
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Russia warns of cutting gas supplies to Europe

By Daniel Richards

  • Russia has announced that that it will cut off its gas exports to Bulgaria and Poland. Towards the end of March, Russia had demanded payments from ‘unfriendly’ countries in roubles as it tried to shore up its economy in the face of mounting sanctions, and this is the first test of the EU’s resolve to not do so. The Polish government has said that it was fully prepared for this eventuality, and while Bulgaria is still more dependent on Russian gas supplies, the start of the warmer summer months will make this situation easier than it would have been at the start of the crisis. Nevertheless, with the risk that these are just the first countries to which Russia will cut off supply – assuming the EU and others do not back down with regards the rouble payments – then upwards pressure on gas prices will remain to the fore. European gas prices surged 17% in the wake of the move, and it runs the risk that shortages will lead to energy rationing in Europe, with the resultant downward pressure on economic activity.
  • In the US, durable goods orders expanded 0.8% m/m in March, missing consensus projections of 1.0% but beating the -1.7% drop seen in February and indicating that US firms’ expansion plans remain broadly intact. Excluding transportation, orders were up 1.1% with a broad-based gain across all key categories. Meanwhile, the Conference Board consumer survey fell in April, from 107.6 to 107.3 but inflation concerns eased from the record high seen in March and the assessment of the labour market remains highly positive.
  • CPI inflation in Australia surged to 5.1% y/y in March, up from 3.5% in February and far higher than the projected 4.6%. Prices were 2.1% higher than the previous quarter. Higher energy prices were a key driver, which were 11% higher q/q, but the much faster than expected headline figures will likely push the RBA towards more aggressive tightening.

Today’s Economic Data and Events

15:00 US MBA mortgage applications, week to April 22.

Fixed Income

  • Crumbling risk appetite helped to support US Treasuries for a second day running as the market gears up for a 50bps hike from the Fed next week, additional Covid-19 restrictions in China and further escalation in the Russia-Ukraine war. Yields on the 2yr UST plummeted almost 15bps overnight to close at 2.4773% while the 10yr yield dropped almost 10bps to 2.7205%. European bonds also gained though the moves were more limited than in the UST market. Yields on 10yr bunds dropped 2bps to 0.810% while the 10yr gilt fell 4bps to 1.793%.
  • South African bonds were a little more insulated to the risk-off move overnight with yields managing to fall by 2bps to 10.241%. Indian bonds were modestly weaker, with yields up just 1bps.


  • Further risk-off moves helped support the dollar again overnight with some currency pairs showing highly volatile moves. EURUSD dropped 0.7% for a second day in a row to 1.0638, lower than any of its closes in 2020 during the height of the pandemic. News that Russia will block gas exports to Poland and Bulgaria will raise anxiety over the economic outlook for the eurozone near term. Sterling was another notable loss as investors sought out havens. GBPUSD fell 1.3% to 1.2574. The Japanese yen has been showing some sign of haven moves with USDJPY falling for a second day, down 0.7% to 127.23.
  • Commodity currencies were weaker as a rule as market sentiment dipped. USDCAD added 0.7% to close at 1.2826 while AUDUSD fell 0.77% to 0.7123 and NZDUSD dropped 0.8% to 0.6563.


  • Risk-off sentiment was prevalent again in Equity markets yesterday, with losses on most major indices. In the US, the Dow Jones, the S&P 500 and the NASDAQ lost -2.4%, -2.8% and -4.0% respectively. In Europe, the FTSE 100 managed to eke out a 0.1% gain but the CAC lost -0.5% and the DAX -1.2%.
  • Locally, the ADX closed flat while the DFM added 0.3%. In Egypt, the EGX 30 closed up 1.3%. President Sisi announced yesterday that a number of military-owned firms would be listed on the stock market.


  • Oil prices moved higher overnight, recovering some losses from earlier in the week. Brent futures stopped just shy of USD 105/b overnight, up 2.6% while WTI added more than 3% to close at USD 101.70/b. As Russia has no effectively made its energy exports a political tool, in stopping gas flows to Bulgaria and Poland, fears will spread that they may follow with oil exports to the Eurozone, adding more tightening pressure to markets.
  • The API reported a build in US crude inventories of 4.8m bbl last week, including more than a 1m bbl build at Cushing. Gasoline stocks were down around 3.9m bbl, however.

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Written By

Daniel Richards Senior Economist

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