ECB Path

The pace and magnitude of monetary tightening by the European Central Bank will depend on its capacity to keep a lid on inflation expectations and reduce the spread of price increases beyond energy, said Governing Council member Pablo Hernandez de Cos. The cutting of Russian gas flows to the continent will likely lead to a more prolonged and intense inflation bout that cannot be countered by a slowdown in activity only, said de Cos, who is considered one of the bank’s most dovish officials. It’s the first time he has spoken since this month’s historic three-quarter-point hike, which matched recent tough action taken by the Federal Reserve.

Selling Crude

The US Department of Energy will offer an additional 10 million barrels of low-sulfur crude from its strategic reserves, ahead of plans by the European Union to ban most Russian oil in December. The government’s offer comes at a time when global benchmark oil prices have retreated to levels seen before Russia’s invasion of Ukraine. The timing is also notable as it coincides with the Organization of Petroleum Exporting Countries discussing the possibility of curbing production. OPEC and its allies agreed to cut output next month by 100,000 barrels a day. 

More Weapons

Ukrainian Foreign Minister Dmytro Kuleba urged western nations to supply more weapons so forces can press ahead with their counteroffensive against Russia. The plea came as Germany pledged to hand over four more self-propelled howitzers. Kuleba said Ukraine hoped to add to recent territorial gains. The counteroffensive is “a clear message to everyone that it works, that it makes sense to help Ukraine with weapons because we can defeat President Putin and his army in our territory,” Kuleba said. He also predicted that Putin will probably try to block the renewal of a grain export deal that expires in November.

Buying Gas

The German government has set aside billions of euros for natural gas purchases in an effort to stave off an energy crisis since Russia cut off its supplies. Initially, 1.5 billion euros ($1.5 billion) had been set aside for gas buying, but with that funding nearly exhausted, the government has added another 2.5 billion euros, according to a document seen by Bloomberg. Altogether, credit lines of as much as 15 billion euros were set aside to fund the purchases. Germany’s economy has been particularly hard hit by the economic standoff with the Kremlin because of its reliance on Russian gas and oil. A looming energy shortage has touched off a debate in the government over how to ensure supplies while softening the blow of surging prices on consumers and companies.

Coming Up…

European shares are on track to follow Asian stocks higher after a late rebound on Wall Street. Sweden’s central bank kicks off a big week for global tightening with what will probably be its most aggressive rate rise in almost three decades. General debate begins at the annual UN General Assembly in New York. Nobel laureate economist Joseph Stiglitz is among speakers at the Nordic Business Forum. German Economy Minister Robert Habeck speaks at the congress of municipal energy suppliers. Economic data include German producer prices. Haleon and Kingfisher report earnings.

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(Source: Bloomberg, Sept. 20-2022)