Where do we stand on Natural Gas and European Inflation.

Are we looking at the wrong stats to determine whether we will have a recession in the U.S.? Slowly, concern for China's economy has edged into the picture, but not much is being said about Europe. 

Frankly, I don't see how Europe can avoid a recession and I wonder how that will impact the U.S. It is clear for all to see, the impact of natural gas will have on Europe. These aren't small numbers.

When you hear reports of the U.K. raising the cap to £4,200 annual, it might be overlooked that in early summer of last year... it was about £1,200 annual. Currently the cap is about £2,000 annual. Here is the latest futures, converted to USD...

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Inflation in Europe is edging up, even while the governments are trying to keep a lid on the natural gas impact to consumers. 

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Maybe a chart would be better...

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Generally speaking and from I can glean... the German natural gas storage is 78% of capacity, with a goal of 90%... just to get through this winter and then the cycle continues. The U.K. is near capacity and is using its LNG facilities to export to Europe. As winter nears the expectation is for U.K. prices to soar to that £4,200 annual.

Considering that not long ago, Asia was the recipient of one half of LNG. They are being subjected to very high LNG prices as well.

The U.S. is not immune to upward natural gas prices, but not to the extent of Europe. The recent CPI report seems to have somewhat mirrored the ebb and flow of Nat/Gas prices, but the ebb may be over, as the flow via LNG, is set to restart with Freeport and where there is money to be made... more facilities will come on line. Drawing against U.S. reserves. 

It was Freeport going off line, which created the dip, as the draw on reserves slowed.

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https://www.eia.gov/naturalgas/weekly/#tabs-prices-3

While this chart indicates some slipping in July, due to Freeport being offline, the current NatGas price is about $9 and expected to continue climbing as LNG exports pick up. While Freeport is not slated to come back on line until an October restart... the draw has begun.

Month to Month
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That July drop will reverse in August.

And it should not go unnoticed... electricity prices have been on a steady upward swing, which with about 40% of our electricity coming from natural gas generation. Winter is nigh upon us. Gasoline may be ebbing (?), but the rest of the overlooked energy index is not, and it will likely be overlooked until those heating bills come into play.

We have gotten rather used to cheap natural gas and those days are in the rear view mirror, imo. So what are natural gas stocks for the U.S. compared to last year.

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https://www.eia.gov/naturalgas/weekly/

3375Bcf last year to 2519Bcf this year, or down 25.3%. Certainly within the 5 year average, but only 119Bcf above the minimum.

Let's hope for a very mild winter.

Are We, Or Aren't We...

... in a recession?

No one truly knows, although many have an opinion, and depending on political stripe... we either are or we aren't. And it is always because something is a clear sign. Never mind, those government stats containing revisions from previous months, it must be deemed as absolute. 

Then there are the BIG money folks, that have gotten rich off QE and want those glory days to return... meaning the FED to reverse policy. BIG money really needs there to be a recession for that to happen and will lobby long and hard, that we are already in a recession and are betting on the FED to ease off rate hikes, etc. 

GDP gets revised a couple of times and then is revised once a year thereafter. 

Yep... revised from a negative in June 2015, to a positive in one month after third release and by 2021, was downright stellar.

Citing GDP as some guarantee, one way or the other... is based on something likely to be revised. Besides, it might just be possible that the 3rd quarter of this year could be positive. Would that mean the recession is over?

Employment situation... the word revised is used 4 times in the latest report. This month...

The change in total nonfarm payroll employment for May was revised up by 2,000, from

+384,000 to +386,000 https://www.bls.gov/news.release/archives/empsit_08052022.htm

The previous month...

The change in total nonfarm payroll employment for April was revised down by 68,000, from +436,000 to +368,000, and the change for May was revised down by 6,000, from +390,000 to +384,000 https://www.bls.gov/news.release/archives/empsit_07082022.htm

Which is it? 

My goal is not to cast doubt on government reports, but putting my heart and soul into a specific set of data as gospel... is just plain foolish, in my opinion. 

Earlier I mentioned the possibility of a 3rd QTR GDP print being positive. I base that on the blowout of trade balance and how it impacted the 1st two Quarters.

The trade deficit started blowing out in 3rd Qtr. 2020 and then accelerated, with another major drop down in the 1st Qtr, and barely easing the 2nd Qtr. That would be the period when our business leaders went nuts with over ordering. That may ease back a bit going forward. 

In an alternate universe, where the trade imbalance did not drop so dramatically, the 1st Qtr. GDP would have been +2.3% and 2nd Qtr. at +1.6%

Of course on the potential negative side is the extreme jump in credit. I have no idea how much longer that can last, but with the Federal Reserve ready to push up rates further... something's got to give, in my opinion. BUT, that set of data might likely also be revised. 

There is an old adage of "When your neighbor is out of a job... it's a recession. When you're out of a job... it's a depression". Probably the most accurate of all metrics!

Now for MY opinion. We are not in a recession yet. We may soon be, but the severity is unknown, until we are actually in the middle of it. I would say that any looming recession in the U.S. will be exacerbated by the current economic morass of Europe. 

I am trying to get a grasp on why Germany's trade balance is narrowing, when the Euro is cheaper now than 1 year ago. Is it difficulty in obtaining necessary materials to manufacture items? Is it the high cost of Natural Gas that is offsetting any gains from the weak Euro? Is it a combination of both, or several other factors. 

I don't know, but do worry about the impacts on Europe as a whole, which would include the U.K. in this instance. The natural gas issue, will not go away anytime soon, in my opinion. The materials issues are likely not to go away anytime soon, as well. 

This appears to be a very challenging time for Western Civilization. 

We seem to have a situation where many folks are being duped by big money into believing we are already in a recession, which could cause a recession via lack of confidence. Be careful what you wish for. 

Of course, we also have folks in the U.S. eagerly anticipating and repeating statements of a C.O.L.A. being above 10.5% or more, without considering how much additional inflation is required to get us to that level. But then, the point might be to inflate expectations and then cry foul, when it doesn't happen. Be careful what you wish for.

Even A Broken Clock is Right Twice a Day!!

In this digital age, there will be many that do not understand a reference from way back in the age of analog clocks. But on to the meat of the matter, or where’s the beef?

After months of American citizens complaining about inflation, certain politicians have determined it is a problem and are focused upon the problem. We should also understand the “rest” of the world is also experiencing inflation.

Except there was rarely a peep, until the “rest” of the world caught up with the U.S.A.

Here is a nice graph with annual inflation rates since August 2021. (Click on Picture for larger view).

Eurostat is the source for the EU, France, Germany, as well as the harmonized inflation rate of the U.S. Oddly the U.S. is not in the EU and is tracked, yet U.K. no longer appears anywhere. Someone is taking Brexit very seriously, imo. The U.K. is represented by its own Office of National Statistics, which has both HCIP and CPI. Then Canada data is taken from Statistics Canada. (I estimated the Eurostat numbers for the U.S. at 9.1%, but put 8.8% on this chart/graph to be safe on the low side).

Here is a chart as well...

There does seem to be inflation in these countries, but they are just now joining the inflation party, we have been experiencing for several months. As they say… numbers don’t lie, but politicians do. In this case, our politicians may not be lying, but have put off telling the truth until it could be spun as impacting a lot of countries. 

Clearly, we can see the impact of the natural gas pricing in the EU and UK, as well as the impact of the Ukraine invasion, for all including Canada. The U.S. can certainly join in the chorus blaming Putin, but what about the earlier periods, when both the EU and the UK were experiencing less inflation than the United States?

Why wasn’t inflation an issue then? Did our politicians need to wait for someone else to blame and then proclaim it's not my fault, everyone is having high inflation?

Hey, it will probably work... given the short attention span of most Americans. 

Funny, Strange, ODD, and Disinformation!

Where France's Macron buys his suits is front page news on one of the many international news websites I peruse. 

Germany's Chancellor has done another about face, which has left the columnists spinning, trying to keep up.

Europe is cooperating on gas, which suggests some sort of united front, but really ends up with several countries in Europe not cooperating and even one stating they will veto. I got to look up "cooperating", in the dictionary. Hungary claims there are 10 countries using the Rubles for Energy scheme.

Previously, Germany got the blame for obstinance regarding sanctions, but any meaningful sanctions have seen the EU bloc in disarray. Conveniently, the Germans are now pushing back by laying blame on "other" members of the EU. No doubt they will eventually coalesce their blame shifting and lay all this at the feet of Americans. Some things never change. 

Pelosi has been to Ukraine and is seen posing with Zelensky. Is it one of those selfies Zelensky was so critical of?

India is on pace to have a record wheat crop. Oh wait, India is undergoing a massive heat wave which may dramatically limit the wheat crop. 

Musk buys twitter and Homeland Security announces, "Disinformation Governance Board". DGB... not to be confused with KGB, which was a completely different committee. What qualifies as disinformation, misinformation, etc.? Who decides when a lie is no longer a lie, or when the truth is no longer the truth?

Speaking of disinformation... CNN is boldly proclaiming "3 Signs that Prices Could Soon Come Down." Prices coming down would be a sign of "deflation". The rate of inflation might come down, but prices... not so much. But it is CNN, so excuse the confusion or is this what the KGB DGB will soon remedy? Not intentionally leaving out FOX, MSNBC, et al, but it is way too much.

I keep reading where China's economy may be stalling, but until China says it is... it isn't. I fully expect them to say they are meeting targets. <wink> <wink>

A lot of concern about U.S. farmers cutting back on fertilizer and the potential for much lower crop yields as a result. The big farmers bought their fertilizers and inputs and had it all delivered by December 31st. Granted the big farmers does not equate to all farmers, but the weather is still the biggest factor. That weather has not been very cooperative at the start of this planting season.

This nugget from a Deutsche Welle opinion piece, regarding North Korea...

Pyongyang claims the most advanced weapon in its armory can carry multiple warheads and has a range of more than 15,000 kilometers (9,300 miles), putting the entire continental US within striking distance.  

Note that the continental US is singled out. That distance puts all of Asia, Europe, Oceania, the North American Continent, most of Antarctica, most of Africa, and South America above the equator. It would not be difficult to understand the continental U.S. would be the main objective, but the wording seems to indicate only the U.S., while ignoring fallout, etc. 

Run out of things to ponder, so time to wrap this up.