TheChek News Flow

Stock futures tumble as investors anticipate worsening outlook for European economies

The euro fell below $0.99 for the first time in two decades after Russia shut down a major gas pipeline to Europe, increasing the likelihood of substantial pain for European economies already suffering from an energy price squeeze.

The euro fell as much as 0.7 per cent to a low of $0.9888 in afternoon trading in Asia on Monday, marking the first time the single currency has dropped below the $0.99 mark in 20 years.

The sudden drop below the threshold came after Russia indefinitely suspended natural gas flows through the Nord Stream 1 pipeline, further throttling Europe’s energy supplies and intensifying recessionary risks in the bloc.

State-owned Gazprom said the suspension was due to a technical fault.

But the announcement came just hours after G7 countries announced plans to move ahead with a price cap on Russian oil exports in an attempt to reduce revenues flowing to Moscow that could be used to fund its invasion of Ukraine.

Stock futures reflected the worsening outlook for European economies, with the Euro Stoxx 50 tipped to tumble more than 3 per cent when markets opened in Frankfurt and Paris. The FTSE 100 was expected to shed about 1 per cent.

Sweden and Finland announce collateral support packages with traders saying prices could break records this week

More governments will need to intervene to relieve the strains on Europe’s power market, officials and industry figures have warned, after Sweden and Finland launched emergency backstops for their energy producers and UK electricity generators called on the British government to help.

The Nordic states this weekend both announced emergency financial liquidity measures for their energy generators, which are facing rapidly mounting calls for collateral as a result of extreme volatility in energy prices.

Russia’s announcement on Friday evening that it would no longer supply gas through the Nord Stream 1 pipeline is expected to trigger a sharp rise in energy prices when markets open on Monday morning, adding urgency to the pleas for government support.

Electricity producers in Britain are “really concerned about the situation this winter in relation to [financial] liquidity”, warned Adam Berman, deputy director at Energy UK, a trade body that speaks for around 100 energy companies.

“Fundamentally the energy market is not designed to deal with the scale of market volatility that we have seen over recent months,” Berman said as he urged the UK government to urgently investigate and “understand the scale of the challenge that generators” are facing as wholesale prices remain at historically high levels.

Sweden, which sounded the alarm about the problem on Saturday, said on Sunday that it would provide up to $23bn in credit guarantees to Nordic utilities to help them avoid technical defaults.

“This is a problem that is Europe-wide . . . liquidity is probably an issue in many countries. It may be the case that other countries will have to follow suit,” Max Elger, Sweden’s financial markets minister, told the FT.

Finland on Sunday proposed a €10bn loan and guarantee package. Sanna Marin, the prime minister, said it was designed to protect companies that were essential for the functioning of society.

“The nervousness in the market is strong,” Finnish economy minister Mika Lintilä told a press conference. “Here were all the ingredients for the energy sector’s version of Lehman Brothers,” he added, referring to the collapse of the US bank during the 2008 global financial crisis.

Germany — which has already provided access to government-backed funding for energy companies — said on Sunday it would impose a windfall tax on electricity generators to help fund a €65bn package of support for households and companies grappling with soaring energy bills.

Some energy traders expect gas and power market prices to breach new records in the coming week.

“We’re expecting a significant jump [in prices] on Monday and for the market to test new highs this coming week,” said James Waddell, head of European gas at the consultancy Energy Aspects.

Sweden’s finance minister Mikael Damberg said authorities were forced to act as the expected rise in electricity prices is likely to lead to a big increase in margin calls on Monday, and “we were worried that utilities in the Nordic region would technically default in their relationship with [clearing house] Nasdaq Clearing”.

Deepa Venkateswaran, European utilities analyst at Bernstein, said financial illiquidity wasn’t “just a Swedish issue” and “in general [there were] rising collateral requirements across the board” in Europe.

Traders said existing short-term credit facilities with banks were in danger of becoming tapped out, while lenders are hesitant to increase their exposure to the energy sector by tens of billions of euros without additional government guarantees or support.

One electricity industry executive warned it would be easy to envisage scenarios where it takes “only a matter of days for not only small but large generators” to topple because of liquidity problems.

EU energy ministers will consider taking bloc-wide steps at an emergency meeting on Friday, according to two officials briefed on the discussions.

But one European official said some countries opposed EU action because it could encourage energy companies to make speculative bets on future prices.

Supporting energy companies by lowering the amount of collateral they had to post with their banks was a “bad idea” because it would “move the credit risk from the energy industry to the financial industry”, the official added.

Marin called on the EU to act. “With this solution, we treat the symptoms, but we have to see this in this crisis, it is the system that is a problem,” she said.

Alexander Novak, Russia’s top energy official, said the EU was at fault for the dramatic cuts in gas supplies and warned that prices could continue to rise if the EU did not roll back sanctions. Russia claims western sanctions have made it more difficult to repair turbines that help pump gas.

“The whole problem is all at their end,” Novak said. “This nearsighted policy is leading to the collapse we see on European energy markets. This is not even the end, because we are still in the warm part of the year. Winter is coming, and many things are hard to predict.”

• Hollow lava channels underground offer natural shield against space radiation and extreme temperatures on the moon
• ‘Laurel Tree’ lunar base is currently at the design phase, Chinese space architect tells the national science assembly

Space architects in China are designing a moon base carved out of volcanic caves, as the country looks at long-term stays for astronauts after 2035.

The tunnels, also known as underground lava tubes, were carved out of molten rock during ancient volcanic eruptions. While the outside of the lava flow cooled more quickly and solidified, the rest poured out to leave a hollow elongated shell behind.

The tubes can be several kilometres long and tens of metres wide, offering a natural shelter against space radiation and extreme temperatures on the lunar surface.

Such tunnels and their outlets have been found all over the moon, and they offer alternative locations for building bases beyond its south pole – which is thought to harbour abundant water ice – according to Pan Wente, assistant professor at the Harbin Institute of Technology’s Architectural Design and Research Institute.

“The moon’s south pole could become really crowded, and the extraction of water ice remains technically challenging, so we wanted to explore other possibilities,” Pan told a national space science assembly in central China last month in unveiling plans for the lunar base.

The base, named “Laurel Tree”, was still in the early design phase, Pan said. It will have a pyramid-shaped structure above the ground serving as the entry/exit point, with its underground components including a core cabin, a working cabin and several living quarters.

The vertical core cabin would be the control centre of the base, equipped with sophisticated instruments and connecting the “doorway” with the working and living areas.

The work and living areas would feature pressurised interiors topped by inflatable arches, which would be simple and fast to deploy as there is no air or wind on the moon, Pan said. Lunar concrete, produced from rocks and dust on the moon and additives brought in from the Earth, would then be filled into the archways to form permanent structures.

Except for the core cabin, all other parts of the base would be built on the moon via on-site construction or modular expansion, the space architect added.

As the moon has no atmosphere, its surface temperature can swing between boiling hot (126 degrees Celsius - or 259 Fahrenheit) and freezing cold (minus 173 Celsius). The underground temperature variation is much smaller, roughly between 17 Celsius and minus 43 Celsius, according to Pan.

The Laurel Tree is the third lunar project for Pan and his colleagues at the institute.

China is a relative latecomer to moon base research, but has major projects under way to address key technologies, such as using 3D printing to create a moon base, led by a team at the Huazhong University of Science and Technology in Wuhan.

The United States, on the other hand, has decades of experience in the study and design of moon bases, involving coordinated efforts from its space agency Nasa, architectural companies and academia.

For instance, US university researchers used space-based observation data in July to spot a pit in the Sea of Tranquillity with a permanent temperature of a comfortable 17 degrees Celsius (62.6 degrees Fahrenheit). The Sea of Tranquillity was the chosen touchdown point for Apollo 11.

The US, China and Russia all have plans to establish long-term human bases on the moon for research and strategic purposes.

China is developing a new-generation human space flight launcher, to be used to land Chinese astronauts on the moon around 2030, while the ambitious, US-led Artemis programme aims to return American astronauts to the moon by 2025.

In March last year, the Chinese and Russian space agencies announced they would build a lunar research station together by 2035. The uncrewed station would house facilities for multidisciplinary and multipurpose scientific research, with the potential for humans to stay there later, the agencies said.

Investors Expect Italian Debt Default Amid Country’s Shaky Bond Market, Energy Crisis

Italy’s economy has been volatile in recent times as the Ukraine-Russia war has wreaked havoc on the European country adjacent to the Mediterranean coastline. The country is dealing with a significant energy crisis and Italian residents are being asked to turn down the heat this winter. The Italian economy has people speculating that it’s only going to get worse and reports show a massive number of investors are shorting Rome’s liabilities.

Bond borrowing schemes highlight how investors borrow the Italian liabilities in order to bet that values will decline before the debt buyback is due. S&P Market Intelligence data shows €37.20 billion of Italian bonds were borrowed by August 23. The sum of bonds borrowed is the highest since January 2008 during the Great Recession. Italy has continued to print high inflation rates as well, with May posting 7.3%, June recording 8.5%, and July printing 8.4%.

The $37 billion in shorts suggests market speculators believe Rome will default and the financial shock will spread like a contagion across Europe. Italy is traditionally known for having a strong economy but the country has a dependence on Russian gas. The International Monetary Fund (IMF) warned last month that Italy’s economy would see a 5% contraction due to Europe’s tensions with Russia over the Ukraine-Russia war. Italy’s economic downturn is taking place amid India surpassing the U.K. as the world’s fifth largest economy.

Reports noted in July that Italy and the country’s prime minister, Mario Draghi, have not done enough “to kick-start growth.” Despite Draghi’s pledge to save the euro in July 2012, Italy is struggling and the country pays the highest premium to borrow bonds after Greece. Holger Schmieding, an economist at Berenberg, said: “Draghi is trying, has done a little bit here and there but neither I nor the market are yet convinced that trend growth in Italy is strong enough.”