European Open: NATO are in a tight spot as Russia cuts Poland’s gas supply

Asian Indices:

Australia's ASX 200 index fell by -63.7 points (-0.87%) and currently trades at 7,254.30
Japan's Nikkei 225 index has fallen by -366.41 points (-1.37%) and currently trades at 26,333.70
Hong Kong's Hang Seng index has risen by 45.16 points (0.23%) and currently trades at 19,979.87
China's A50 Index has risen by 218.39 points (1.69%) and currently trades at 13,174.68

UK and Europe:

UK's FTSE 100 futures are currently down -8 points (-0.11%), the cash market is currently estimated to open at 7,378.19
Euro STOXX 50 futures are currently down -10 points (-0.27%), the cash market is currently estimated to open at 3,711.36
Germany's DAX futures are currently down -50 points (-0.36%), the cash market is currently estimated to open at 13,706.40

US Futures:

DJI futures are currently up 243 points (0.73%)
S&P 500 futures are currently up 36 points (0.28%)
Nasdaq 100 futures are currently up 21.25 points (0.51%)

The need to reduce reliance on Russian gas has been a hot topic for Europe since Russia invaded the Ukraine. In fact, the IEA even drafted a 10-point plan on how to do just that, even if not all EU members see eye to eye as some really do depend on it. But it is also a political hot potato as the mere discussion or act of cutting Russia’s energy risks further aggravating the aggressor, who would like nothing more than to drive a wedge between NATO members. And this week Putin has upped the ante to do just that.

Russia have cut off their gas supply to Poland overnight, which accounts for around 50% of Poland’s total supply. Bulgaria could be next, who rely on Russia for around 90% of their supply. Furthermore, Russia will continue to demand payment for gas in roubles to help stable Russia’s currency and assert some sort of control following aggressive sanctions from the West.

Whilst Poland have said they’ll manage without Russian gas, it clearly hurts the consumer and can stoke social unrest. And if they have cut Poland’s supply and Bulgaria are next in line, who is up next should NATO not respond? In reality this is a test for NATO allies. How (or if) they respond could lay the groundwork for further supply disruptions. If they fail to unify with a response it is a sign of weakness and could prompt further action from Russia. Yet at the same time NATO members also increase the odds of a war with Russia if they are deemed to respond too aggressively (to Putin’s eyes). And this places NATO in a very tricky spot right now.

Natural gas futures have opened around 2.2% higher and trade around $7.0. Given volumes were rising into the April high of 8.065 yet declined whilst prices retraced, we suspect a corrective low has been seen at 6.466 and the geopolitical landscape favours another leg higher. Prices are meandering around $7.00 and momentum has realigned with the trend which began in December. What bulls would like to see here are rising volumes to confirm any rise in prices which could bring the 8.065 high back into focus.

FTSE: Market Internals

FTSE 350: 4135.06 (0.17%) 26 April 2022

124 (35.43%) stocks advanced and 215 (61.43%) declined
4 stocks rose to a new 52-week high, 12 fell to new lows
28.57% of stocks closed above their 200-day average
64% of stocks closed above their 50-day average
9.71% of stocks closed above their 20-day average

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