Energy Fever Breaks
The monumental move in European gas and energy prices ratcheted up to a new level on Wednesday, rocketing 40% higher at one point. However, the move reversed and prices finished 10% lower, in part due to comments from Putin suggesting Russia could add incremental supply.
It's far too early to call a top for certain, but the spike higher and reversal has all the technical elements of a blow off following a parabolic move. A cold winter could ultimately leave parts of Europe in a dire situation but that's undoubtedly priced in already. There's also a fair chance that hedges or a short squeeze added to the move.
Gas prices in Europe and North America, along with oil, all carved out bearish outside days and that rippled through broader markets, leading to a recovery in European equities. German stocks in particular may be a clear beneficiary if energy prices stabilize or decline.
Tail risks also fell in the US as Congressional leaders signaled a short-term truce on the debt ceiling, pushing the deadline to December. That will give Democrats time to add it to a reconciliation bill or we'll do this dance again in two months. In any case, markets breathed a sigh of relief from another manufactured crisis.Ultimately, it will be the economy that decides were markets go. The ADP employment report has been a poor jobs tracker but it foreshadowed weak non-farm payrolls in August. Wednesday's report showed 568K jobs compared to 428K expected.
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