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Largest European energy companies threatened with $1.5 trillion margin call

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Governments of EU countries will have to help the largest European energy companies, many of which are on the verge of bankruptcy because of the sharp decline in liquidity.

European energy companies may get a margin call. Europe is now facing a new crisis similar to that which brought about the collapse of the American bank Lehman Brothers 14 years ago and triggered the global financial crisis. Only the culprits of the European financial crisis will not be banks, but energy companies. European energy companies are rapidly losing liquidity. As a result, they’re threatened by a $1.5 trillion margin call on the derivatives market, Bloomberg reported. Many energy companies will need financial assistance from governments. There’s no doubt they’ll get it, because no politician in his right mind would want to get energy companies bankrupt on the eve or in the middle of a tough winter.

Some European countries decided not to wait for the crisis and announced bailout programs for their energy companies to prevent a margin call for European energy companies. Last weekend, the governments of Finland and Sweden became pioneers in saving energy companies. They intend to support Finnish and Swedish energy companies trading on energy derivatives markets.

The crisis intensified on September 2 when Gazprom announced that it was shutting off the Nord Stream 1 gas pipeline for an indefinite period and attributed the decision to an oil leak in the only working turbine at the Portovaya gas station. Moscow said European sanctions against Russia were to blame for the shutdown, while Brussels and Berlin once again accused Moscow of using energy as a weapon and called Gazprom an unreliable partner.

A Finnish government statement said that Helsinki’s proposed bailout scheme is a last-ditch effort to avoid bankruptcy of energy companies. The Finnish Finance Ministry is expected to open a credit line of 10 billion euros for energy companies.

The Swedish government will offer loan guarantees to large electricity producers in the kingdom trading in the energy derivatives market. The total amount of collateral in the market almost tripled over the summer, from 70 billion Swedish kronor (about $6.5 billion) to 180 billion kronor, according to the government.

“The aim of these measures is to prevent a sharp decline in liquidity that threatens to spread to other areas of the financial system,” the Swedish Finance Ministry said in a statement.

We previously reported that China’s Liquefied Natural Gas Companies Increase LNG Sales to Europe.

Economy

EU plans to agree on new sanctions on Russia before next week’s summit

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The European Union expects to find agreement on a package of new sanctions on Russia, or at least on its main parts, before the bloc’s summit next week, Reuters reported.

“We expect an agreement on new economic sanctions on Russia or at least on its main parts before next week’s EU summit,” a European official said.

According to the agency’s interlocutor, EU leaders are going to discuss different ideas on the energy price ceiling. He stressed that the upcoming meeting should be tense, as “difficult times” are coming.

Earlier it was reported that new EU proposals on economic sanctions against Russia will affect diamond miner Alrosa and some other Russian companies.

The EU Commission and Foreign Affairs Service put forward the ideas on September 27th against the background of the referendums.

Earlier, we reported that the Fed had lost its credibility.

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Market decline triggers a wave of foreign currency intervention in Asian countries

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After the start of the fight against inflation in the U.S. six months ago, when the Federal Reserve began raising the cost of borrowing, authorities in many Asian countries were also forced to carry out foreign currency intervention and increase their efforts to prevent their own currencies from falling, Bloomberg wrote.

One of the first such countries in Asia was South Korea, whose central bank spent currency intervention, saying it will buy sovereign debt of up to $2.1 billion.

Taiwan officials also took their own measures, introducing a countervailing currency intervention and declaring their readiness to ban short sales of stocks. China instructed a lot of funds to refrain from large sales of shares, and banks – to make sure the “observance” of the daily yuan rate in the market. Thus, the Japanese yen remains close to 145 per $1, and the yuan has reached its lowest level since 2008.

The rapid growth of the dollar to the detriment of all other assets is particularly acute in the Asian market. Central banks in Indonesia, Japan and India have also undertaken countervailing currency interventions to support their currencies, but their efforts seem insufficient.

“Foreign currency intervention will only help slow the decline in Asian assets, not stop it,” said Mitul Kotecha, head of emerging markets strategy at TD Securities in Singapore. – U.S. rate hikes, a stronger dollar and relatively low real rates in the region suggest the pressure will continue in the coming weeks.”

Some exception to the rule was South Korea, where the authorities’ intervention was relatively more successful as 3-year bonds rose after the central bank said it would buy government debt.

Earlier, we reported that the number of detected COVID-19 cases in the world exceeded 616.6 million.

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Economy

The Fed has lost its credibility. What is the Fed doing right now? 

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According to Mohamed El-Erian, the sell-off in the stock market after the Fed’s recent interest rate hike indicates a loss of confidence in the Fed, which increases the risk of economic problems as Fed policy tightening continues, writes Business Insider. What is the Fed doing right now?

The economist now expects that the Fed’s policies will cause additional collateral damage in an attempt to meet its inflation target.

What is the Fed doing with interest rates?

El-Erian voiced his views Wednesday, warning that the Fed’s failure to raise inflation to the target this year would signal a loss of market confidence and a growing market belief that a U.S. recession could not be avoided at the price of “little blood.

The Fed chief warned that fighting rising prices would “bring some pain” to Americans by slowing down hiring and making mortgages and credit cards more expensive. After his press conference, the S&P 500 stock index fell 3.8 percent over the past 7 days.

The Fed was late in raising interest rates in an attempt to tame skyrocketing prices, El-Erian believes, for it initially fueled the 2021 bubble by keeping rates low even as inflation began to rise steadily.

Earlier we reported that the U.S. president’s administration is concerned about the tax cuts in the U.K.

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