MacroScope

A question of gas

By Mike Peacock
May 2, 2014

A Ukrainian soldier sits on top of an APC at a checkpoint outside the city of Slaviansk

German Chancellor Angela Merkel is in Washington for talks with Barack Obama after Europe and the United States imposed wider sanctions on Russia.

Obama is already looking ahead to a third round of measures and has hinted at impatience with Europe, saying there had to be a united front if future sanctions on sectors of the Russian economy were to have real bite. At home, the Republicans are accusing him of weakness so will he put pressure on Merkel to move ahead in a way that the European Union has shown it is entirely unready to, at least yet?

The east of Ukraine remains in turmoil with pro-Russian separatists, who have seized civic buildings and police stations in a number of cities and towns, saying Ukrainian forces had launched a big operation to retake the eastern town of Slaviansk. That would mark the first significant military response from the government in Kiev.

The interior minister said a pilot has been killed and others wounded by anti-aircraft missiles used by the rebels. Separatists said at least one helicopter had been shot down.

In the city of Donetsk, capital of a province of about 4 million people, rebels have called a referendum on secession for May 11. The IMF has warned it would have to redesign its $17 bailout for Ukraine if it lost territory in the east.

EU energy commissioner Guenther Oettinger will meet the energy ministers of Ukraine and Russia in Warsaw. Gazprom says Ukraine’s unpaid gas bill would increase to $3.5 billion from $2.2 billion claimed currently after April’s arrears are included.

Slovakia and Ukraine have signed a deal that allows the European Union to send a limited amount of gas to Ukraine, but provides Kiev with far less than it hoped for to compensate should Russia turn off supplies.

Russia’s and Austria’s deal to build the disputed South Stream gas pipeline to Austria instead of Italy indicates the internal EU tensions over gas supplies, about a third of which come from Russia via Ukraine.

For now, gas prices are actually falling with ongoing low demand as a result of mild weather and healthy supplies from non-Russian sources outweighing the impact of a potential gas supply cut from Russia.

Manufacturing PMI surveys for most euro zone countries will be released but are unlikely to change the picture provided by the flash readings for the bloc, Germany and France which showed the bloc’s private sector has started the second quarter on its strongest footing in nearly three years, although burgeoning new orders were again mainly buoyed by firms cutting prices.

We will get first readings from the likes of Italy and Spain and euro zone unemployment data are also due. Monthly car registration figures for a number of countries will offer another straw in the wind.

Britain’s recovery is unchecked and Bank of England Deputy Governor Jon Cunliffe last night delivered the sternest warning yet about heady British house prices, saying it would be dangerous to ignore the threat of the market overheating, that after mortgage lender Nationwide said prices posted their biggest annual rise since the start of the financial crisis in 2007. Today’s UK construction PMI may make interesting reading.

A suspected car bomb exploded on the outskirts of Nigeria’s capital Abuja on Thursday, killing at least 15 people a week before the city was to host a conference of leaders and business executives focused on Africa’s growth prospects.

Fitch has raised the outlook on Slovenia’s ‘BBB+’ credit rating to stable from negative saying the government, which faces early elections in July after the prime minister was ousted as leader of her party, had substantially shored up the banking sector. An S&P credit rating review of Norway is due.

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