ECB Rate Hike in Focus

Yesterday, TTF gas futures (the European benchmark) continued to rally as investors weighed in gas security across the continent moving into Winter. Here, investors considered the impact that a potential closure of the Netherlands’ Groningen gas field would have on supplies throughout Europe, as reports of its possible closure at later this year due to the risks of earthquakes circulated. This comes as Norwegian gas supplies have also reduced output.

Accordingly, TTF gas futures rallied as much as 27% during yesterday session as they edged close to €50 per megawatt hour, its greatest level since April. This now means that wholesale gas prices have doubled within the last ten sessions, though prices remain held up by strong gas storage levels. Currently, EU gas storage remains at around 72%, well above the average for this time of year as Brussels aims to ensure its target of 90% storage by the onset of winter is met.

US chipmaker Intel are said to be close to finally agreeing a €10bn grant from the German government to build a semiconductor manufacturing facility in Magdeburg. The negotiations between the parties have been ongoing for more than a year and in that time the grant amount has increased from less than €7bn due to inflation and rising energy costs in the country. Intel is investing heavily in Europe, a key consumer of microchips, and will be building multiple sites in the coming years – providing governments are willing to put their hands in their pockets. Germany auto manufacturers were hit hard when Covid supply chain disruptions made semiconductors either unavailable or extremely expensive and will no doubt welcome the onshoring of key components.

Last month the UK government announced £1bn of investment allocation over the next ten years to the space, though with that mostly going towards R&D and scale-up investment, rather than significant manufacturing capabilities. Unsurprisingly, industry figures have said this is nowhere near enough, with Europe committing closer to £40bn and the US doing similar.