Wall Street and European stock markets rallied on Thursday, as signs that Russia may help avert a full-blown energy crisis eased concerns about inflation.
The blue-chip S&P 500 index rose 1.4 per cent in early New York dealings, also boosted by Republicans and Democrats nearing a deal to lift the government debt ceiling temporarily in a move that would avoid a potentially chaotic US default.
The technology-focused Nasdaq Composite gained 1.6 per cent, with both US markets now firmly in positive territory for October after losing about 5 per cent each last month.
The moves came after European and UK gas prices dropped, tempered by Russian president Vladimir Putin saying his country was prepared to stabilise the market after prices shot higher on Wednesday.
Russia, a big supplier of gas to Europe, has been accused by some European politicians of deliberately withholding supplies in an effort to win approval for the contentious Nord Stream 2 pipeline, which would send the fuel directly to Germany.
Alexander Novak, Russia’s energy minister, said late on Wednesday that certifying the recently completed pipeline would give a “positive signal” that could “cool down the current situation somewhat”.
Hopes of Russian assistance also helped European equities to rebound from losses on Wednesday. The benchmark Stoxx 600 share index gained 1.6 per cent while London’s FTSE 100 rose 1.3 per cent.
UK gas contracts for November delivery, which reached more than £4 a therm on Wednesday, fell to £2.59 by Thursday afternoon in London.
Olivier Marciot, cross asset investment manager at fund manager Unigestion, cautioned that while power prices could moderate, markets would remain vulnerable to broader price pressures hitting consumers and prompting central banks to raise interest rates.
“It is not just about gas,” he said, referring to increases in the prices of commodities from cotton to coffee alongside pandemic-related worker shortages in the US, Europe and the UK.
Headline consumer price inflation in the US has topped 5 per cent for three months and hit a 29-year high in Germany.
US energy secretary Jennifer Granholm told the Financial Times on Wednesday that the White House may release strategic oil reserves to stop the gas shortage dragging crude prices higher. Brent crude fell 0.7 per cent to $80.51 a barrel after approaching $83.50 on Wednesday.
Meanwhile, a potential deal to extend the US borrowing limit until December would also give President Joe Biden time to focus on securing agreements for his $1.2tn infrastructure bill and $3.5tn welfare spending package, analysts said.
“It creates a lot of relief because it’s not just about the debt ceiling,” said Edward Park, chief investment officer at wealth manager Brooks Macdonald.
“The idea of a debt ceiling agreement buying time for the Democrats to get their social and infrastructure packages together is a positive for risk appetite.”
The yield on the benchmark US Treasury note, which moves inversely to its price, rose 0.03 percentage points to 1.549 per cent ahead of non-farm payrolls data for September, released on Friday, which can affect the direction of monetary policy.
Analysts forecast that US employers will have added almost 500,000 new jobs in September. A figure in excess of that, accompanied by a drop in the unemployment rate, would bring forward market expectations of the first post-pandemic interest rate rise, said Brian Nick, chief investment strategist at Nuveen.
“It will put the Federal Reserve in the position where they have to worry about wage inflation as well as all the other factors,” he said.
The dollar index, which measures the US currency against six others, fell 0.1 per cent.
Gas prices ease and equities rebound as investors bank on Russia to step in
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