☃️🇪🇺 A Cold Winter in Europe is Coming
Happy Hump Day everyone,
I hope you are all well! Interest rates are likely going up again this week so that means your auto loans, mortgage rates, and also bank rates will be higher - which could be a good thing if you’re looking for a higher yield savings account. The market is pricing in about a 0.75% interest rate hike.
Theoretically this hike should slow down spending, which should slow down demand, which should reduce prices of things such as homes, cars, food, gas, etc… but we’ll see. It’s the hope, but sometimes these things take a long time before we start to see a material effect.
Anyway, in more personal news, we’ve started to film a new type of video for my YouTube channel focused on different side hustles and ways to make money. It’s an experiment, but we’re hoping it resonates with the almighty gods of YouTube and their recommendation engine. We also plan to make the video as good, and as educational, as possible. Can’t wait to share!
Enjoy this week’s Hump Days!
- Humphrey, Rickie & Tim
In the Markets
Featured Story
In major world news this week, Russia announced it would further reduce natural gas supplies to Europe this week, moving forward in its economic war with the West. This move now puts into question Europe’s ability to avoid shutting down factories and keep homes warm during the winter.
Russian owned energy producer Gazprom said they would drop gas (not gasoline) exports to a fifth of the Nord Stream pipeline’s capacity. The reduction from 40% to 20% is expected to take place today (Wednesday), said Gazprom.
Wholesale prices on European natural gas jumped 12% on Monday and have doubled this year. Prices are expected to keep rising as the winter approaches which further strains the European economies, governments and financial markets in the region.
European officials and analysts say that President Vladimir Putin is weaponizing gas deliveries aiming to retaliate against western economic sanctions on Russia and discourage the West from giving military and financial assistance to Ukraine. However, Russia denies accusations that Gazprom has meddled with gas supplies to gain political leverage, saying that “Russia is a responsible gas supplier”.
Europe originally had a plan to fill up its gas storage ahead of winter. Germany’s federal energy regulator said that they would struggle to reach storage goals with Nord Stream flows at 40%. The reduction down to 20% further complicates this plan and governments say they are likely to ration energy and the continent’s fragile economy could sink into recession.
Governments across Europe are trying to secure gas from other suppliers, including Norway, Algeria, the U.S. and Qatar. Europe has a big hole to fill trying to replace Russia which met 40% of the EU’s gas needs in 2021. For the European subscribers out there, we hope you find a resolution very soon!
Weekly News Roundup
Walmart Cuts Profit Outlooks as It Lowers Prices to Move Goods (WSJ)
Walmart warned in May that it was stuck with too many unsold goods and came out on Monday to say that it was having to cut prices to reduce merchandise levels at its flagship chain and Sam’s Club warehouse chain. Walmart warned that higher prices for food and fuel were causing consumers to pull back, an ominous sign for the U.S. economy that has relied on household spending power through rising inflation.
HY: Yikes. This could be a bad start to the earnings week if all companies are reporting in this fashion. It means recession fears could be confirmed.
RH: We wrote about this happening in a previous Hump Days. If you want to read more about this and the “Bullwhip Effect”, click here.
TC: Inflation → Less Demand → Lower Prices → Deflation?
Russia to Cut Europe’s Gas Flow via Nord Stream to 20% (WSJ)
Russia said it would further reduce natural gas supplies to Europe this week, raising new questions about Europe’s ability to avoid shutting down factories and leaving homes cold this winter. Russian state-owned Gazprom said gas exports through Nord Stream to Germany would drop to about 20% of its capacity, blaming sanctions-related problems with turbines that have already reduced flows.
HY: Important to note that this is natural gas flow, not gasoline, but still - it could shake the energy market and affect prices worldwide of all other oil-related products.
TC: Oof. Europe’s in a tough situation here. Hopefully there’s some resolution before the colder winter months…
Record-High Rent Is Still More Affordable Than Buying a Starter Home (BBG)
It is more affordable to rent, than buy a starter home in 38 of the 50 largest U.S. metro areas, according to a report from Realtor.com. Rent is up to a record $1,876 in June representing a 14% jump year-over-year but higher mortgage rates have pushed the costs of buying a home even more. The average monthly mortgage payment for a starter home has now jumped $560 above the median rent.
HY: How much are you paying for rent? Reply directly to this email and let us know!
Charts of the Week
Sri Lanka unfortunately may be the first of many countries defaulting on their debt obligations soon. Many of these countries have dollar-denominated debt so as the dollar gets stronger, it gets harder and harder to payback that debt. Definitely something to track…