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Europe Prepares For A Gas Crisis

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Europe is preparing itself for the possibility of a full-blown gas crisis later this week, which comes at the same time as a record-breaking heatwave, which has increased the demand for energy to help cool down the continent’s homes and businesses.

After undergoing normal maintenance for the past ten days, the important Nord Stream 1 pipeline, which acts as a vital artery connecting Russia’s gas to the bloc, is scheduled to return on Thursday. However, there is a growing danger that Russia will keep the taps turned off as a form of retaliation for the sanctions that the European Union has imposed on Russia as a result of its invasion of Ukraine in February.

At the beginning of this month, Germany’s Minister of the Economy Robert Habeck stated that the nation had to “prepare for the worst.”

“Anything can happen. It could be that the gas flows again, even more than before. It could be that nothing will come at all, “In a radio interview, Habeck made the following statement.

The pipeline is responsible for around 40 percent of Europe’s total pipeline imports of gas from Russia and provides 55 billion cubic meters of gas to Europe annually.

There is the possibility of completely severing ties with Moscow’s gas supply. The government has already reduced the amount of gas it sells to a number of countries in Europe. Germany, the region’s largest economy, declared a “gas crisis” one month ago after Gazprom, Russia’s national gas corporation, cut exports through the pipeline by sixty percent. This caused Germany to make the declaration.
Gazprom has placed the responsibility for the move on the decision made by the West to withhold essential turbines due to sanctions.

For Monday, the German gas distributor Uniper announced that it had received a letter from Gazprom alleging a force majeure on previous and ongoing deficits in gas delivery. The letter was received on Friday. A clause in a contract that excuses a corporation for failing to meet its obligations due to circumstances beyond its control is called a force majeure clause. It is often only used in really dire situations, such as when there has been a natural disaster.

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However, a representative for Uniper reported in a recent interview that the company has “officially refuted” the accusation. In addition, the troubled company utilized a €2 billion ($2.04 billion) credit facility with bank KfW on Monday due to the impact that problems in Russian gas supply have had on the company.

A shortage of gasoline during this week would come at the worst possible time. Temperatures are expected to climb above 40 degrees Celsius (104 degrees Fahrenheit) over the next few days in Europe, which is already sweltering under record heat. Parts of France and Spain are currently battling wildfires as temperatures are expected to climb above 40 degrees Celsius (104 degrees Fahrenheit) over the next few days.

The increased use of air conditioning has led to an increase in the amount of electricity that is needed to power it. The operator of Spain’s gas transmission system, Enagas, reported the previous week that demand for natural gas to produce power reached a new record of 800-gigawatt hours.

Given Europe’s other sources of power and the fact that the heatwave is predicted to end by the middle of the week, some analysts were more optimistic than others. During this time, countries in Europe are working feverishly to stock their gas storage facilities before the onset of winter in order to forestall an energy shortage that may have disastrous consequences.

According to data provided by Gas Infrastructure Europe, the level of gas storage capacity across the European Union now stands at approximately 64 percent.

As the EU works to reduce the amount of gas it imports from Russia, it is working quickly to secure gas supplies from other countries. A critical gas distribution route is going to have its capacity increased by 50 percent over the next five years according to a memorandum of agreement that the European Commission signed with Azerbaijan on Monday.

According to the statistics provided by the Intercontinental Exchange, prices for Dutch natural gas, which is used as the European benchmark, increased by 3 percent from Friday’s level to reach €165 ($167) per megawatt hour on Monday.

Fears of a big gas cutoff drove prices up earlier this month, pushing them to their highest levels since the early days of Russia’s invasion of Ukraine. At that time, prices were hovering around €183 ($186) per megawatt hour. Since the beginning of the year, there has been a 129 percent increase in price.

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Top Economist Mohamed El-Erian Warns Of “Violent” Shocks That Might Change Global Economics

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One Analyst, Mohamed El-Erian, has cautioned that investors should brace themselves for a severe recession that has the potential to irrevocably alter the global economics.

The economist stated on Tuesday that there are a number of factors that are likely to weigh on growth, including pressures on supply, tightening by central banks, and “fragility” in the market.

El-Erian wrote in an opinion piece for Foreign Affairs that “three new trends in particular hint at such a transformation and are likely to play an important role in shaping global economics over the next few years: the shift from insufficient demand to insufficient supply as a major multi-year drag on growth; the end of boundless liquidity from central banks; and the increasing fragility of financial markets.”

“These shifts help explain many of the unusual economic developments of the last few years, and they are likely to drive even more uncertainty in the future as shocks grow more frequent and more violent,” he added. “These shifts help explain many of the unusual economic developments of the last few years.” Individuals, businesses, and governments will all be impacted by these shifts, which will have economic, social, and political repercussions. This warning comes at a time when numerous organizations, such as the International Monetary Fund and the Institute of International Finance, are predicting a slowdown in economic activity in the coming year.

As a result of Russia’s invasion of Ukraine in February, global supply chains have become more constrained, which has caused prices of commodities ranging from crude oil to wheat to skyrocket.

In the meantime, central banks such as the Federal Reserve in the United States have begun to aggressively raise interest rates. This could be starting to bring inflation under control, but it will also have a negative impact on the growth of global economics.

Rate hikes have also exposed vulnerabilities in particular markets, which has resulted in the S&P 500 falling 15.5% this year and the crypto success story from the previous year turning sour after a major exchange FTX suffered a solvency crisis and eventually filed for bankruptcy. Both of these events were caused by rate hikes. El-Erian stated that analysts need to move away from the idea that the downturn will be a short, sharp recession. It was this way of thinking, he warned, that had led the Fed’s classification of inflation as only “transitory,” even as prices creeped up last year.

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“From the initial misjudgment that inflation would be ‘transitory’ to the current consensus that a probable US recession will be’short and shallow,’ there has been a strong tendency to see economic challenges as both temporary and quickly reversible,” he said. “From the initial misjudgment that inflation would be ‘transitory’ to the current consensus that a probable US recession will be’short and shallow,’” he said.

But, as El-Erian pointed out, “these shifts will affect individuals, corporations, and governments — economically, socially, and politically.” “Until analysts wake up to the possibility that these patterns will outlast the subsequent business cycle, the economic hardships that they inflict are likely to greatly outweigh the benefits that they generate,”

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Retail Crime May Ruin Holiday Shopping

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As the holiday shopping season approaches, there is an upsurge in organized retail crime, about which some executives have justifiably raised the alarm. According to the National Retail Federation’s 2022 National Retail Security Survey, overall losses from shrink, the word retailers frequently use to describe theft and other sorts of inventory losses, rose by almost 4% in 2021 to reach $94.5 billion. The report published in mid-September stated that external theft, especially theft attributable to ORC [organized retail crime], was the main cause of shrink losses. According to the poll, 81.2% of retailers reported “slightly more” or “far more” ORC-related hostility and violence compared to the previous year. ORC occurrences increased by 26.5% on average in 2021.

A factor influencing Target’s gross margin, according to CFO Michael Fiddelke, is “inventory shortage, or shrink, which is a rising challenge facing all retailers,” he said during the company’s third-quarter results call in mid-November. At Target, the incremental scarcity has already decreased our gross margin by more than $400 million compared to last year, and we anticipate that it will decrease by more than $600 for the entire year, he said. “This is a problem that affects the entire sector and is frequently caused by criminal networks. We are working with a variety of partners to establish industry-wide solutions.” On the conference call, the company’s CEO, Brian Cornell, referred to theft as a “increasing financial headwind” for the entire sector. He continued, “We’ve witnessed an upsurge in theft and organized retail crime across our industry, along with other merchants. “As a result, we’re spending a lot of money on technology and training that can prevent theft and keep our customers and store employees safe.”

Rite Aid officials had mentioned shrink as a problem the pharmacy chain was having about a month and a half before. They said during the Rite Aid quarterly results call in September. Heyward Donigan, CEO of Rite Aid since 2019, claimed that the pharmacy firm had seen “shrink has presented unexpected challenges, especially in our urban shops in New York. A $5 million rise in shrinkage and other factors “had an impact on the company’s front-end gross profit, “based on Matt Schroeder, CFO. The climate we operate in, especially in New York City, is not conducive to minimizing shrink, according to what you read and see on social media and the local news, according to Chief Retail Officer Andre Persaud at the time.

Rite Aid is enhancing its “product protection” and “structured retail client program,” he said, adding that the company’s ultimate goal is to “remain in the communities.”

Rite Aid has been “looking at essentially putting everything behind showcases” in some places, Persaud said in September, in addition to examining pharmacy-only and pharmacy prescription-only models and stationing off-duty law enforcement officers at specific stores. Concerns regarding organized retail crime have already been expressed by retailers. In a letter sent to House and Senate leaders in December of last year, the heads of numerous retailers, including Best Buy, Dollar General, and Kroger, expressed their concern about the “growing impact organized retail crime is having on the communities we proudly serve” and their support for the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act.

“Organized crime has significantly increased in towns across the country, impacting retail enterprises of all types,” the executives stated. “While we continually invest in people, regulations, and cutting-edge technology to fight theft, criminals are taking advantage of the Internet’s anonymity and some marketplaces’ failure to authenticate their sellers.” “This trend has affected legitimate firms who are forced to compete against dishonest vendors, made retail establishments a target for increasing theft, and has dramatically increased consumer exposure to harmful and deadly counterfeit products.”

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The Risk Of Borrowing From American Lenders, According To Deutsche Bank

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European businesses borrowing money from American lenders are given a stern warning by Germany’s Deutsche Bank: If conditions go rough, they will stop lending to you.

The warning, which was outlined in an interview with board member Fabrizio Campelli of Deutsche Bank, is the most recent escalation in a struggle with American banks for the patronage of European businesses on its own soil.

It occurs as the largest lender in Germany’s corporate banking division is seeing a rebound as it nears the conclusion of a protracted restructuring.

Without giving any specific instances, he said: “A lot of European corporates are already realizing the risks of not engaging with companies who are long-term dedicated to the geographies… in which they operate.”

Campelli, who is in charge of both the investment bank and Deutsche’s business division, claimed that American lenders “tend to flex lending up and down depending on conditions.”

Again without providing any specific examples, he continued, “There was evidence of non-German banks in our nation pulling financing off the table as German banks were going longer-credit during the epidemic, in 2020.

According to statistics from Dealogic from a recent report, the five biggest U.S. banks last year—JPMorgan, Bank of America, Morgan Stanley, Goldman Sachs, and Citigroup—took home a combined 35% share of the revenue from loans made to German companies, up from 18% a decade earlier.

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Christian Sewing, the CEO of Deutsche Bank, has issued a warning over the “danger” of Europe’s reliance on foreign banks, equating the threat to the area’s reliance on outsiders for energy.

Deutsche Bank has always emphasized the necessity for Europe to have powerful banks in order to compete with American and Chinese rivals, but the most recent rhetoric indicates a more confrontational tone.

In order to support European lenders, Campelli urged politicians and regulators to take a “concerted approach.” In 2019, Deutsche started a transformation with the goal of moving away from its erratic investment bank and toward its more conservative operations that cater to businesses and consumers.

After years of failure to fulfill that promise, the tide is now changing, helped along by rising interest rates. Although conflict, skyrocketing prices, and energy expenses are casting a shadow over the future, higher borrowing costs are fattening earnings from conventional banking.

Campelli, who had previously been in charge of the renovation, stated, “We’re now getting there.” “Did we depend on the investment bank more in 2020–2021 than we had anticipated? Yes. A significantly more balanced mix of earnings is beginning to emerge.”

American banks dispute the criticism. One of the biggest banks in Germany today, JPMorgan, claims to be devoted.

According to Stefan Behr, head of JPMorgan’s operations in Europe, “many of the German banks cooperate with us on projects as well as us being a banking partner to them,” he hasn’t noticed any resistance to the bank’s expansion in Germany.

“For every contract, competition exists. Just like we’re not happy if we lose a mandate, I’m sure they’re not happy when they don’t win it “said Behr.

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According to Stefan Hafke, head of Citigroup’s German operations, the company’s clientele in Germany consists of “extremely long-term, durable connections.”

He argued against being a purely American bank and stated that he desired strong European banks in Germany. We are conducting our business on an equal basis with everyone else, he declared.

Goldman declined to comment despite a recent increase in employment there. A request for comment from Morgan Stanley did not receive a prompt response.

There is no pushback, according to a Bank of America representative, who also stressed that Germany is crucial to the company’s strategy.

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