This morning European Natural Gas (TZT1) has broken above the double bottom neckline at EUR56.10. (Up over 4% on the day)
This break, IF sustained (weekly close), suggests we could be looking at a move towards EUR90 (That is conservatively on a nominal basis- a percentage change basis would suggest more like EUR140)
Interim resistance is met at EUR 66.33 (200-Week MA and EUR 77.30 (Breakdown level)
Today's level also puts it about 35% higher than just a month ago.
We all know (or at least we should) that the rise in European inflation had very little to do with ECB policy, Fiscal policy or for that matter demand. It was an almost entirely supply shock driven move.
Within that, Energy was the main driver and within that European Natural Gas (Maybe not good on the trade negotiation front and in particular with respect to cheaper US natural gas)
So, when the ECB takes credit for bringing inflation down by raising rates their claim is disingenuous at best. Inflation collapsed when energy prices collapsed. All the aggressive tightening achieved was a no-growth European economy.
The chart below shows this clearly with the lag effect of European Gas prices into PPI, CPI and ultimately Core CPI.
As European Natural Gas has started to rise again, we can see it being reflected in PPI and starting to show up in headline CPI with Core CPI (the most lagging looking like it could be next.
As a "Simplistic overlay" Gas prices have now converged on the Existing ECB rate level.
Let us not forget that the ECB has one mandate and one mandate only and this move in Nat Gas if sustained and/or built in might start to deliver a change in rhetoric from some ECB board members in the not-too-distant future.
