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Germany 

Germany says it is closely coordinating with the EU on the Russian gas supply cut-off. So far, the German gas crisis team has not identified any gas supply bottlenecks. Concerned about the cessation of Russian gas supplies to partner countries 

Germany, on the other hand, is unlikely to be on the chopping block just yet, as it will be Russia’s ace card in this game of poker. However, given the circumstances, it will be critical to monitor developments in the coming days/weeks.

Equities 

• Stocks in Europe are a little more cautious to begin the day, Eurostoxx is flat, Germany DAX is up 0.1 percent & France CAC 40 is up 0.2 percent 

• UK FTSE +0.1%,Spain’s IBEX fell 0.1 percent. 

The more cautious mood here comes against the backdrop of a sharp drop in US equities yesterday, even though US futures are finding some temporary relief. The entire gas ‘blackmail’ by Russia is also not helping the general economic mood, contributing to declining consumer sentiment in both Germany and France to begin the new day. 

Currently, S&P 500 futures are up 0.6 percent, Nasdaq futures are up 0.5 percent, and Dow futures are up 0.7 percent.

It’s only a temporary reprieve, and it could change later in the day, as we saw with trading yesterday.

Euro 

• The euro has dropped to a new five-year low against the dollar. 
• There is little relief for the euro, which is seen falling again in early European trading. The 2020 low of 1.0635 is beginning to crack under downside pressure, with the low today reaching 1.0622. 
• According to the charts, there isn’t much standing in the way of a further drop in the currency towards 1.0400 in the near future. 
• The latest developments regarding Russia’s gas ‘blackmail’ will be of little comfort to Europe, which is already struggling with soaring inflationary pressures. The latest German GfK consumer morale release highlights the rapid deterioration in sentiment, which will be felt more heavily later in Q2.
•  Add to that the fact that the ECB’s goal of raising rates to zero remains a pipe dream, while the Fed is being rather aggressive, and it’s difficult to find much relief for the EUR/USD at the moment. 
• If anything, the pair may be able to find solace in a technical retracement or if the Fed begins to ease up on rate hike talks. Both of which are unlikely ahead of the FOMC meeting on May 4th.

Russia 

• Russia’s gas ‘blackmail’ is something to keep an eye on in the coming days. 
• Russia has halted gas supplies to Poland, with Bulgaria following suit. It may not be making headlines right now, but the developments here are cause for concern. 
• Russia’s Gazprom has informed Poland and Bulgaria that gas supplies will be cut off as of today, marking the first sign that Russia is serious about cutting Europe off at the knees. Poland and Bulgaria are, in essence, warning shots. 
• The former has been vocal in its opposition to Moscow, so this isn’t surprising, but dragging Bulgaria into this is a sign that Russia means business.
•  They aren’t household names, but for context, Bulgaria is almost entirely (90 percent) reliant on Russia for gas. 
• Adam wrote a great post yesterday outlining some possible scenarios for how this could play out here. 
• It will be very interesting to see which party folds at the end of the day. But the longer this goes on, the higher the stakes become, and the impact on Europe’s economy will be severe – just as it does on Russia.