What’s Going On Here?European natural gas prices surged again on Wednesday, as the region’s government shakes up its strategy for keeping your radiators running this winter. What Does This Mean?Let’s start with the silver lining: demand for energy is so high right now because of Europe’s strong bounceback from last year’s events. But that recovery doesn’t mean much if it’s not allowed to flourish, and the tough competition for a stagnant supply of energy could bring it to a premature end. Countries, after all, are trying to outbid each other to fill their gas storage sites before a nippy winter arrives, which has driven natural gas prices up 60% in the last two days. That rally probably has further to run too: China is ordering state-owned firms to hoard whatever supplies they can get, while Europe is still holding historically low levels of natural gas for this time of year. Why Should I Care?The bigger picture: The EU spends money to make money.
The European Union isn’t taking this lying down: it said on Wednesday that it’ll be rolling out tax cuts and support packages to help ease the damage to households and businesses. It’s in its interests to do exactly that, given that some of the region’s more energy-intensive companies have already been forced to roll back operations. German ammonia producer SKW Piesteritz, for example, announced on Tuesday that it’ll be cutting production by 20%. That matters: ammonia’s an essential ingredient in fertilizer, and higher crop-growing costs are bound to make their mark on your weekly shop.
For markets: Bail on bonds.
Rising energy costs tend to lead to higher inflation, so investors are getting pretty antsy right about now: bonds tend to perform poorly when prices are on the rise, since the fixed returns they offer become worth less. That explains why investors sold off 10-year UK government bonds on Wednesday, sending yields – which rise when prices fall – to a two-year high. | 
