Talk of an EU energy crisis is premature – but nothing is guaranteed

Relative calm in the stock markets won’t last if Russian troops drive further into Ukraine

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Last modified on Tue 22 Feb 2022 14.37 EST

Weren’t stock markets meant to plunge when Russian troops were ordered over the border into Ukraine? Well, the FTSE 100 index opened 100 points lower, which fitted the script, but it quickly rebounded and spent most of the day in positive territory. It closed up 10 points: basically flat.

It was a reminder, for the umpteenth time, that stock markets are a reliably unreliable guide to geopolitics. As the fund manager Terry Smith points out often, trying to time macro events is virtually impossible since you need to know what the market was expecting and how it will react, and neither task is straightforward. Brexit and the election of President Trump were meant to shatter stock markets if they happened: share prices soared when they did.

That said, Tuesday’s mild market reaction to President Putin’s action looks little more than a holding position. The relative calm surely won’t last if Russian troops drive further into Ukraine, presumably triggering more than the “pretty tepid” sanctions, as Bill Browder, former investor in Russia and campaigner for global anti-corruption laws, described the UK response.

One suspects stock markets will take their cue from energy markets in coming days and weeks. Oil briefly touched $100 a barrel on Tuesday, the highest for seven years and a price that will eat into global growth if sustained for long. Natural gas rose as Germany halted certification of the Nord Stream 2 gas pipeline and conceded, in effect, that it needs to rethink a new energy policy.

The fund manager Amundi’s analysts noted semi-optimistically that the former Soviet Union and Europe maintained commercial relations on energy supply even at the height of the cold war and that it is therefore “premature” to talk about an energy crisis in the EU. Yes, that assumption, which is still the market’s base case, is currently reasonable. That doesn’t mean it is guaranteed to be correct.

Insurance industry reform is welcome, notwithstanding the spin

It was polite, or canny, on the part of the big insurers to play along with the government’s spin that reform of the EU-focused Solvency II regulatory regime represents a “Brexit dividend” or a “bonfire of red-tape”.

The reality is that the EU is also in reforming mode to unlock capital on insurers’ balance sheets and can be put to more useful work than sitting on piles of government IOUs. Indeed, Brussels was quicker to signal its own bonfire: its review of the rules was announced last September.

Never mind the political point-scoring, though. Reform is welcome. In this technical field of “matching adjustments” and “solvency capital requirements”, a good illustration of the perverse incentives created by Solvency II was offered by the insurers’ trade body, the ABI.

It calculated that this is currently much easier for a pension fund managed by an insurer “to invest in a highly rated mining company that it is to invest for 30 years in a windfarm”. It is hard to fathom how such an outcome is supposed to protect policyholders. Solvency II, which has good points, got lost in a few thickets.

We have yet to see how much of the theoretical £95bn of extra investment in UK infrastructure materialises. At least part of the answer will depend on the input of the Bank of England, which presumably will be anxious to preserve a few safety-first features. But, yes, reform is a dry but important development that should boost long-term investment in the UK.

Hello to the short and inoffensive Haleon

Beecham – one of the names made redundant in the turn-of-the-century merger that created GlaxoSmithKline – seemed a decent ancient brand to revive for the demerger of the group’s Sensodyne-to-Panadol consumer products division.

Sadly, it’s not to be. The new £50bn-ish FTSE 100 company, arriving in the summer, will be called Haleon. It sounds vaguely like an inert gas, but, according to the official explanation, the name is a marriage of hale (as in hearty) and leon (associated with strength). If you insist.

At least GSK has opted for something short and inoffensive and hasn’t tried to be whizzy and digitally enabled (chief culprit: abrdn, as Standard Life Aberdeen, bizarrely, is now known). The test is how soon the outside world will stop adding an explanatory “GSK’s former consumer division” on every mention. As with the spirits group Diageo, one suspects we’ll get used to this one reasonably quickly. It’ll do.

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