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Affinity Policy Comment 8 april 2024

Bring In The Hawks

Escalation concerns in Middle East are emerging once again. In early April, Israel struck the consulate of Iran in Damascus. The attack killed seven officers, including a Revolutionary Guard Commander, and Ayatollah Ali Khamenei has vowed vengeance. The question is now how Iran will respond, and whether or not that will lead to a severe escalation of the conflict.

Since the war between Hamas and Israel started in early October last year, relations between the two rival powers have undoubtedly been tense, but both sides have exercised sufficient constraint not to provoke a broader regional crisis. This time around Israel clearly took a big risk. While Iran-backed militant groups have been clashing with both Israel and with the US and its allies in the region regularly since October, Iran has kept its distance. Israel clearly has an incentive to exploit Iran’s abstinence and aim to weaken its arch enemy as much as possible but there surely is a limit to how far they can go. Now, after the attack on the Iranian consulate, the risk of severe backlash is the highest since the war started.

While ceasefire talks are ongoing, and according to the mediators, the talks remain productive, results have been slim. Since the war started, the only truce took place in late November, when Hamas released around half of its hostages. Both sides have proposed a new ceasefire of around 40 days, but each has rejected the other side’s proposal. Israel has said it will only accept a temporary ceasefire and insists the war will not stop until Hamas is destroyed. Hamas, in turn, says it will not free its hostages without Israeli troops withdrawing from Gaza

Elsewhere, things seem better on the surface between the US and China following the Xi-Biden meeting in November last year, but tensions have been on the rise once again recently. In the South China Sea, the US continues to build stronger alliances against China. The US, Japan and the Philippines now plan joint navy patrols later this year for the first time ever. The new manoeuvres are part of a package of initiatives that the three countries are set to unveil at their first-ever trilateral summit this month.

Media reports also suggest that the US and Japan are looking to strengthen their security partnerships with the UK, Australia and the Philippines through more joint exercises. China sees the rising number of security agreements in Asia as part of a US-led encirclement strategy and a de facto gradual formation of an Indo-pacific NATO. An opinion in the state media China Daily on 1 April said that “it does not require much acuity to appreciate that the expanding of AUKUS — the "Indo-Pacific"-focused military cooperation mechanism of Australia, the UK and the US — into a quintuple AUKUS + is a further step toward the formation of a US-led "Indo-Pacific NATO".

On a positive note, there is not much new to report on Taiwan, and on this topic no news is good news. The conflict around the Kinmen Island has settled down and it confirms our impression that neither of the sides have an interest in rocking the boat in the Taiwan Strait at this point.

Meanwhile, trade tensions continue to be a hot topic in EU-China relations. There might be higher tariffs on Chinese EVs soon after the EU Commission in early March made a notice preparing for possible retroactive tariffs when their investigation is over. In China, another potentially strong player entered the EV market with the major mobile phone maker Xiaomi presenting its new EV SU7, which saw strong demand in China at its launch. Worries over Chinese overcapacity leading to price wars in a range of products have risen to the fore lately. In the solar industry, prices on Chinese panels have plummeted, making EU producers plea for support from the EU Commission, calling it an “existential threat”. So far it seems the Commission has turned down the calls for help, though.

And a survey by Singapore’s ISEAS Yusof Ishak Institute among Southeast Asian countries showed that China moved past the US to become the prevailing choice of alignment if the countries were forced to choose between the US and China. 50.5 per cent chose China in 2024, up from 38.9 per cent in 2023. The US position in the Israel-Hamas war is generally seen as a factor deteriorating the US stance in Asia. However, on the question of trust, 50.1 per cent express distrust against China versus 37.6 per cent for the US. The distrust of the US went up from 26.1 per cent in 2023, though, again suggesting that events over the past year have eroded the US’s standing among Southeast Asian countries. That China has trust issues in the region, though, is clear from 45.5 per cent fearing that China could use its economic and military power to threaten their country’s interest or sovereignty.

On the economic front, the ECB is expected to pave the way for their first rate cut in June, following weaker Eurozone inflation last week. Headline HICP fell from 2.6 per cent to 2.4 per cent, while core fell from 3.1 per cent to 2.9 per cent. Both numbers missed expectations by 0.1 per cent, and were mainly driven by food, energy and non-energy goods disinflation. Services inflation has been sticky at 4 per cent over the past five months, so the ECB will require further data before the June meeting, most importantly the Q1 wage estimate to be released on 23 May. For this Thursday’s meeting, no new projections will be available, and we expect the statement to change only slightly, while Lagarde may speak more openly about the prospects of rate cuts during the press conference.

In the US, last Friday’s NFP print surprised with a blockbuster 303k, much above the 214k estimate and rising from last month’s 275k. The unemployment rate fell from 3.9 per cent to 3.8 per cent, but average hourly earnings fell from 4.3 per cent to 4.1 per cent y-o-y. Job growth remains strong in the US amid high immigration levels, which therefore shouldn’t be inflationary. The Fed remains cool about stronger labour markets, while hoping for lower inflation this week to keep rate cuts for this year on the table. The known-hawk Kashkari questioned last week if cuts were needed at all in 2024, but even post Friday’s print, the market’s baselines remain at around three cuts, with declining chances for a start in June. Pressure lies on Wednesday’s CPI number to come in low, with economists forecasting 0.3 per cent m-o-m for headline and core inflation, 0.1 per cent below the previous month’s figures.


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    +44(0) 20 3142 0128

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    Our ethos for operations and post-fixture is simple: these roles are as important to us as the chartering/commercial function, and we continue to apply those same principles of professional ship broking throughout the life of each fixture.

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    +44 (0)20 3142 0144

    Carbon

    Using tailored analytics platforms, we offer client-specific advisory and trading services across the global carbon markets. Contributing to hedging strategies, sustainability reporting and financing requirements, our aim is to assist clients in managing their financial exposure to the approaching energy transition.

    Contact: Hugo Wilson
    [email protected]
    +44(0)20 3142 0121

    Containers

    Our specialised Container team in South America arranges freight & logistic solutions primarily for the mining and perishable industries.

    Contact: Andrea Meza Allemant
    [email protected]
    +51 99 115 2393

    Dry Cargo

    Our dry bulk chartering teams in Sydney, Melbourne, Perth, Santiago, Lima, Montevideo, Buenos Aires, Singapore and London are cargo-focussed and they fix voyage, COA and time charter business on behalf of their clients with a wide range of ship owners.
    For Atlantic business please contact Hans Bredrup
    For Pacific business please contact Rahul Khanna

    Contact: Hans Bredrup
    [email protected]
    +56 99 887 3036
    Contact: Rahul Khanna
    [email protected]

    LNG

    Our young and dynamic LNG team possess wide-ranging experience of spot and term charters working with all major LNG shipowners and charterers. The LNG team has close interaction with the Newbuilding and Sale & Purchase divisions with an unrivalled track record of contracting LNG newbuildings and in the sale and purchase of LNG assets.
    We maintain up-to-date knowledge and an understanding of new technologies within the LNG sector to ensure that our clients can make the most suitable and cost-effective decisions on shipping solutions.

    Contact: Joni Mackay
    [email protected]
    +44(0)20 3142 0133

    Newbuilding

    Our Newbuilding team has concluded over 500 newbuildings of all types, including LNGCs, FSRUs, drillships, crude tankers, product tankers and dry cargo vessels. We have contracted in all major newbuilding centres globally, with particular focus on the Korean Shipyards.

    Contact: Nick Wood
    [email protected]
    +44(0)20 3142 0111

    Offshore

    Affinity Offshore is based out of our Oslo and Houston offices. The Team focuses on world-wide sale & purchase of offshore support vessels, as well as chartering – particularly in the Americas and Mediterranean/MENA regions.

    Contact: Tor-Øyvind Bjørkli
    [email protected]

    Research

    Our research department combines real time market information with econometric modelling and the latest technology. 

    Contact: Sevita Kondyliou
    [email protected]
    +44(0)20 3142 0182

    S & P

    Our Sale & Purchase team has extensive experience of working with private clients, national shipping companies, major corporates, oil companies, grain houses and institutional investors. We provide a cradle to grave services across all shipping sectors. We operate from London, Singapore and Seoul to give 24-hour coverage of the markets, working for both newbuilding and second-hand buyers.

    Contact: Tom Morrison
    [email protected]
    +44(0) 20 3142 0128

    Tankers

    Our established tanker chartering teams serve the industry from London, Houston and Santiago delivering a highly proficient spot chartering service with a prime position in the fuel oil market. The team has close relationships with oil majors, national oil companies, oil traders and major ship owners and operators. 
    Our ethos for operations and post-fixture is simple: these roles are as important to us as the chartering/commercial function, and we continue to apply those same principles of professional ship broking throughout the life of each fixture.

    Contact: Tim Gurdon
    [email protected]
    +44(0)20 3142 0142

    Valuations

    We provide transparent, objective ship valuation service to major owners, banks and other financial institutions at short notice and a daily basis. We provide a retainer service for regular fleet valuations.

    Affinity Valuations Limited Terms of Business

    Contact: Stuart Morrison
    [email protected]
    +44 (0)20 3142 0144

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