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Affinity Policy Comment 12 september 2022

Running out of gas

As Britain mourns the passing of its Queen, the country also faces its most serious economic crisis in decades and markets will ponder the implications of the new government's record-breaking energy package. The measures will likely bring down price pressures in the short term, but could stoke them further ahead as consumers are spared the worst of the hit to their finances.

But this isn’t just the UK’s problem. Faced with soaring energy prices that threaten to spark social unrest, necessitate rationing and inflict a recession, all Europe's leaders are scrambling to pull together radical plans to counter Russian President Vladimir Putin's gas cut-off.

Governments are spending hundreds of billions of euros to help consumers and businesses cope with runaway bills. A plan from Britain's new government could cost as much as GBP 150 Bn, sending its currency to near-four decade lows. Also the French government announced on Monday that it will extend current caps on gas and power prices in a move to protect French consumers.

EU energy ministers on Friday tasked Brussels with drafting proposals within a few days to cap the revenues of non-gas energy producers and help power firms stay afloat but backed away from more divisive proposals to cap Russian gas prices. Meanwhile, more oil-importing countries seem to be considering joining the G7’s plan to cap the price of Russian oil, according to statements by US officials.

In other news, Tuesday's US inflation data is one of the last, and perhaps the most important, piece of data that will help the Fed decide how aggressively it needs to hike rates in September.

July's CPI report showed a surprising moderation in prices that helped spur a rebound in stocks. That rally has since faded with Fed chair Jerome Powell warning that the Fed's single-minded fight to tame inflation could lead to economic pain. On an annual basis, CPI increased by a weaker-than-expected 8.5 per cent in July, with the inflation gauge coming in flat m-o-m. Early estimates for August call for a 0.1 per cent decline on a monthly basis, but wild cards such as volatile energy prices are keeping markets on edge.

In the UK, the Bank of England has just postponed its meeting, originally scheduled for 15 September, to 22 September, following the death of Queen Elizabeth. Current market expectations are of a 50 basis points raise in interest rates, normally considered a huge increase, but less than the 75 basis points rate hike that markets had been betting on increasingly until a few days ago.

Policymakers will have a few more data points that are scheduled for release to chew over before then. Data on Monday showed Britain's economy grew by less than expected in July when it expanded by 0.2 per cent from June. The latest job market readings are due on Tuesday and August inflation on Wednesday.

During last week’s monetary policy meeting, the ECB raised rates by 75bp and substantially raised their inflation forecasts, in line with expectations. The revision in inflation forecasts was driven by the rally in gas prices experienced in August. 2022 and 2023 inflation forecasts climbed to 8.1 per cent and 5.5 per cent, respectively, whilst growth forecasts were revised down to 3.1 per cent in 2022 and 0.9 per cent for 2023. All revised forecasts were in line with market consensus, with the exception of the 2023 inflation forecast, which came 70 basis points higher than what market expects, suggesting a more hawkish tone for 2023.

A hawkish ECB so far failed to reverse Euro weakness, as shallow hikes and negative real rates seem to be capping it for now. A potential fix for the Euro could come from a sudden move higher in real rates or something else, which would most likely come from the energy plan or fiscal measures aimed at protecting the economy from the energy fallback. In terms of rates, this inability to move the Euro might mean  that more hikes are to come.

Meanwhile, a downside surprise on Chinese inflation data on Friday cheered markets because it seems to afford policymakers plenty of room to ease and help boost a flagging economy.

But loan figures out shortly afterward pointed to the dilemma: who wants to borrow in a downturn? Loan growth is scarcely budging, and a meagre rise in August was below analysts' hopes. The central bank has already flooded the system with cash, without improving confidence, since there is no clear path out of a deepening property crisis or Covid-19 lockdowns.

More help has been promised, but is yet to meaningfully arrive, leaving the Hang Seng index lingering near major lows and the yuan close to a two-year trough. Data on industrial production, house prices and retail sales due on 16 September should give m indications on the state of the world's second largest economy.


Affinity Research LLP

what we do

  • Carbon

    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

    Dry Cargo

    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]
    Contact: Rahul Khanna
    [email protected]

    LNG

    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

    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

    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

    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

    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

    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

    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.

    Contact: Ben Pusey
    [email protected]
    +44(0)20 3142 0125

    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

    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]
    +61 418 448 677

    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.

    Contact: Ben Pusey
    [email protected]
    +44(0)20 3142 0125

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