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Affinity Policy Comment 15 april 2024

Rising Hopes

The increasingly hopeful economic story of 2024 so far is that of a world headed for a soft landing. The reasons for short-term optimism are plain. A resilient US economy has defied expectations that the Federal Reserve’s barrage of interest rate hikes would induce a recession. The UK, which dipped into a downturn at the end of last year, is already growing again, and Germany’s industrial sector is showing signs of a turnaround.

Even in debt-hobbled China, domestic tourists spent more per trip over the Lunar New Year holiday than in 2019 for the first time since the pandemic, and the nation’s factories are humming a little more loudly.

The upturn has come fairly late compared to signals from some leading indicators, which could be due to some interest rate-sensitive sectors, such as construction and energy-intensive activity, taking a bigger and longer hit this time relative to other manufacturing. That seems to be the case in Germany where energy intensive production has clearly underperformed. But, with financial conditions easing, we may finally see some improvement here as well.

In the US, the March CPI report triggered a meaningful re-pricing in global interest rates. The report showed acceleration in core components for the third consecutive month, challenging the notion of Federal Reserve cuts in 2024. Quarterly annualised core inflation in March was 4.6 per cent, and supercore, which excludes also housing costs, almost 9 per cent, very far from easing levels.

Rates markets reacted by erasing cuts priced on the curve: 2-year Treasuries widened by 25 basis points to almost touch 5 per cent. The US curve now prices no cut in June, two cuts in 2024 and a terminal rate of 4 per cent to be reached in 2027.

Markets fallacy in the previous months was to assume too much easing too quickly, seemingly without paying attention to the hard data. As such, the latest repricing can be deemed “healthy”, while further strength in data has the potential to take out even further cuts out of the curve.

In the EU, the ECB held rates but changed its guidance, pointing to a cut in June conditional on the economic data playing along. Most importantly, Lagarde confirmed the ECB can diverge from the Fed, amid market concerns of delayed cuts post US CPI.

The statement acknowledged easing underlying inflation, moderating wage growth, restrictive financial conditions, but also continued elevated domestic pressures. Some members already wanted to cut at this meeting, giving the meeting an overall dovish spin. Following the meeting, markets raised their odds for a June cut from 80 per cent to 90 per cent, and the total amount of cuts for 2024 from 0.75 per cent to 0.85 per cent.

This buoyant narrative will be reflected in what are expected to be upgrades to growth forecasts for most major economies by the IMF during this week’s spring meetings in Washington. Bloomberg Economics now expects the global economy to grow 2.9 per cent in 2024, up from a 2.7 per cent forecast at the end of 2023.

However, there are tentative signs of slowing momentum showing up in the second half of the year. The growth rate in Asian exports has started to taper off and the order inventory balances have also rolled over, suggesting that the lift from the inventory cycle is set to fade on a three-to-six months horizon.

Finally, US goods consumption has had a weak start to the new year after a decent run in the second half of 2023. It broadly fits with some economists’ expectations that the manufacturing recovery is not the beginning of a new boom, but that it will peak at a lower level than normal and probably also have a shorter duration.

Of course, it could turn out that the softer Asian export data lately is just a pause in a further upward trend. That will also depend on how much monetary easing central banks are prepared to implement. If inflation suddenly drops faster again, there could be more easing and thus more support to growth.

And European consumers’ recovery might come out stronger and add to goods demand or that the bounce-back in energy-intensive production is stronger than expected. But for now, it is easier to lean on the theory that the manufacturing upturn should be of a milder nature than the normal recovery and that there should be some moderation again going into 2025.

Looking at currencies, improvements in the global manufacturing sector, coupled with easing financial conditions, typically create a positive environment for the US Dollar. However, this scenario could put some countries in a tight spot – Japan is already into one with the US Dollar currently at its highest against the JPY currency since June 1990, with markets alert to any signs of intervention from the Japanese authorities to prop up the JPY.

The decline in the JPY comes amid a broadly stronger US Dollar underpinned by economic data that has pushed out the expected timing of the first Fed rate cut to September from June and escalating tensions in the Middle East.


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

    Containers

    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

    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.

    Affinity Valuations Limited Terms of Business

    Contact: Stuart Morrison
    [email protected]
    +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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