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Affinity Policy Comment 25 March 2024

Coming Down The Mountain

Dulcis in fundo; the time for central banks to make an orderly retreat from the high interest rates they imposed to fight inflation has arrived. Or has it?

The Swiss National Bank (SNB) kicked off the cutting cycle amid “developed economies”, surprising markets by lowering rates by 25 basis points to 1.5 per cent. The cut had been rated at only a 30 per cent probability by the overnight index swaps market before the announcement, so it must be chalked up as a big and positive surprise.

Swiss inflation is projected to be between 1.1-1.4 per cent between 2024 and 2026, and thereby well within the inflation target range of 0-2 per cent. Given the quarterly pace, the SNB chose to front-run the ECB ahead of its expected June cut. The Bank of England made mini steps towards easing policy, voting 8-1 for keeping rates unchanged. Most notably, hawkish MPC member Catherine Mann no longer voted for hiking rates, signalling that the core of the committee is also shifting into a more dovish direction.

The Federal Reserve held rates as expected and upgraded its projections to reflect higher growth and inflation, and fewer rate cuts. Growth in 2024 was revised from 1.4 per cent to 2.1 per cent, while core PCE was lifted from 2.4 per cent to 2.6 per cent. The Dot-Plot kept three cuts in 2024, but erased one cut each for 2025 and 2026. The estimate of long-run neutral rates rose marginally from 2.5 per cent to 2.6 per cent, after having been unchanged since 2019. Keeping three cuts in 2024, despite higher growth and inflation, was taken dovishly by the market, with 2-Year Treasury yields falling by 7 basis points after the release.

Add these developments to the studied lack of concern that Federal Reserve Chairman Jerome Powell showed about annoyingly high US inflation figures, and there’s an argument that the global descent has started. But there were also moves in the other direction.

Taiwan’s central bank announced a rate hike that blindsided markets. In Bloomberg’s regular poll of economists, none of the 27 surveyed had predicted it. The surprise move brought rates to their highest since the Global Financial Crisis year of 2008. Taiwan isn’t much of a guide to the rest of the world, but it only perpetrated a “mini-hike,” raising rates by 12.5 basis points to 2 per cent from 1.875 per cent. And, unlike much of the West, inflation has risen recently. Even after the hike, Taiwan still has negative real rates, with inflation a full percentage point above the policy rate.

In Turkey, the target rate went up by five percentage points to 50 per cent. Nobody expected that, given Erdogan’s two-year campaign of rate cuts started in 2021 based on an intriguing yet economically disastrous theory that higher interest rates increase inflation, and that the way to bring prices down was to cut rates. The latest move was widely welcomed by markets and interpreted as showing that monetary officials have restored a strong measure of independence from the presidency.

The week began with Japan’s first rate hike in 17 years, a move unexpected until later in the year, thereby concluding this hiking cycle by being the last central bank to hike. Nonetheless, the hike was delivered in a dovish way, with Ueda emphasising accommodative policy to stay, resulting in the USD/JPY rising back above 150 quickly.

In other news, resilient demand has allowed global trade to pull off a rebound in the face of continuing supply chain disruptions, according to Bloomberg’s Trade Tracker.

Setting aside Russia’s sudden decoupling from European trading partners and the slow unravelling of the US-China relationship over the past few years and globalisation is holding up just fine. That’s among the conclusions in the 2024 edition of the DHL Global Connectedness Report released earlier this month.

While commerce between the two largest economies is diminishing, the report found that there are no dramatic recent shifts by close allies of either the US or China away from flows with the rival superpower and its allies.

Only two out of 10 indicators in Bloomberg’s trade dashboard were in “below normal” territory in March - German sentiment and Hong Kong container throughput - its best reading since at least the end of 2022, when the post-pandemic recovery boom was in full swing.

The latest improvement was driven by healthy exports performance out of trade bellwether Taiwan, buoyed by stronger demand for electronics. The outlook also brightened among US firms as new export orders expanded for the first time in 19 months.

Shipping volumes in LA and Singapore even climbed to above-average territory in February, despite escalating violence in the Red Sea that’s keeping logistics costs elevated.

Europe, however, remains a laggard. While global manufacturing finally ramped up in February, data showed output for the Euro Area and the UK remained in contraction territory. German firms in particular remain deeply pessimistic.

The green shoots of recovery are a welcome sign amid warnings from the World Trade Organisation that global commerce may come in weaker than expected this year, hampered by the choke points in vital shipping arteries. Sticky inflation in developed markets has also kept the much-anticipated lowering of interest rates at bay. However, it looks like the situation could turn for the better in the second half of the year.


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  • 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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