Monday March 18th
Eurozone inflation for the year to February was confirmed this morning at 2.6%. Despite what European Central Bank policy makers might tell you, that’s as near as makes no difference to their 2% target. The fall in inflation over the past year or so is in no small part down to a collapse in energy prices, particularly those for natural gas. Putin’s weaponisation of energy prices simply hasn’t worked. That said, gas prices have been staging something of a rally in recent days, up again another 5% this morning. For context, those prices peaked at over €300 per megawatt hour back in the summer of 2022 and are currently trading at around €28-€29/MWh today, having been as low as €22 as recently as three weeks ago.
The recent rise in the gas price has been driven by many factors, including increased demand from Asia for liquid natural gas (LNG) , repairs to a major LNG plant in Texas and lower than normal wind speeds in Europe for the next week or so. One important factor has been the multiple Ukrainian drone attacks on Russian energy refineries adding to supply worries for oil as well as gas - oil prices are creeping up as well. Ukrainian news agencies are reporting that 12 Russian refineries have recently been successfully attacked, the latest the one at Slavyansk over the weekend.
It’s also the case that the world economy might just be doing better than expected so far in 2024, adding to supply/demand revisions. The International Energy Agency last week changed its assessment for global energy markets this year, flipping form forecasting an energy surplus to expecting a small deficit. OPEC production cuts and that stronger world economy were the drivers there.
Tuesday March 19th
North Korea’s official news agency has released pictures of the latest test of ‘super-large multiple rocket launchers’, including a snap of Kim Jong Un ‘supervising’ the exercise. According to Bloomberg, the rockets were probably 600 mm ballistic missiles, a weapon that Kim has already supplied to Russia. South Korea’s defence minister said it wasn’t clear whether Pyongyang was testing for its own military purposes or advertising the missiles capabilities in the hope that Russia will buy some more.
Minister Shin also said that North Korea has sent 7000 shipping containers to Russia. That’s enough capacity for 3 million 155 mm artillery shells, although a diverse range of munitions is likely to have been shipped, including those ballistic missiles. In return, Russia is sending food, basic materials and high tech components for weapons manufacturing. Bloomberg suggest these imports represent the largest boost to the North Korean economy since Kim took power. His ballistic missiles are said to be highly accurate, have already seen a lot of action in Ukraine and have attracted the interests of buyers around the world.
As news from Ukraine, Gaza and Korea just seems to get worse, it seems perverse of financial markets to be so unconcerned. Bond markets get far less publicity than their stock market cousins - but are orders of magnitude more important. The stability displayed by bonds in recent weeks and months is truly remarkable when we consider the apparent threats faced by the world economy. And stock markets are not only just as stable as bonds but are either at or close to all-time highs.
Donald Trump as the next President has promised a global trade war via an immediate tariff of 10% on anything imported into the U.S. He has pledged to implement ‘phase 2’ of his tax cutting program at a time when America’s budget deficit is already scarily large.
Financial markets are either having a ‘summer 1914’ moment - completely mispricing risk - or are telling us to relax.
Wednesday March 20th
One of the relatively minor aspects of wars is the way historians attach dates to them. Occasionally, the First World War is dated 1914-19 rather than the more conventional 1914-18. The Hundred Years’ War actually lasted for 116 years. If you Google ‘Sudanese Civil War’ the results suggest three different wars over various periods from the 1950s to the present day. Wikipedia helpfully suggests four other wars that might be considered civil but are separate (sort of) from the three civil wars proper. Tens of thousands of people have been killed or injured in these Sudanese wars, the latest of which has been labelled by some analysts as ‘the forgotten war’.
These days wars have to complete with Gaza and, to a much lesser extent, Ukraine to get much attention. Officials in Kyiv lament the way the oxygen of publicity has been sucked out of their war by events in the Middle East. Imagine how innocents caught up in Sudan’s interminable conflicts feel.
Names like Khartoum and Omdurman evoke memories of long ago campaigns featuring the British army. A BBC team of journalists has reached Omdurman, close to the current civil war’s front line. The city, Sudan’s second largest, looks, in part at least, like a wasteland. Perhaps all bombed out cities share similar characteristics, superficially at least, but it is hard not to look at the pictures from Omdurman and wonder where are the protest demonstrations through central London and elsewhere. Civilian survivors of recent battles tell stories of torture and gang rapes by militias. Millions have been displaced and are said to be food insecure.
Another British journalist was present at another battle for Omdurman, 126 years ago. Winston Churchill witnessed a fight with around 50,000 poorly armed Sudanese tribesmen who were defeated by the British army (with help from Egyptian soldiers). It was one of the first examples of the power of mechanised warfare (machine guns versus spears) and the importance of access to latest military tech. The British forces routed an army that was at least twice its size.
Thursday March 21st
Houthi attacks on shipping in the Red Sea have led to many vessels taking the long way around Africa. The vessels still willing to risk being hit by Iranian-made missiles have a tendency to be older and, sometimes, have murky provenances. A Bloomberg News investigation of 10,000 ships using either the short and long route makes for interesting reading. Vessels that are older than average and ones with murky insurance details are mostly not going via the Cape of Good Hope. These ships are, for various usually classed as ‘higher risk’ by the maritime industry.
One oil tanker CEO is quoted saying, “All the reputable owners are avoiding the Red Sea and the Suez Canal”. Official advice from the maritime authorities is for ships who make the dodgy journey to turn off any electronic tracking systems that could be of assistance to the Houthis.
The Rubymar is the ship actually sunk by the terrorists. Around 70 vessels have received some sort of Houthi threat, including ‘sightings’, near-misses or hits by missiles. That sunk ship has been leaking fuel and there are environmental concerns about the fate of its cargo, 21,000 tonnes of ammonium phosphate. The Rubymar was attacked because the Houthis consult public databases about who owns and operates the ships - those information sources are often out of date and incorrectly suggested to the terrorists that the Rubymar was connected to either the U.K., US, or Israel. The ship dropped anchor after being hit, which then dragged, and cut undersea telecommunication cables. Those wires connect Asia with Europe and have yet to be repaired.
The Polish President has stated in an interview with CNBC that Russia is preparing for war with a NATO country by 2026 or 2027. Any East European leader worried about Russia might be tempted to cry wolf but all of Putin’s post ‘election’ actions have been consistent with a militarised state with an economy on a permanent war footing. Putin has even been warning his siloviki - businessmen with Kremlin contacts and oligarch level ambition - that they are going to contribute more in taxes and other ways.
Friday March 22nd
The White House is reported to be trying to persuade Ukraine to stop drone attacks on Russian oil refineries. The big fear is that world oil prices will be driven higher in election year. Some Americans are already paying over $3 for a (US) gallon of gas and this is said to be damaging Joe Biden’s chances of reelection. All those people worrying about his age, high US interest rates, inflation and Donald Trump should all relax and focus on keeping Russian oil flowing. Those of us who thought sanctions were aimed at hurting Moscow’s oil revenues need to check our naivety. Sometimes it’s hard to resist the temptation to concede that Putin has a point when he talks about Western decadence and hypocrisy.
The typical price in the U.K., Ireland and most of Europe for an equivalent gallon of petrol is north of $7. Oil prices have ticked up bit recently - Brent crude currently sits at around $85 per barrel, up from $72 this time last year. But current prices are pretty much unchanged compared to 15 years ago. The oil price is volatile and driven by a multitude of factors. High(ish) current prices are most likely caused by OPEC output restrictions and a surprisingly strong start to 2024 for the world economy. Damage to Russian refineries is not high up on anyone’s list of important drivers of the oil price.
A Russian poet last year posted a four line poem on his Facebook page, criticising the war in Ukraine. He has now been given a seven year jail sentence for his offence. Also yesterday, Russia’s defence ministry announced that artillery production has more than doubled since the war started and mass production has started of 3 tonne Fab 3000 bombs - not the most technologically advanced piece of kit (it has its roots in the 1940s), but merely big beasts of explosive ordnance.
The terror attack in Moscow looks to be the work of a branch of ISIS but Putin is making an attempt - somewhat half-hearted it must be said - to blame Ukraine. The FSB (the KGB’s successor) will also be searching for anyone to blame but itself, given that Western intelligence clearly knew more about the threat level than they did.
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