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Affinity Policy Comment 14 October 2024

Sticking The Landing

Early indications suggest that the Fed’s 50-point cut was the right call, while China continues to battle deflation and poorer countries tackle debt.

Following the Fed’s decision to aggressively cut interest rates by 50 basis points in September, inflation also cooled last month, falling from August’s 2.5 per cent to 2.4 per cent. Yet, with jobless rates rising and inflation still coming in higher than the anticipated 2.3 per cent, markets are pricing in a further 25-point cut at the Fed meeting next month at around 90 per cent.

The number of Americans who filed for unemployment insurance rose by the highest weekly figure since August 2023, totalling 258,000. Unsurprisingly, the Trump campaigners jumped on the data, claiming with typical Trump rhetoric that, under Harris’s stewardship, the US economy would “nosedive into the worst depression this country has ever seen”.

It appears that US inflation is now largely under control. Lael Brainard, director of the White House National Economic Council, has said that the latest data is in line with the pre-pandemic and pre-Ukraine war trend. And, although the number of Americans applying for unemployment insurance rose, the overall unemployment level fell to just 4.1 per cent, reversing several months of rises. Far surpassing expectations, businesses added 254,000 job positions in September, and a soft landing is looking more and more probable.

And, over in the world’s second-largest economy, there is also a growing sense of optimism, albeit one that requires consolidation.

On Saturday, Beijing sought to calm investors after a stock market sell-off last week by laying out plans for how it intends to offer further support to the economy. Last week, state planners did not deliver any details on further fiscal support at a press conference, triggering a 7 per cent slump in stocks on Wednesday.

But on Saturday, the finance ministry moved to allay fears, with Lan Fo’an, the Minister of Finance, unveiling plans to issue more debt, recapitalise banks and help cash-strapped local governments. Lan also said, “Our countercyclical adjustment goes far beyond what I have mentioned. The central government, when it comes to increasing the deficit and increasing debt we have significant room.”

Local government will be able to buy back both idle land from developers and unsold new homes, which number millions. Low-income earners and students would also receive more support, said Lan. He did not, however, put a figure to any of the measures, meaning that some are still wary of the scale of Beijing’s intervention.

On Sunday, Lan’s announcement was undermined somewhat after new data revealed that deflation remains a very real problem, amid weaker-than-expected consumer and factory prices last month. China’s CPI rose by just 0.4 per cent on the year in September, weaker than the 0.6 per cent both in August and predicted by a Bloomberg poll. The producer prices index fell by 2.8 per cent, higher than the 2.6 per cent predicted. It was a sharp acceleration from 1.8 per cent in August and also the steepest fall in six months. It is clear that household confidence in China is low and Beijing’s priority will be to boost domestic demand.

Economists expect China to have again fallen short of its 5 per cent annual growth target in Q3, after falling short at 4.7 per cent in Q2.

But it is clear that Beijing is determined to get China’s economy back on stable footing, with further announcements now expected. President Xi Jinping will be determined to restore confidence in the economy to attract investment, meaning that further measures will almost certainly follow. It has been estimated that China requires a further CNY 10 Tr (USD 1.4 Tr) of further stimulus support over a period of two years to “reflate” its economy.

This means that an invasion of Taiwan is incredibly unlikely, despite Chinese military drills encircling the island on Monday. In its latest attempt at intimidation, the war games are simulating an invasion of Taiwan for the second time this year, triggering a condemnation from the Taiwanese government and its own military taking up positions. In May, China conducted similar drills, which were in direct response to William Lan being sworn in as the President of Taiwan. This time, they are in response to a speech Lan gave last week saying that the Taiwanese government would never accept Chinese control. He has been labelled by Beijing as a “separatist” and “troublemaker”.

The US has said that it is monitoring the situation closely, condemning the drills. This also drew a barbed Chinese response, calling on the US to stop arming Taiwan and to respect the “One China” policy.

Meanwhile, elsewhere, S&P Global Ratings has warned that poorer countries are struggling under significant debt burdens and high borrowing costs. Numerous countries are struggling to service their debts, and the high borrowing cost environment means they have don’t have much access to capital.

As a result, sovereign defaults will inevitably increase over the coming years. Recently, Kenya and Pakistan, among others, have only managed to avoid defaults because of bailouts from the IMF and other loans, while Ghana and Zambia have only just recently exited default. Sri Lanka’s government is expected to soon finalise its own exit, while Ukraine has restructured more than USD 20 Bn of debt.

Argentina and the Maldives are next in the firing line, with significant debt maturities compared to reserves next year. Argentine president Javier Milei has said that his country can find the US dollars required to pay off the USD 11 Bn of foreign bond payments due next year, while also approving a decree that allows maturing debt to swapped into new debt at market interest rates without prior legislative approval.


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    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.

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    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
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    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

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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.

    Contact: Tim Gurdon
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    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

    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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