A Sleeping Bull in a China Shop

Sleepy Joe may have confirmed Kamala Harris as his running mate for the US Presidency, but there is another sleepy factor lurking in the background, ready to bring either fireworks or a quiet slide into obscurity towards the end of this year. The world has endured a period of huge upheaval. From the virus outbreak at the start of this year to the populist politics of leaders like ‘Swampy Don’ Trump and Viktor (autocratic throwback) Orbán, recent history won’t be written in a chapter titled ‘Stability’, that much is certain.

Some markets have taken this summer period for an excuse for a break. After all the excitement and unprecedented movements of the first half of this year, any excuse for a pause and a siesta has been grabbed before a return to tackle the back end of 2020.

This is true of the freight and oil markets, with prices rangebound and not doing anything particularly exciting. A week ago, Brent closed the week around $44.77 and at the time of writing we are at a staggeringly different $44.27. High sulphur fuel oil prices have moved a measly $2-4, and VLSFO prices have moved $4-6. In a week where the UK Government reversed its decision to downgrade some 40% of A-levels examination results, fuel and oil have definitely not been the biggest movers of the week.

The dry freight market is similarly static, with the 5TC average at $19,693 a day versus $19,204 last week. Panamaxes ground out a small gain of a thousand bucks on the 4TC, but generally the easing of congestion has been counteracted by increases in cargo.

The wet freight market is current as riveting as the rest, with spot at close of the week on TD3C at WS32.75, current pricing at WS32.71. However there has been a bit of life in the fertiliser markets, with urea pushing up off the back new tenders from India and China. This pushed the AG market up to $285 for Sep but resulted in more muted trading as the market cooled back down to $272.50.

The only antidote is copious amounts of coffee and a decent book to get you through this period until the possibility of some fireworks. There is also the option of getting involved in the iron ore, silver and gold markets, which will definitely bring you more excitement, but leave you blinking more in bewilderment than genuine interest.

Underneath the soporific surface outlined above there lie slowly forming factors that could run riot in Q4. Like a Chinese finger trap that has been set on fire, it’s either going to be a quick exit or a slow burner.

Lots of underlying factors have the potential to blow up later this year. Be it the Chinese economy struggling to recover to pre-crisis levels, the commitment of Vale to produce an extraordinary volume of ore from Brazil, or the US-China diplomatic spat, a piss-poor Brexit deal brining cross channel trade to a standstill, military tension in the South China Sea, a contested US election, Fed interest rate changes, to name a few, so many pieces are now quietly in action ready to pounce, should the opportunity arise.

It’s not just a question of if, but also of when. Will the bull in this particular China shop wake up in a good mood and simply cause some superficial damage as it exits the shop, or is this going to be a rage-fuelled session of uncreative destruction? Who knows, but don’t let the summer lull fool you into imagining there’s nothing going on.

Source: FIS

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