As we move past seven weeks in lockdown in the UK, and China, along with lesser affected countries like Germany, start to ease their virus-controlling measures, the worry out there this week has been about the potential for a second wave. By this we don’t mean a revival of French cinema’s grappling with social and political upheaval, but rather a new spike in infections as countries and economies open up to the world.
Markets had generally been recovering since the announcement of the relaxing of state restrictions across the world, with Brent climbing above $30 and iron ore continuing its strangely bullish moves, pushing spot on the 62% contract to $90.15 in the middle of this week. However, those countries first to be hit (and therefore the first to relax measures) are now seeing a new set of infections.
The origin of the virus – Wuhan province – has announced drastic measures to test the entire 11 million inhabitants of the region to help combat a further outbreak, but it seems that most of the rest of the world is relying on hope that the wave doesn’t arrive in force, rather than making sure it doesn’t.
This has put the handbrake on upwards price movements, as a cautious sentiment invades the consciousness of traders awaiting the time of the much-talked-about v-shaped economic recovery. Former Bank of England head Mervyn King has already poured cold water on an ‘inevitable’ instant recovery, and it seems much of the trading world has bought into the same philosophy. The Dow Jones is hovering around the 24,000 level and Brent is struggling to push much above the $30 mark. Much of the future movement will rely on whether the good news continues, otherwise we are going to be doing donuts on the highway to negative prices again.
A second wave of bearishness has washed over the Dry FFA market, as the news of the decrease in Vale ore exports has seen Capesize spot do a Wiley Coyote cliff drop, holding a sign saying, “not again…” before slamming into the floor with a comic mini mushroom cloud. The spot 5TC average has fallen some 53% in the last week to $2800 levels, and it doesn’t look like any quantity of ACME equipment is going to get it up again anytime soon.
Wave goodbye to air freight rates too as the sector is roiled by a total collapse of its demand base. Cargo freight is still just about holding up rates on the China to Europe route at around a 240% premium, but the collapse of the passenger business is going to potentially cause the closure of many airlines.
This hasn’t necessarily been a second wave, but more a continuous coastal bombardment of bad news for an industry desperately trying to restart normal operations.
So it looks like we could be for the large part stuck indoors endlessly watching reruns of À bout de Souffle and Vivre sa Vie, which will please Jean-Luc Goddard fans, but won’t be music to the ears of anyone hoping for a quick recovery.
Markets overall are looking quietly positive, but it won’t take much to knock down this house of cards, and we will be back to square one on the coronavirus rollercoaster of when things will turnaround for the good.
Source: Freight Investor Services (FIS)