By Michael Every of Rabobank
“Prepare For Impact”
This is not a Friday brimming with positive developments, to put it mildly. However, at time of writing Asian stocks were following US futures higher on what looks to my jaded eye to be nothing more than a good key earnings report. Here’s a Friday thought: perhaps we should dump all our chattering economic data and burbling/shilling financial reporting and just have the earnings and share price of one firm as a proxy for everything everywhere, the apotheosis of the agglomeration that globalized financial capitalism drives: but why am I even saying “perhaps” when one reads all the rest of the news that apparently doesn’t matter?
For example, US natural gas prices leaped 72% overnight before retreating. Thin markets, yes, and a short squeeze into options expiry. Regardless, hardly the kind of calm trading in a key commodity that already-rattled markets wanted to see. And hardly a bearish price signal.
Moreover, the Fed might go 50bp in March to get ahead of market expectations and prove that it is still capable of taking its official inflation mandate seriously, mutters a Bloomberg headline. Expect markets to then cling to the meme that if the Fed goes 50, it will mean they don’t then have to keep going 25. Which makes no real sense given we are talking about supply-side inflation the Fed isn’t in control of anyway, at which point the conversation will jump back to agglomerated globalized financial capitalism’s next earning report.
For cryptonites, the US is to regulate Bitcoin and other crypto assets over “national security”, says Barron’s. The White House apparently won’t issue recommendations, but all related government agencies would be given three to six months to come up with proposals, with the White House acting as a policy coordinator. Some will say this is bullish, because: 1) it might give the assets a seal of approval; and 2) it might thin out the competition in a market in which you can create a new ‘currency’ overnight. Both are logical. Yet so is scrutiny of everything crypto then does, and taxation of every transfer, which means it won’t be able to operate at the scale required to ever emerge as a day-to-day rival to state-backed fiat currency and their more efficient, untaxed payment systems. How many times has this Daily warned that while it’s a wonderful feeling to give The Man the finger, The Man has four of his own, and a thumb, and clenched into a fist? (On which note, GameStop fun and games and meme stonks madness was a year ago this week: and RobinHood is today looking a far less merry man.)
Still being underplayed by markets, US President Biden called Ukrainian President Zelensky and reportedly told him to “prepare for impact” as Russian invasion is “inevitable” in February once the ground freezes, and Kyiv might be “sacked”. Many journalists have been leaked details of this call from both sides, and there is disagreement on what was said over the probability of war. Some report it was not stated as “inevitable”, just “virtually certain”; another only “a distinct possibility”. Most agree the call was “tense and difficult”, and that Zelensky disagreed with the US assessment. The Russian foreign ministry has also just stated war with Ukraine is “impossible”. Logically, somebody is either being dishonest or is very badly informed – and either option on either side is of concern for markets given war would imply something similar to what we just saw in US natural gas prices.
On the geoeconomic front, China has been given permission by the WTO to impose retaliatory tariffs on the US. Expect these to now be used as trade war weapons aimed at disarmament. Which we have a lot of right now, and not going well. Also expect fury against the WTO from some in D.C., even if they aren’t running things now. Meanwhile, the EU are to proceed with a WTO case against China over the latter’s actions against Lithuania, saying that Beijing’s actions threaten the integrity of the single market, with even the German Federation of Industry backing this action. China says it is following all WTO rules: Europe says deleting Lithuania entirely because of a political/foreign policy decision is not one of them. Of course, nothing will happen quickly on this front, but it again shows more trade/geopolitical tensions ahead.
It also shows that German Chancellor calling people in Brussels saying ‘Don’t do it’ didn’t do it, which speaks to shifting intra-EU power dynamics: and both global tensions and shifting intra-EU power are evident in French President Macron calling an Indo-Pacific summit on 22 February that has invited everyone from Japan, India, and South Korea through to Comoros and Micronesia – except China!
Potentially the second most significant news after the “inevitability” of war was this shipping headline: “US to get an open register based out of the Virgin Islands”. 2021’s ‘In Deep Ship’ focused on the geopolitical drivers of the global shipping/supply-chain crisis and, by looking at maritime history/grand strategy, proposed logical US actions as the ‘ship of things to come’ if it wanted to match its military control of the oceans with commercial power:
- Raise tariffs
- Use the US market to force global carriers to change pricing/practices to its benefit
- Build a rival to China’s marine Belt and Road with others
- Force vessels to re-flag to the US
- Build a new US merchant marine
- Refuse to take goods from some carriers or ports
- Charter private firms to bring home key materials (i.e., privateering); and
- The US Navy stops protecting certain sea lanes, forcing cost onto others
We already saw #1 a few years ago; the Ocean Shipping Reform Act before Congress addresses #2; there is a lot of talk about #3; and the headline above now speaks to #4.
The rationale for the new US shipping flag/registry is firmly aimed at the established biggest names in the business, noting they have grown too large for true compliance oversight:
“50% of the ships that traverse our international waterways are registered in just three jurisdictions –Panama, Liberia, and the Marshall Islands– where loosely enforced regulations and lack of due diligence and oversight has created enormous risk to the US and global shipping industry and facilitated illicit activity on the high seas.”
It seems the US will soon ‘incentivise’ vessels to reflag to where they can be better regulated – to US needs/purposes. Having a regulatory hand on the maritime wheel is a necessary but not sufficient condition to take back control of supply chains. Also note this comes at a time when the US already admits it couldn’t fight a major war if it needed to as it couldn’t get the military cargo to do so there via Sealift.
Lastly, the UK is still waiting for ’50 Shades of Gray/Cake’ to decide the fate of PM BYO. And Italy is still unable to decide on a president: what happens constitutionally if we stay in this limbo forever? (I am asking for a friend.)
Happy Friday – and prepare for impact.
