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A New Gas Deal in Libya, Egypt’s Looming Challenges, and Fiddly Fingers Caused the NYSE’s Wild Tuesday

A New Gas Deal in Libya, Egypt’s Looming Challenges, and Fiddly Fingers Caused the NYSE’s Wild Tuesday

March 11, 2023 • Time to Enlightenment...9 minutes

Good morning.

ENI is about to sign a new gas deal with Libya which is good news but adds a fraction of what the EU needs. Fiddly fingers (that’s a technical term – look it up) caused Tuesday’s wild opening on the NYSE while it was Microsoft’s turn on Wednesday.

Meanwhile, several recent stories about Egypt bring the combined challenges of what prices, inflation and sovereign debt info focus. These same conditions exist in many countries so the stories are worth reading to get a sense of what’s going on in frontier markets.

Coverage and Analysis

New Gas Exports From Libya

Italian energy firm ENI will sign a new deal with the Libyan government in Tripoli this weekend, to open up a new gas reserve in the Mediterranean. The field should eventually produce 850 million cubic feet of gas a day, an over 50% increase in daily exports. The gas will primarily flow to Europe via the Green Stream pipeline into southern Italy. This will be welcome news in Europe, increasing the amount of non-Russian gas available to the continent. However, Russia was supplying around 10 billion cubic feet per day (Bcf/d) just prior to the invasion of Ukraine so there’s still a lot of ground to make up.

Russia’s natural gas exports to the EU from the EIA (EIA.gov)

This move does seem to indicate some confidence in ENI that there will be a sufficiently stable climate in Libya for the work to go ahead so that may be a positive signal for what lies ahead. See Bloomberg for more.

A “Manual Error” Caused The NYSE Wild Open on Tuesday

The NYSE released a statement into Tuesday’s start which caused massive fluctuations in some key stocks and led to over 1,300 trades having to be rewound. In its statement, the NYSE explained, “The root cause was determined to be a manual error involving the Exchange’s Disaster Recovery configuration at system start of day.“ So nothing nefarious or sinister but still a reminder of how complex and fragile some big systems are.

I’m sure a lot of people who’ve read this story will have broken into a cold sweat – I’ve certainly committed many manual errors in my time. (I’d better check in on Chad…) Read the full NYSE statement here.

Egypt Illustrates Inflation, Bread, and Sovereign Debt Challenges Many Face

Some recent stories from Egypt provide good summaries of the difficulties that many countries in the Middle East and elsewhere are facing. Rising wheat prices, local and global inflation, and tough loan conditions from the IMF are all coalescing in Egypt at once, but many other countries are in similar positions or have similar conditions brewing.

‘Inflation Is So High in Egypt That Eggs Are a Luxury’ in the NYT ‘Egypt’s pound plunges to historic low with IMF deal’ in Al Monitor

As background, I wrote a deeper dive into sovereign debt issues that might arise in 2023 here

On to the numbers

(Still not sure of how to use these metrics in your risk analysis? There’s a cheat sheet at the bottom of the email but the user’s guide is here. Want to know more? Read the white paper.)

Relative Values (90-Days)

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Trends (21-days)

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Commentary and Evaluation

Brent Crude

(No change) Brent Crude remains mid-range for this 90-day interval. Prices increased moderately over the last 21 days after significant fluctuation.

What to Watch

(No change) Market commentary and analysis vary wildly about what oil will do in 2023 and the broad analysis I shared earlier holds for many: ‘prices will peak around $95 with an average of around $90, a drop from previous 2023 estimates which reflects a gloomy outlook for the year’. See Reuters for more

However, within that range, the opportunity for significant movements remain and China’s plans for a great economic boom are leading some to forecast oil moving up as high as $110 by Q3. The exact number is less important here than the reinforcement of the idea that China’s reopening will kick in soon and will lead to significant increases in demand for oil as well as other commodities by mid-year.

Iran remains worth watching as their motivation and ability to inflame tension in the Gulf remain.

Talk of the rise of the petroyuan in 2023 is overblown. See this update for more.

Iron and Steel

(No change) Iron and Steel remain very high for this 90-day interval. Prices increased moderately over the last 21 days after slight fluctuation and continue to creep up. (Note that the Iron and Steel index is on the Taiwanese exchange, which is closed for lunar New Year so these values are from January 17.)

What to watch

(No change) The Chinese construction and manufacturing boom that many expected in 2023 is off to a very unsteady start as COVID spreads rapidly after December’s relaxations. Sectors that had struggled under the strict COVID restrictions are suffering just as much in the current laissez-faire environment. This is temporarily delaying the expected economic boom but many analysts expect things to take off in late Q1 meaning that demand for oil, shipping and commodities will all rise significantly thereafter. See Bloomberg for more

Market Volatility (VIX-US)

Market Volatility (VIX-US)

(No Change) Market Volatility (VIX) remains very low for this 90-day interval. The index decreased sharply over the last 21 days after significant fluctuation.

What to Watch

(No change) Messaging from the US Fed and ECB remain consistent and the end-of-year turbulence has faded, meaning that although the news in many sectors isn’t welcome, the general market conditions seem to have been broadly accepted and priced in. Layoffs continue in tech, banking and retail while some large brick-and-mortar stores, like Bed Bath and Beyond, seem to be slipping further into difficulty. So although decision-makers have greater clarity as to what lies ahead, economic conditions are grim for many and look to remain so for short- to mid-term.

However, negotiations around raising the US debt limit will be contentious and cause significant turbulence in the run up to hitting the ceiling, likely in late Q2, early Q3. See last Tuesday’s piece on debt limits for more.

Wheat

Potentially impacting: Bread, pasta, couscous & noodle prices | Changes to food subsidies (potentially leading to unrest) | Cost of living | Movement from low-income to food insecure to undernourished | Increased theft or graft in loosely governed areas | Demand on charities.

What to Watch

(No change) Despite agreements brokered by Turkey, Russia could still impose a complete blockade on Ukrainian grain exports to exert pressure on Kyiv and her allies. Meanwhile, even strict controls and inspections for outbound shipments mean that exports remain slowed. Moscow could also conduct military operations to disrupt spring planting meaning that prices could rise again next spring and summer. Read more in AGWeek

Ocean Freight (FBX)

Shipping (FBX)

(No change) Shipping (FBX) remains very low for this 90-day interval. Prices increased moderately over the last 21 days.

What to watch

(No change) China’s reopening and the effects of recessions on demand in the US and elsewhere remain the biggest issues to track but there are no definitive signs to watch at the moment. Chinese New Year will depress manufacturing and shipping volumes but expect these to rise significantly in late February once the celebrations are over.

Up-to-date shipping data supplied by our partner Freightos

Election Watch

January 27-28 : Run-off elections in the Czech RepublicJanuary 29: Liechtenstein, Constitutional referendumJanuary 29: Tunisia’s second round of the 2022 legislative elections. February 5: Cyprus, PresidentFebruary 5: Monaco, ParliamentFebruary 5: Ecuador, ReferendumFebruary 25: Nigeria, President, House of Representatives and SenateTurkey’s elections have been brought forward to May 14.

Palate cleansers

Excel’s war on date formatting continues…

I think ‘computationally illiterate’ is a bit harsh. ‘Spreadsheet aficionado’ sounds better.

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