Good morning.

The newly released 2021 Chinese census showed a surprising drop in population for the first time in 60 years which, while not unexpected, was earlier than many had expected. Meanwhile, millions in Asia are preparing to celebrate the Lunar New Year which for many in China, means it’s the first chance to see family in years now that COVID restrictions have lifted. Sadly, that may be a bittersweet reunion for some as elderly, rural relatives may be exposed to COVID for the first time.  However, the end of the celebrations in February will be the start of the big economic reopening.

Elsewhere, some interesting things are occurring with regulations that I’ll write up soon but this is a good time to refresh yourself, your team, and executives, on your regulatory obligations. Pay particular attention to any new rules that took effect on January 1st.

I’ve been remiss in sharing election updates, but I’ve added these below and will make sure I include weekly details on upcoming elections.

On to the numbers.

(Not sure of how to use these metrics in your risk analysis? Read the white paper here  and look out for a detailed user’s guide coming in the early New Year.)

Relative Values (90-Days)

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Trends (21-days)

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Commentary and Evaluation

Brent Crude

Brent Crude has crept up slightly into the mid-range for this 90-day interval. Prices ended relatively flat over the last 21 days after some dips but prices seem to be trending upwards at the moment.

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 remains 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 Friday’s update for more. 

Iron and Steel

Iron and Steel is very high for this 90-day interval. Prices increased moderately over the last 21 days after slight fluctuation and continue to creep up.

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)

Volatility (VIX) is very low for this 90-day interval. The index has decreased sharply over the last 21 days after significant fluctuation and spikes around the New Year althoug there are signs it might be ticking up again.

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 Tuesday’s piece on debt limits for more. 

Wheat

Wheat remains high for this 90-day interval. Prices ended relatively flat over the last 21 days after moderate fluctuation. (Note, there was a typo in Wednesday’s note that wheat was low. Prices were and remain high. Apologies for the mistake.)

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)

(No change) Shipping (FBX) is very low for this 90-day interval. Prices decreased sharply over the last 21 days after the spike we saw in December. 

What to watch

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

Other coverage and Analysis

China’s Population Shrinks (Slightly)

China’s population contracted last year, for the first time since the famines of the 1960s. The country’s population dropped by 850,000 at the end of 2021, down to 1.41 billion, as the number of deaths surpassed the number of births. (Census data for 2021 was released this Tuesday.)

The declining population is less due to excess COVID deaths (the number of which China remains tight-lipped about), than to the decreased number of births. Head of the Chinese National Statistics Bureau, Kang Yi, attributed the change to “…a result of drop in people’s willingness to have babies, the delay in marriage and pregnancy, as well as a fall in the number of women of child-bearing age,”.

What’s most startling is not the slight decrease in the population itself, but the sharp decline in births since 2015. 

“​​The population drop-off came much faster than previously expected, and could act as a brake on economic growth by slowing demand for goods such as new houses. Due to the decline, the Chinese economy may struggle to overtake the US in size and the nation could lose its status as the world’s most populous country to India this year.

As recently as 2019, the United Nations was forecasting that China’s population would peak in 2031 and then decline, but last year the UN had revised that estimate to see a peak at the start of 2022. The labor force is already shrinking, long-term demand for houses will fall likely further, and the government may also struggle to pay for its underfunded national pension system.”

Bloomberg

Lunar New Year post Zero-COVID

Lunar New Year occurs on Sunday, and the three-week-long celebration means that millions in China are traveling home to see family. Travel was severely curtailed while the zero COVID measures were in place so this will be a welcome reunion for many families. However, the mass movement presents significant challenges and dangers for elderly relatives, particularly those in more remote rural areas, many of which lack robust medical facilities and may have been less exposed to COVID. There’s sufficient worry that President Xi expressed his concerns in a New Year’s message broadcast Wednesday.

“China’s COVID prevention and control is still in a time of stress, but the light is ahead, persistence is victory…I am most worried about the rural areas and farmers. Medical facilities are relatively weak in rural areas, thus prevention is difficult and the task is arduous,”

President Xi’s in his New Year’s Message

China has been reticent to share accurate COVID figures and seems to have downplayed the full effects of lifting the zero COVID restrictions in December. Therefore, any statement about COVID seems notable and one suggesting that things could be bad for certain parts of the population indicates that the healthcare fallout of the New Year celebrations could be significant. 

There’s also a concern among epidemiologists that such a rapid spread across so many people – estimates are that 250 million people were infected in three weeks in December alone – increases the possibility of a severe mutation of the virus. The latest variant, XBB.1.5, unofficially nicknamed the Kraken, is more transmissible than previous strains, although not more dangerous. The fear is that there will be an eventual mutation that makes existing vaccines ineffective and overcomes whatever resistance we’ve built up. (See the BBC for more.) 

The end of the celebration in mid-February is likely to mark the start of China’s long-planned economic reopening, which has been delayed by the effects of COVID and other turbulence. However, with the New Year over and a willingness to live with COVID, expect to see all economic activity ramp up from late February onwards, driving up prices for raw materials and energy.

Elections this week and Next 

​​18 January: Antigua and Barbuda, House of Representatives

21 January: Slovakia, Constitutional referendum

26 January: Tokelau, General Fono

Watching: Tunisia. Campaigning has begun for Tunisia’s second round of the 2022 legislative elections. (Voting is scheduled for January 29)

Random Stat

32%, 6%, zero

Only 32% of the trash in US gets recycled so there’s room for improvement there. However, what’s most startling is that unlike paper, metal and glass – all of which can be recycled efficiently – most of the plastic that’s sent for recycling ends up in a landfill. Only a fraction of the plastic produced, around 6%, goes for recycling in the first place but the majority of that is unsuitable for recycling. By one measure, none of the plastic packaging material produced in the US is fit for recycling. Instead, it has to be separated out and dumped. 

California’s “Truth in Labeling” law, SB 343 prohibits the use of the interlocking-triangles on goods unsuitable for recycling to avoid misleading consumers  

Curiously, the interlocking triangle symbol does not mean that plastic is recyclable. Instead, the triangles and associated numbers indicate the type of resin used in manufacturing. However, the symbols are widely seen as meaning ‘recyclable’ (not helped by the fact that we put these symbols on our recycle bins, I guess), causing a lot of confusion which can be to the advantage of businesses wanting to pass off material as recyclable when it’s never going anywhere but the landfill.

Sigh…

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