Good morning.

It’s a bite-sized issue as there’s a lot to share today. Tanks are heading to Ukraine, the ECB has issued new climate metrics and the NYSE had some wild swings on Tuesday. (Oh, and Chad’s fully refreshed after his spa day so the metrics are back. )

Feedback so far is that quite a few folks seem to prefer having the commentary first but please use the poll to let me know what you think.

Coverage and Analysis

Tanks to Ukraine

President Zelenskiy received a welcome birthday gift from Washington as the US agreed to send M1 Abrams main battle tanks to Ukraine as part of an agreement with Germany which will also approve the export of Leopard 2 tanks. 

Guten Morgen

Although the number of vehicles sent by Berlin may be relatively small, this approval allows the other NATO allies who use the Leopard 2 to send their vehicles to Ukraine.  It’s unclear exactly how many vehicles will eventually be sent and there will be a delay while crews are trained and the logistics and maintenance requirements are integrated with the Ukrainian forces.

The Russian Ambassador in Washington declared that “It is obvious that Washington is purposefully trying to inflict a strategic defeat on us,” and this move by Washington does pull the US much farther away from the initial stance of only providing non-lethal aid. This might be tolerated by Moscow while the fighting remains in the eastern provinces of Ukraine but any move towards Crimea, particularly if the US and NATO allies were seen as being deeply involved, would be a significant flash point. See Reuters for more.

Meanwhile…

President Zelenskiy dismissed several senior Ukrainian officials this week as part of an anti-corruption drive.  

“Any internal problems that interfere with the state are being cleaned up and will be cleaned up. This is only fair, it is necessary for our protection and it helps our rapprochement with the European institutions,” 

Ukrainian President Zelenskiy

See Reuters for more

The ECB Releases Climate-Related Metrics

The ECB just released “an initial set of statistical indicators covering sustainable finance, carbon emissions and physical risks” to help track climate-related risks in financial markets. This is just one of a number of initiatives underway to codify methodologies around assessing the impact of businesses on the climate and the impacts of climate on business.

The ECB methodology is a measurement and reporting tool, not a rule or regulation so there’s no compliance element at the moment from what I can tell.  However, it’s worth thinking about how your organization might use these indicators or some of the parallel work going on in the US and elsewhere to track climate-related metrics. As noted yesterday, the requirement to meet climate-related reporting requirements is growing so this needs to be incorporated into governance and reporting frameworks ASAP. There’s a good summary in ESG Today and the full ECB guidelines are here.

(Hat Tip to Greg H for sharing the story)

A Mini ‘Flash Crash’ on the NYSE

Swings of several major US stocks were so wild on Tuesday morning that trading was halted for dozens of firms within 30 seconds of the market opening. Walmart, Wells Fargo and AT&T were some of the most affected with AT&T swinging from +20% to -20% in a few seconds while Walmart seemed to lose $ 46 billion.

Chart of yesterday’s movement courtesy of Bloomberg

The NYSE blamed a technical issue for the problem and rules are in place to rectify “clearly erroneous” trades so any losses will be resolved but even though an investigation is underway, the exact cause may remain unclear as it has with previous crashes. This is another reminder of how volatile technical systems can be, systems that are only going to become more complex and opaque as AI becomes more prevalent. See Bloomberg for more.

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

Potentially impacting: Fuel prices | Gound shipping costs. | Plastic prices | Changes to fuel subsidies (potentially leading to unrest) | Cost of living (especially transport and heating) | Changes to traffic volume/transportation choices | Demand for automotive products | Theft and smuggling.

(No change) Brent Crude is 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 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 this update for more. 

Iron and Steel

Potentially impacting: Cost of construction projects | Construction project timelines | Cost/availability of raw materials | Infrastructure project timelines/costs | Cost and availability of finished metal goods | Value of scrap | Value of 2nd hand equipment/vehicles.

(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)

Potentially impacting: Availability of capital for investment | Interest rates| Share prices | Consumer confidence | House prices/rent | Financial certainty/uncertainty | Financial models | Stock-based compensation values.

Yesterday’s hiccup notwithstanding, Market Volatility (VIX) is 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.

(No change) Wheat is high for this 90-day interval. Prices ended relatively flat over the last 21 days after slight fluctuation.

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)

Potentially impacting: Supply chain costs (direct and indirect) | Supply chain delays | Port capacity/throughput speed | Customs clearance | Availability of goods and materials | Consumer demand/hoarding.

Shipping (FBX) is 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

26 January: Tokelau, General Fono29 January: Liechtenstein, Constitutional referendumCampaigning has begun for Tunisia’s second round of the 2022 legislative elections. (Voting is scheduled for January 29)Turkey’s elections have been brought forward to May 14.

Palate cleansers

The 43rd International Hot Air Balloon Festival took place in Chateau-d’Oex, Switzerland, this week.

Photo: REUTERS/Denis Balibouse

Just when you thought the Global War On Terror was over… Living in a treehouse in the US state of Georgia is apparently an act of terrorism.

Steven Donziger via Twitter

And, even though there aren’t random stats these days, I’d like to invoke editor’s privilege to share two: 2,952KM, 29 days.

My brother just cycled from one end of New Zealand to the other to raise money for charity. Whakamihi! I’m proud of you, bro.

(No more personal news until he does something like this again, promise.)

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