Ukrainian President rings NYSE bell, remotely

Ukrainian President, Volodymyr Zelenskiy remotely rang the opening bell at the New York Stock Exchange on Tuesday. He appealed for billions of dollars in private investment to rebuild factories and industries destroyed by Russia.

Zelenskiy's government launched a platform of over 500 projects worth US$400 billion for foreign companies and private investors to help rebuild Ukraine's economy, even as the war with Russia drags on.

Zelenskiy appeared on a video screen behind the platform overlooking the NYSE floor where the opening bell is traditionally rung. Traders applauded and whooped while a banner read: "We are free. We are strong. We are open for business."

Fresh from a roundtable with top executives from JP Morgan, Pfizer and other US companies, Zelenskiy said in English that Ukraine was already rebuilding its economy, more than six months since the Russian invasion began.

"Ukraine is the story of a future victory and a chance for you to invest now in projects worth hundreds of billions of dollars to share the victory with us," he said.

Ukraine is also appealing for some US$5 billion in international aid each month to keep its economy running, in addition to military aid from NATO alliance members.

The United States and allies in Europe and Asia have already sent billions in humanitarian aid, weapons and other security spending, and officials are watching closely for any signs domestic political support could be flagging.

"Advantage Ukraine," the investment push, focuses on 10 key sectors, including the military-industrial complex, energy, pharmaceuticals, metallurgy, woodworking, and logistics.

"It is necessary to invest in Ukraine now, and not wait for the end of the war," Economy Minister Yulia Svyrydenko said in a statement.

Advertising group WPP is leading the marketing campaign for the initiative.

Svyrydenko told Reuters last month that Ukraine's economy should stabilize over the coming year and expand by as much as 15.5% in 2023, after a likely contraction of 30-35% this year.

On Tuesday, she said Ukraine was keen to bring back foreign direct investment, which she said had reached US$6.7 billion before the war. "The Russian invasion adjusted our short-term plans, but did not force us to abandon our strategic goals," she said.

Concerns about corruption had tempered foreign investor interest in Ukraine before the invasion.

The economy ministry is also providing grants to existing businesses, and has relocated 700 businesses from the frontlines of the conflict.

 

Container spot rates start receding

According to Seatrade Maritime News, there is no longer fundamental support for the very high container spot rates seen in the market over the last 18 months as vessel utilization numbers start to normalize.

Container spot rates are starting to decline sharply from their highs and last week the Shanghai Containerized Freight Index (SCFI) dropped 9.7%WoW down 306.56 points to 2846.42 points on 2 September and is down 32%QoQ. The SCFI stood at a record high of 5,051 points in January this year.

The record high spot rates seen over the last 18 months have been driven by exceptionally high utilization rates, very close to 100%, on the main deep-sea trades, at which point Lars Jensen, CEO of Vespucci Maritime said the pricing curve become almost vertical.

 “This is the point where there is physically no more capacity at all whilst there is excess demand in the market. The data shows that it is at this point spot rates go to the historical highs we have seen over the past 18 months,” he said in report published by the Baltic Exchange.

Utilization rates on the Transpacific trade have dropped to 90% or below over the last three months, below what Jensen says is the 91 – 95% threshold on the trade that drove record high spot rate levels.

Similarly on Asia – Europe utilization has dropped to 81% or below over the last five months while the threshold is around 85% to drive a near vertical pricing curve.

 “This means that there is no structural support for the pricing dynamic where insufficient demand leads customers to overbid on pricing to ensure available space on the vessels,” Jensen said. Further weakening of spot rates going forward is expected.

A similar conclusion is drawn by Parash Jain, Head of Shipping & Ports & Asia Transport Research, HSBC Global Research. “As vessel utilization declines from 95-100%, skyrocketed spot freight rates could lose support quickly and revert back to a more normalized level,” he said in a note sent on Monday.

HSBC forecasts spot rates could fall another 58% in 2023 and 37% in 2024 on average before reaching the bottom.

Jensen noted that bottlenecks in global container trades had decreased with 9.8% of the global fleet unavailable due to delays in July compared to 13.8% in January.

Current levels are still well above the 2% seen in normal market conditions, does in effect release more capacity into the market at a time when global container volumes are falling.

What the sharp falls in spot rates will mean for long-term contract rates and container line profitability is a point of contention.

Last week HSBC’s Jain forecast an 80% drop in profitability for container lines in 2023-24.

While Blue Alpha Capital founder John McCown believes too much emphasis is being placed on spot at that while container lines maybe at or near their peak of profitability, a collapse is not imminent.

Germany revamping LNG import capacity

The German Government has signed two memoranda of understanding with the country's top gas utilities for the delivery of two floating LNG import terminals.

According to a Reuters report, the deals, with Uniper, RWE, and EnBW, will see the vessels, due to be completed this winter, delivered by March 2024.

"This is an important date in the series of steps that we have been taking since the beginning of the year, to make ourselves independent and less susceptible to blackmail from (Russian President Vladimir) Putin, and to give Germany a robust and resilient energy infrastructure, or in this case gas infrastructure," Economy Minister Robert Habeck said.

LNG has become the last resort for energy-hungry Germany when Russia reduced flows via the main artery supplying the EU's biggest economy with natural gas. Most of it comes from the United States, but Germany has no import terminals for the super-chilled fuel that needs to be re-gasified at the point of entry into the country.

Stationary LNG import terminals take years to build while floating storage and regasification are much faster to install once their construction is completed.

US LNG volumes are not large enough to fully replace Russian gas flow via pipelines due to production capacity constraints, so Germany needs alternative suppliers, too.

Chief among these could be Qatar, but negotiations between Berlin and Doha ended without a deal earlier this year as the Qataris insist on long-term contracts and a clause that would oblige Germany not to resell any gas it is not using.

Meanwhile, the head of Germany's energy regulator warned that gas consumption would have to be cut deeper than the EU-wide voluntary 15% to 20% if the country is to avoid a harsh winter of shortages.

"If we fail to reach our target of 20% gas savings then there is a serious risk that we will not have enough gas," Klaus Mueller told the Financial Times earlier this week, which would lead to gas rationing.

 

 

Can Liz Truss be another 'Iron Lady" of Britain?

According to Reuters, New British Prime Minister, Liz Truss faces a financial markets test. If she was planning big energy subsidies only, investors might not worry too much. But she plans tax cuts – and may pick a fight with the Bank of England (BoE) and trigger a trade war with the European Union (EU).

In many ways, Britain faces similar challenges to other European countries i.e. high inflation, rising interest rates, soaring energy prices and an imminent recession. Insofar as it stays in the pack, markets won’t single it out for special attention.

Britain faces extra risks. Inflation is particularly high, Brexit has damaged the economy and the country has a chronic current account deficit meaning it relies on foreign investors to pay its bills. Truss does not want to be part of any pack. She believes that bold supply-side reforms will launch the country onto a new higher-growth trajectory.

While that is not a bad ambition, she hasn’t presented a convincing strategy to deliver it. Rather, she looks like a populist prime minister who relishes confrontation.

According to media reports she is set to declare China a threat and has questioned Britain’s special relationship with the United States. She is also taking a hard line with the EU. She also wants to change the BoE’s mandate, which is to deliver price stability.

Up to now, Britain has been in the middle of the European herd on fiscal policy. Government debt was 100% of GDP at the end of the first quarter, not vastly above the EU’s 88%. Since last September Britain had allocated 1.6% of annual economic output to cushion consumers and businesses from the energy crisis, about the same as Germany and France, according to Bruegel, the Brussels-based think tank.

It’s still unclear what extra help Truss will give to support people with spiralling energy bills this winter. But it will be expensive. Just supporting households could top 50 billion pounds over the next year, or about 2% of GDP.

Helping businesses would require another mega-package. If gas prices stay high now that Russia has suspended some gas deliveries to Europe indefinitely, the government could face similar costs the following winter and beyond.

This bailout may end up being roughly in line with the rest of Europe. Germany announced a 65 billion euro energy package over the weekend.

The difference is that Truss will at the same time cut taxes on employment and reverse a planned rise in corporation tax, costing at least 30 billion pounds a year. And she does not seem to want to cut spending to compensate.

Truss is also dead set against funding her support package via windfall taxes on energy companies. This is a missed opportunity since the sector is set for excess profits of up to 170 billion pounds over the next two years, according to the Finance Ministry calculation.

High inflation might help the government by lowering the debt-to-GDP ratio. But this is not as much of a get-out-of-jail-free card as it is for some other countries, because a quarter of British government debt is linked to rising prices and just over a third has been bought by the BoE.

One area where Britain is already an outlier is that prices are rising faster than in other Group of Seven countries. Inflation jumped to 10.1% in July, and Citigroup analysts recently predicted it could reach 18.6% early next year.

As a result, the BoE will need to jack up interest rates sharply to re-establish price stability. It’s also minded to start selling government bonds later this month. These moves are unlikely to please Truss. Not only will they deepen the recession and hit her core voters; these will make it harder to fund a fiscal bonanza.

This could lead to further confrontation between Truss and the BoE. Although many investors agree that the central bank has been slow to nip inflation in the bud, the priority now is to bring prices under control. Financial markets will not appreciate anything that looks like tampering with the BoE’s independence.

Until recently investors viewed Britain part of the European pack. Both pound and the euro have fallen sharply against the US dollar this year – and government bond yields have been rising across the world. But there are now the first signs of jitters focused specifically on Britain. The yield spread between UK and German 10-year government bonds has widened by 0.3 percentage points in the past month. In the past 10 days, pond has fallen about 2% against the euro.

Turkey-Israel love affair

A Turkish warship has docked in Israel for the first such visit in more than a decade as relations between the allies of United States improve following fierce feuding over the Palestinian cause.

The frigate Kemalreis docked in Haifa on Saturday as part of NATO manoeuvres in the Mediterranean Sea, a Turkish official said. An Israeli official said Ankara had submitted a preliminary request for the crew to disembark on shore leave.

A Haifa port official said it was the first time a Turkish naval vessel had visited since at least 2010, when bilateral ties were shattered by Israel's storming of a pro-Palestinian aid convoy that tried to breach its blockade of the Gaza Strip, ten Turks were killed by Israeli marines in that incident.

For its part, Israel has voiced objections at NATO-member Turkey's hosting of members of Hamas, a Palestinian Islamist movement that is proscribed as a terrorist group in the West.

But the countries have moved to mend their relationship in recent months, with energy emerging as a key area for potential cooperation. They are expected to appoint new ambassadors soon.

It may be recalled that the Israeli charge d'affaires in Turkey had talked the re-appointment of an ambassador to Ankara, while repeating Israel's expectation that the Hamas office in Istanbul should be closed down.

In a roundtable meeting with journalists, Israel's current top representative in Ankara Irit Lillian said the process of re-appointing an ambassador to Turkey was only a matter of "when and not if."

"It's only because of elections in Israel that things might be delayed on the Israeli side but I hope it will be on time and it will be just a few more weeks and the process will be over," Lillian said, Israel will hold a general election on November 01, 2022.

Earlier, Turkey and Israel had agreed to re-appoint respective ambassadors more than four years after they were called back, marking another milestone after months of improved relations.

The two regional powers had expelled ambassadors in 2018 over the killing of 60 Palestinians by Israeli forces during protests on the Gaza border against the opening of the US Embassy in Jerusalem.

But they have been working to mend long-strained ties with energy emerging as a key area for potential cooperation.

Lillian reiterated the challenges to the ties, saying that the biggest obstacle to the "positive tendency seen throughout the year" was the existence of a Hamas office in Istanbul.

"There are plenty of challenges, but from our point of view, one of the main obstacles is the Hamas office in Istanbul," she said.

"Hamas is a terrorist organization, and it is no secret that Israel expects Turkey to close this office and send the activists there away from here," Lillian added.

A visit to Turkey by Israeli President Isaac Herzog in March, followed by visits by both foreign ministers, helped warm relations after more than a decade of tensions.

Turkish President Tayyip Erdogan and Israeli Prime Minister Yair Lapid held a phone call recently, expressing their satisfaction with the progress in ties and congratulated each other on the decision to appoint ambassadors.

Erdogan said necessary steps to appoint the ambassador would be taken as soon as possible, while Lapid said the strengthening ties would lead to achievements in commerce and tourism.

 

Pakistan Air Force Chief meets top Iranian military officials

Pakistan’s Air Chief Marshal Zaheer Ahmad Babar, who serves as the Chief of Air Staff, visited Iran lately and met with several high-ranking Iranian officials, including Iranian Defense Minister Brigadier General Mohammad Reza Ashtiani.

In this meeting, the Iranian Defense Minister expressed his deepest sympathies with the nation of Pakistan and offered condolences to the families of the recent flood victims. 

Unprecedented monsoon rains that began in mid-June have affected more than 30 million people in Pakistan, killing more than 1,130 people.

Ashtiani said, “The Islamic Republic of Iran and Pakistan have historical, cultural and social commonalities regardless of the common border.”

The Defense Chief stated that the two countries have an important and influential position in regional developments and the Islamic world, adding that Pakistan has always enjoyed a particular position in the foreign policy of Iran.

Ashtiani also stated that Tehran considers the security of Pakistan as its own security, adding, “The government of Iran emphasizes developing relations with the friendly and brotherly country of Pakistan at all bilateral, regional and international levels.

He pointed out that the cooperation between Iran and Pakistan, in the changing and tense conditions of the region, can be of help in improving the security situation in the West Asian region.

The Defense Minister also made it clear that both countries should not allow third countries to be influential in the development and deepening of bilateral cooperation.

Stating that the international situation and developments are currently in a complicated state, the Defense Minister noted, “The US and the West are trying to implement their unilateralist and totalitarian approaches in all strategic areas of the world. The recent developments in Ukraine are also the product of a unilateralist and interventionist approach,” he added. 

Ashtiani further noted that the Americans in Afghanistan left the country in a chaotic situation after 20 years of occupation, adding, “Certainly, Afghanistan's solution to get out of the current situation is to form an inclusive government with the participation of all ethnic groups.”

Stating that good measures have been taken in recent years to transform the borders of the two countries safer and compatible with economic exchanges, Ashtiani said. “We support and emphasize the development of defense, military and security cooperation and the implementation of agreements in these areas” He added.

For his part, Marshal Ahmad Babar confirmed the Iranian Defense Minister's remarks in the meeting, calling the situation in the region complicated and praised the resistance of the Iranian nation against the sanctions.

Referring to the progress of Iran's aviation industry, the Pakistani Chief of Air Staff called for the expansion of the level of cooperation in operational issues, appreciating Iran's cooperation in establishing the security of the borders of the two countries.

He expressed his desire for the exchange of delegations, the creation of design offices and joint laboratories regarding aviation, industrial and university cooperation and the creation of joint technology parks.

At the end of this meeting, the Iranian defense minister invited his Pakistani counterpart to visit Tehran.

Marshal Ahmad Babar also met the Chief of the General Staff of the Armed Forces, Major General Mohammad Bagheri, while visiting the headquarters of the General Staff of the Armed Forces.

At the beginning of this meeting, Bagheri welcomed the Pakistani chief of air staff, stating, “Pakistan is a very good neighbor for Iran and enjoys a special position in the eyes of Iran's military and government officials.”

Bagheri also expressed his sadness about the flood in Pakistan and expressed hope that Islamabad can overcome this natural disaster as soon as possible and the problems of the people of Pakistan will be solved. 

Underlining that the relations between the two countries have always been developing, Bagheri clarified, “The military commanders of both sides have played a special role in the development of relations and I would like to send my greetings to General Qamar Javed Bajwa.”

Elsewhere in the meeting, the Chief of General Staff of the Armed Forces stated, “We consider the security of Pakistan as our security and we will not hesitate to do anything we can for the security of Pakistan.”

Regarding military cooperation between the two countries, there are already established relations, Bagheri stated, adding that it can definitely expand in terms of diversity and depth, and Iran is fully prepared for this issue.

“Considering the mutual trips of the two air force commanders of Iran and Pakistan, we will see the deepening of relations in the near future, and I believe that the air forces of the two countries can have the necessary cooperation in order to transfer experiences and new technologies,” Bagheri stated.

He added that it is expected that Iran and Pakistan will have a joint program for manned and unmanned drones in the next one to two years.

Regarding the issue of sanctions against Iran, the Iranian top military chief stated, “UN arms embargoes have been lifted for about a year and a half and we are not facing any restrictions in this regard.

Now we only face unilateral and oppressive US sanctions, so there are no restrictions on our military cooperation with Pakistan.”

Bagheri stated that in the field of manned and unmanned drones, many measures have been taken by Iran. 

“You may not have had the opportunity to visit and observe all of them, so with the presence of your engineering team, you can get more reviews about Iran's capabilities,” Bagheri told Marshal Ahmad Babar.

The Chief of Staff of the Armed Forces said that the turning point is that Pakistan has the necessary will to expand cooperation, and it is definitely evident that Tehran also mutually have the will to cooperate with Pakistan. 

“In general, I believe that foreigners should not be allowed to enter by expanding the cooperation and concluding various understandings,” he stated.

For his part, Marshal Ahmad Babar said, “We have always wanted to meet the Iranian military men. I will also send you the greetings of General Bajwa. This is the first time I come to Iran and I also had a good conversation with the commander of the Iranian Air Force.

The Chief of the Pakistani Air Staff stated that he will send a team of experts to Iran for better implementation of joint programs, adding, “Geopolitically, our region is very sensitive and important and we are struggling with many problems from the east and the west.

Marshal Ahmad Babar continued by saying that in his belief, the military relations of the two countries can definitely have a positive effect on the relations between the governments and diplomats, and the nations of Iran and Pakistan are very close to each other due to their religious and cultural commonalities.

The Pakistani Air Staff Chief also stated that the battle scene has changed a lot, noting, “We have to use the term hybrid war for many of today's battles and as you said, we have to move towards the cutting edge technologies and for this purpose, we in Pakistan have established a science and technology park.”

Marshal Ahmad Babar noted that according to Islamabad's experiences in the exercise field, Tehran and Islamabad can hold a joint exercise.

 

Who will be the next Prime Minister of Britain?

Members of Britain’s Conservative party will choose their next leader to succeed the ousted Boris Johnson as the next Prime Minister. Let us have a look at the two frontrunners.

The frontrunner in the leadership contest is current Foreign Secretary Liz Truss, 47, the daughter of a Labour-supporting maths professor and teacher who went to a state school but made it to Oxford where she took the course studied by many future prime ministers: philosophy, politics and economics (PPE). After a brief career as an accountant she became an MP in 2010 and rose steadily through the Tory ranks despite her past membership of the centrist Lib Dems. She campaigned in favour of remain in the fateful 2016 EU referendum campaign. But she made up for this by quickly becoming a hardline Brexiter and leveraging her loyalty to one Tory election hero – Boris Johnson – and by often being compared to another, Margaret Thatcher.

Rishi Sunak, 42, is the son of east African parents of Punjabi descent who moved to Britain in the 1960s. Their work as a GP and pharmacist enabled them to send their boy to one of Britain’s most expensive private schools, Winchester. He also went to Oxford and also studied PPE, before making millions in hedge funds and becoming a Tory MP in 2015. A Brexit supporter, he was soon picked out as a future leader and became Chancellor of the Exchequer soon after Johnson won his big election victory in February 2020. Also like Truss, he is married with two daughters.

A year ago, Sunak had the world at his feet, basking in the success of the Treasury’s Covid furlough scheme. But his reputation has waned – not helped by revelations about his billionaire wife’s tax status – and he went into the leadership fight being blamed for everything from the cost of living crisis to knifing Johnson in the back.

Truss, on the other hand, started from the back of the pack but the invasion of Ukraine gave her the platform to do her best Iron Lady impersonation with tough anti-Putin rhetoric. This delighted the Tory press and the older, middle-class men who largely make up the party members who are choosing the new PM. Once she made it into the final two to take on Sunak, she has never looked like losing.

The cost of living crisis, what the government should do about it and how that should be paid for has dominated. Truss launched her campaign with promises of big tax cuts and suggested her government could increase borrowing to pay for them.

Her plan to tell people what they want to hear – see this week’s ruling out of energy rationing – has left Sunak with no other choice than to stick to his orthodox stance that the country can’t afford tax cuts given the pandemic and the war in Ukraine. He hasn’t been able to make his accusations of fantasy economics stick, nor has he benefited from reminding everyone that his rival was a remainer. Truss has made the Ukraine issue her own, and has also profited from the press narrative that Johnson was shafted by the “Westminster elites”, for whom read “Sunak”.

As you might expect in British politics, class has played a big part and was unexpectedly overt when clips emerged of a young Sunak on a TV documentary joking about how he didn’t have any working-class friends. This played out while the professor’s daughter criticized her (actually very good) state school for failing working-class kids. Truss’s much less polished style has been marked but she has avoided any eccentric moments on a par with her infamous “blessed are the cheese makers” speech at party conference in 2014. Her potentially damaging failure to describe France as an ally was straight from the Johnson playbook and she also escaped too much damage from a leaked tape of her calling British workers lazy.

The longest leadership race in living memory will end when the winner is announced on Monday lunchtime British time, although despite the buildup it’s not much of a cliffhanger. Truss has had a huge lead in the polls throughout the contest, with the most recent roundup of surveys giving her 59% of the vote to Sunak’s 32%.

Victory will make her the third woman to lead Britain after Thatcher and Theresa May, all Conservatives. If Truss wins as expected, she – and Johnson – will then have to travel 500 miles to Balmoral on Tuesday for the traditional audience with the Queen who is unable to leave her Scottish redoubt because of an episodic mobility issue.