Return to Insights

Monday Morning Update

Rising fear over low water levels, airport expansion turbulence, attacks on Odessa from Russia, and data for today.

Low Levels of Water Raises Concern for the Panama Canal

Fears are rising over the prospect of another major obstacle to world trade, as severe droughts threaten the day-to-day running of the Panama Canal. As concerns mount, the last few days has seen officials prioritise the passage of some vessels, while leaving over a hundred waiting either side of the canal which connects the Pacific and Caribbean Seas.

The canal’s operation is contingent on millions of gallons of fresh water being supplied from nearby lakes to enable the passage of ships as rainwater is used to raise and lower vessels in the locks. This comes after August saw waiting times for non-booked vessels soaring as much as 59% as droughts force the number of ships using the canal to reduce. With the blockage of the Suez Canal etched in everyone’s mind, some analysts are warning that disruptions could have nock on effects well into the end of this year. Hence, with an estimated 5% of all global trade traveling through this narrow 82km strip, the potential implications of further disruptions are vast.

 

Turbulence in Airport Expansion Debate

The Telegraph is reporting that Rishi Sunak is set to defy recommendations for the Climate Change Committee and allow airport expansions in the UK. At the end of June, the CCC recommended that no airport expansions should proceed until a ‘capacity management framework’ is identified and implemented. Thereafter, the committee maintained that there should be no expansion of airports until it can be demonstrated that the carbon intensity of aviation is outperforming the government’s emissions reduction pathway and therefore the additional capacity wouldn’t contribute to a net increase in carbon output compared to where we are today. This seems pretty logical, but the problem the government has is that their assumptions of how much greener air travel will become  (through more efficient aircraft and greener fuels), seem wildly over-optimistic and therefore any increase in capacity is going to mean breaching their own ‘Jet Zero’ emission targets.

Plenty of Brits that have suffered through packed departure lounges and arrivals halls over the summer would probably, at this moment, welcome some extra capacity but there will be concerns that this is another acquiescence by the Prime Minster to appease a small part of his party. Stanstead and Luton airports have already proposed significant expansions, with Stanstead’s given a green light which would increase capacity from its current 27 million passengers to 43 million! (for context, the whole of Heathrow can accommodate about 75 million passengers a year).

 

Russia Attacks Odessa Ahead of Grain Talks

This weekend saw Russia launch a major drone offensive to bombard the port city of Odessa, just days before talks were due to resume over the export of grain from the Black Sea. As such, yesterday’s attack further raises into question whether an extension to the deal will be met, thus renewing supply side concerns. Following the attack on port infrastructure, Zelenskyy’s chief-of-staff wrote that “Russian terrorists continue to attack port infrastructure in the hope that they will be able to provoke a food crisis and hunger in the world.”

Earlier this summer, Russia pulled out of the Black Sea deal which allowed the safe passage of some 33m tonnes of grain leaving Ukraine and heading to international waters via the Black Sea. The deal – brokered by the UN and Turkey – was pivotal in regaining some modicum of stability to international grain markets, particularly given wider supply side issues including droughts across much of India. Since then, Kyiv has exported much of its grain through the suboptimal Danube route, but it was hoped the resumption of talks could see the deal honoured again. Given developments over the weekend, the prospect of a renewal to the deal now hangs in the balance.

Today’s Data

With Labour Day across North America, today is a little light on the primary data front. This morning has seen Germany’s trade surplus narrow to €15.9 billion in July 2023 from €18.7 billion in June. With Germany’s manufacturing industry bring brought sharply into focus given the country’s economic slowdown and reduced external demand, exports fell by 0.9%. Elsewhere, Swiss GDP came in flat over Q2, missing expectations of 0.1%. This afternoon, attention will turn to Lagarde who is speaking at 2:30, as markets look for any additional insight ahead of the ECB’s next policy meeting on 14 September.

Download
article

If you would like a PDF of this commentary, please contact us and we'll be in touch.

Contact us

Related
Commentary

Find out how we have helped our clients meet their hedging requirements.

Monday Rundown

Macro Monday, expectations set on future tax cuts, unwelcome opposition for Labour after Galloways Rochdale by-election win, ceasefire talks stalled, Russians intercept German air force video conference, talk of issues and downgrades of US regional banks, and looking ahead to this weeks data calendar.

WTFX: Issue 10

In this month’s WTFX we look at the Space Renaissance and the extent to which the UK is making inroads into outer space...

Morning Round-Up

Friday Feeling, Labour majority overturned by Workers Party of Britain in Rochdale by-election, PCE index for the US comes in line with expectations, prices rose by more than expected in the Nationwide House Price Index, and growing GDP for Canada.

EC Considers Using Funds from Frozen Russian Assets to Arm Ukraine

Thought for Thursday, president of EC proposes the use of funding from frozen Russian assets to arm Ukraine, disquiet between Poland and Ukraine as Polish prime minister considers closing borders, and this afternoons US data release.

G20 and Michigan Primary in Focus

Word of the week Wednesday, G20 reconvene in Sao Paulo, Democrat and Republican primary elections in Michigan last night, and preparations for the Gaganyaan space mission sees four Air Force pilots shortlisted.

Hungarian National Assembly Approves Sweden’s Nato Bid

Travel Tuesday, motion supported by Hungarian parliament to allow Sweden to join Nato, Trump's legal bill continues to grow interest with US monetary conditions at their tightest level in 22 years, and today's data.

Red Sea Disruption

Macro Monday, report from the BCC on the impact on British businesses from Red Sea disruption, Ukraine president announces number of deaths since the Russian full-scale invasion, and data releases today.

Two Years Later

Friday feeling, what's happened in the last two years of the Russia-Ukraine conflict, and more hawkish views from the Fed.

Find out more about our foreign exchange solutions
Contact us