Good Morning,


Pretty much every car journey over the weekend had significant delays, either from queuing to get petrol or queuing to get past the queues of those waiting for petrol! The situation came about as plenty of government ministers took to news and social media and asked people not to panic, which invariably led people to panic. The army are now on standby to start driving fuel tankers, whilst the government has made available up to 5,000 temporary visas for HGV drivers that they hope will plug the gap – though the visas are being issued alongside 5,500 ‘food workers’ visas and they only run until Christmas eve, so the jury is out on whether enough foreign workers will take up the option of working temporarily for higher wages in the UK, versus staying where they are with some job certainty, particularly in road haulage, where demand across Europe is high and is therefore an ‘employees market’.


There are plenty of reassurances being offered on the amount of fuel the UK has, though we’d expect the prices at the pumps to increase as oil continues to move higher in the markets: Brent crude is trading at just under $80 per barrel and Goldman Sachs have adjusted their year end forecast to $90 as global demand remains strong and that hurricane Ida taking offline US oil production more than cancelled out the recent OPEC+ output increases. A high base oil price will feed directly into inflation numbers and the bank believes that this isn’t likely to be a transitory event, with the view that the market in 2023 will be back to a structural deficit and therefore prices remain around where we currently are.


Russia is standing ready to pump more gas to Europe, according to comments from Gazprom yesterday. They’re keen to sign more contracts with Europe and open up the taps on the pipelines, whilst they have also said that they have met all of the additional supply requests that they’ve had. This comes as the International Energy Agency has criticised the Kremlin for not doing enough to increase output as demand and therefore prices have soared. Even if more supplies are brought online, prices are likely to remain elevated well into the future, even as far as 2023 according to HSBC. Meteorologically, it’s looking like a colder than average winter being forecast across Northern Europe, which is going to keep pressure on already low stockpiles across the continent. We imagine those contracts that Gazprom is open to signing are going to be particularly lucrative!


Germany bid aufweidersein to Angela Merkel, after going to the polls yesterday. The outcome of the elections is that the SPD have edged a couple of percent on the CDU, but both parties have enough of a base to be able to form a working coalition, so the power now sits with the Greens and the liberal FDP party who will ultimately form the coalition. Based on previous experience, this could take anywhere from one to six months and while this is underway Angela Merkel’s current government will continue to perform a caretaker role. Markets remain relatively unfazed by the situation and either a grand centrist or grand leftist coalition wouldn’t be too much of a deviation from the norm – the bigger unknown is how much regional and global clout the new Chancellor will have, relative to the outgoing one.


Across the Pond: It’s a crunch week, with the debt ceiling due to be reintroduced on the 1st October and then immediately hit, which would force a shutdown. The administration’s plan is to wrap up the ceiling raise as part of the $1trillion infrastructure plan and the $3.5trn budget that he was hoping to get pushed through without support of the opposition. The timeline is tight, with the vote expected today, but now likely to be pushed back to later in the week and the negotiations within the party still continue over the size and scope of the budget, so we await an 11th hour outcome on this. Meanwhile the Federal Reserve will be dusting off its emergency playbook and could end up being the market maker in trading ‘in default’ government debt to ease the severe strains that would be felt in markets if the Treasury can’t operate as they normally would. This might sound like a small detail, but it fundamentally goes against the Fed’s preference to avoid directly financing the government, but also if they were to step in and keep things moving, this might slow down the political will to deal with the situation. The Wall Street Journal has more.


Apple and Tesla are falling victim to new Chinese rules around power consumption: Key suppliers in China have halted production of components over the weekend to comply with the government’s crackdown on organisations missing their consumption targets. Production could be offline for a week, which will have a huge knock-on effect to supply chains and at a terrible time, particularly for Apple, as we come into the festive season. The news will have plenty of other companies concerned that their supply chains are now even more at risk, with plenty of automotive and technology firms already well behind on what they would like to be producing, because of shortages in other components. The long read in the Nikkei is here.


China are stepping into Evergrande’s business and seizing the sales revenue of the company to protect consumers who are putting deposits down with the company to purchase properties. The move is being made by regional authorities and not by the central government but could well be quietly controlled by Beijing.  Evergrande made payment on its local debt interest payment last week but hasn’t commented on the $83.5m offshore coupon payment that was due, this now goes into a 30 day grace period before it officially moves into default. If the income the company is receiving from property sales is being withheld by authorities, it means that it cannot be used to pay other obligations, which could lead the company into a full default sooner rather than later, which means the government is protecting some citizens, but could be harming many others and also spark a contagion across the sector – so they’ll need to tread very carefully. The FT has a detailed write up.


Looking to the week ahead: There’s a lot going on, with a lot of central bankers speaking, inflation numbers and a whole host of manufacturing PMI readings coming in on Friday, which is the first day of the new month, which is also the day that China will go on their National Day holiday, which lasts a week. Stock markets have started slowly for the week and there is concern that the good news has gone and that we could be in for a long grind over the next few months, which could in turn lead to some corrections in asset prices – but that might just be the Monday Blues.


Have a great week


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