The Global News Roundup collects news stories from entirely international (non-US) media sources on a wide variety of global political and economic issues and events.
It’s been a turbulent week. Former Japanese Prime Minister Shinzo Abe was assassinated on the campaign trail by a man using a homemade gun, Sri Lankan President Gotabaya Rojapaska announced his resignation after protesters stormed the Presidential Palace, and outgoing OPEC General Secretary Mohammed Barkindo died suddenly at age 63. On the heels of UK PM Johnson’s resignation last week, US President Joe Biden’s approval ratings fell to their lowest levels yet and Italian political coalitions are fracturing under the pressure of rising energy costs as PM Mario Draghi faced a no confidence vote in parliament.
The situation with commodities markets continues to grow stranger and more dire. Futures prices seem, more and more, to be poor predictors of physical market conditions. Crude futures prices fell again this week, with traders largely pricing in mounting recession risks. On Thursday, the nearby WTI crude contract for August delivery was trading roughly between US $92-96/barrel, on the back of several weeks of sustained declines. Natural gas futures are declining alongside oil.
You might recall the hoopla in oil futures markets early in the pandemic, when WTI futures trading collapsed as prices turned negative owing to lack of demand and dearth of available storage facilities for surplus oil. And, earlier this year, the London Metal Exchange halted nickel trading as prices skyrocketed and triggered debilitating margin calls. These sorts of market failures are poised to become a lot more common in the medium term, as long-term commodity supply constraints and geopolitics increasingly structure price dynamics and futures markets grow more illiquid.
To this point, in oil and gas markets today, there are growing indications of very tight supplies and continued price inflation moving forward, raising the possibility of recessionary, or even depressionary, general economic conditions alongside soaring food and fuel prices (i.e. serious stagflation). Saudi Arabia just raised prices, again, for August crude exports to Asia. The move comes in advance of US President Biden’s visit to Saudi Arabia on Friday as part of his Middle East tour, and amidst speculation that Saudi Arabia and the UAE do not actually have as much spare production capacity as previously thought. Officials in Texas warned of rolling blackouts owing to tight energy supplies combined with the recent heatwave, German officials planned “warming stations” in anticipation of colder fall and winter temps amidst a massive energy shortage, and Russia turned off the Nordstream 1 pipeline that supplies natural gas to Europe for maintenance. Russia leveraged the scheduled pipeline maintenance to chip away at Western sanctions and alliances, with Canada ultimately agreeing over Ukrainian objections to bypass sanctions in order to send Russia the turbine they said they needed to make the repairs.
State-run outlet Russia Today reports on the US’s recent proposal to cap Russian oil prices: “The global price of oil could jump by about 40% to $140 per barrel if a proposed price cap on Russian crude is not imposed, a senior US Treasury official told Reuters on Tuesday.” July 22, which some have dubbed Europe’s “doomsday”, is the scheduled date for the pipeline to be turned back on. French Economy and Finance Minister Bruno LeMaire captured the pessimistic climate around Russia’s next move: “Let's prepare for a total cut-off of Russian gas; Today that is the most likely option.”
The weakening global economic outlook alongside expected future interest rate hikes in the US has put massive upward pressure on the US dollar as investors flee to safety, further exacerbating trade deficits and currency depreciation, especially in emerging markets: “The appreciation of the US dollar has already coincided with portfolio outflows from emerging markets: they experienced a fourth consecutive month of outflows in June, the longest such run in seven years”, reports the IMF. For example, see these IMF write ups from this week on the Central African Republic, Pakistan, and Ghana). But even the EU is feeling the pressure, with the euro briefly trading under parity with the US dollar on Wednesday.
Things I’m keeping an eye on:
1. The unbelievably stupid, cruel, and dangerous game of chicken the US and its NATO allies are (still) playing with the Russians in food and energy markets, and the now-very-strong probability that the West will blink first and finally seek a diplomatic solution in Ukraine, especially if Nordstream 1 remains inactive after July 22;
2. If the proposed price cap on Russian oil gets enough traction with US allies and partners to be workable (seems that India and China would have to agree, which is unlikely, in my opinion);
3. The medium- and long-term consequences of rising US interests rates and rapid dollar appreciation (it’s logical to anticipate that officials in emerging markets will expedite efforts to de-dollarize and conduct business in alternatives currencies); and,
4. Court cases and legislative action around the world on covid and covid-era public health policies (I just learned about this case in New Zealand, and this recent legislative decision in France), as the BA 2.75 variant of SARS-CoV-2 (dubbed Centaurus) spreads (data about how dangerous it is, or not, are still unclear).
5. The Chinese financial system. News of a mortgage payment boycott by homeowners is coming out as I’m finalizing this issue, on the back of several bank runs over the past few months, and similar (but smaller scale) protests among housing market investors last fall/winter.