HC-AM Morning Report - Morning Round-Up
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Good Morning,
Here are this morning's headlines:
US Growth- This afternoon, the market will be paying close attention to US GDP figures for Q1 which are expected to come in at an annualized rate of 1.1% representing a slowdown in economic growth for the worlds largest economy. Following the conflict in Ukraine and soaring energy prices, growth forecasts in the US have been revised down with Goldman Sachs forecasting 1.75% growth in 2022 – down from their previous predictions of 2%. Furthermore, citing the yield curve inversion (often regarded as a precursor to recessions), Goldman also put the chances of a recession in the US next year between 20-30%. Goldman’s predictions are however considerably less optimistic than the Fed who predict 2.8% growth this year, although when considering that the OECD’s December forecast predicted 3.7% growth over 2022, the impact that the war in Ukraine has had on growth projections is increasingly apparent.
Today’s data follows the news that the US trade deficit hit record highs of $125bn over March representing a 17.8% rise. These figures involved a 15% increase in the import of industrial supplies, 13.6% increase in imports of consumer goods and 12% increase in the import of vehicles. Much of this increase in imports is thought to have come from business rebuilding their inventories, and it is worth noting that as the costs of imports increase – all things being equal – a trade deficit will increase.
Energy Markets- Following the news that Putin had pulled the plug on gas supplies going to Poland and Bulgaria after the countries refused to pay EUR and USD denominated contracts in RUB, Bloomberg are reporting that four European companies have gas made purchases in the rouble. For example, it has been reported that Italy’s Eni SpA is looking to open ruble account at Gazprombank.
The effect of yesterdays developments was somewhat muted on the UK gas market given that the UK imports much of its gas from Norway, while Russian imports account for around 4% of the UK’s total. Britain has also increased its importation of LNG from countries such as the US and Qatar, with these deliveries arriving in the UK’s three terminals. However, as imports increase and the country attempts to build its stockpile, the evident lack of storage facilities will cause a problem moving forward. As the UK looks towards LNG, this situation reaffirms the need to invest in storage facilities in order to build up energy reserves which can help soften the blow of any major price fluctuations in the global wholesale market.
Elsewhere Crude has seen a slight fall below $102dpb as investors weigh on the prospect of further lockdowns in China – especially in places such as Beijing and Hangzhou.
UK Car Industry- UK car manufacturing has dropped by almost 1/3 as figures indicate that around 100,000 fewer cars were produced in Q1 2022 than Q1 2021. The Society of Motor Manufacturers and Traders cited the surging cost of energy and persistent supply chain issues around microchips. Its also worth considering that Honda closed its plant in Swindon over 2021 which has had a considerable impact on the UK’s ability to manufacture cars at previous levels. Many analysts are also considering the effect that Brexit related uncertainties have had on companies’ appetite to invest in the UK car industry. This is particularly concerning given that car companies are making sizable long-term investments into the EV market and weighing up their cost-benefit analysis’ over where to invest.
Sticking with electric cars, the average range of a battery powered car is now approaching 260 miles, representing a threefold increase since 2011, according to the Society of Motor Manufacturers and Traders. Over the decade between 2011 and 2021, the number of EVs and hybrids sold in the UK also surged from just over 1,000 to 190,000. This means that around 40% of new cars sold in the UK have a plug. Its always worth reminding that in accordance with the country’s net zero targets, government has set a ban on the sale of new petrol or diesel cars by 2030 while also setting a ban of hybrids by 2035. Meeting such targets will of course require major investment into the nation’s road infrastructure, not least the number of public charging points which the government say need to hit 300,000 by 2030 – a sizable increase from the current figure of 30,000.
Have a great day.