Currency
The Pound to Dollar exchange rate (GBPUSD) could be at risk of retreating back to 1.20 over the coming weeks according to a new technical analysis from Bank of America. However, nearer-term studies suggest further consolidation nearer 1.24.
GBP/USD gathered bullish momentum in the European morning and climbed toward mid-1.2400s. The pair faces strong resistance at 1.2440 and it could stretch higher once that level is confirmed as support.
Although GBP/USD dropped below 1.2400 for the third straight day on Wednesday, it quickly reclaimed that level, with the US Dollar (USD) struggling to preserve its strength. The pair’s recent rebound, however, looks to be fuelled by a technical reaction amid a lack of fundamental drivers.
In the second half of the day, the US Census Bureau will release the Goods Trade Balance data for April. The Federal Reserve’s Consumer Credit Change data will also be featured in the US economic docket. Nevertheless, market participants are unlikely to base their positions on these figures ahead of next week’s all-important inflation report and FOMC policy meeting.
Hence, markets’ risk perception and technical developments could continue to affect GBP/USD’s movements during the American trading hours.
Sources – Pound Sterling Live & FX Street
Production Update
Chinese manufacturing continues to experience a contraction as the global demand outlook shows little indication of short-term improvement. Developed nations are still grappling with inflationary and recessionary pressures. Although some experts believe that inflation has reached its peak following the supply shocks caused by:
- The COVID-19 pandemic
- Russia’s invasion of Ukraine
- Escalating energy expenses
In an orchestrated attempt to combat inflation, major central banks are actively implementing measures such as:
- Raising interest rates
- Reducing their asset holdings
Consequently, financial conditions are becoming more restrictive.
As a result, there is a general slowdown in both household and business spending. The capacity that was previously hindered by port congestion is gradually re-emerging in the market as bottlenecks gradually ease.
Freight Update
According to HSBC, the downward trend in freight rates has slowed down compared to December 2022. It’s expected that rates will stabilise at their current levels. Nevertheless, there is increased confidence in the market for the upcoming year. It’s predicted that there will be a surge in demand and trade in the latter half of 2023. HSBC supports this sentiment and maintains its outlook that container volumes will be boosted by inventory restocking worldwide.
The reliability of container line schedules is steadily improving and approaching pre-pandemic levels. Sea-Intelligence analysts reported that the figure for March 2023 is comparable to the same month in 2020. This was just before significant disruptions caused by Covid-19 lockdowns across multiple countries.
Currently, most ports in China are operating without any significant issues. However, vessel space is tight at Ningbo port due to a high number of empty units occupying dock space. The carrier CMA is also experiencing a shortage in 20’ containers. The current waiting time is approximately 2-4 days.
Airport operations are currently experiencing stability, with no flight cancellations or weather disruptions. The market is entering a phase of stabilisation. Rates are projected to remain higher than those observed in the first quarter. Demand has rebounded and is maintaining a relatively consistent level with E-commerce goods dominating the air market and occupying a significant volume of the available space.
Some freighter capacity, specifically on the Transpacific route, is being withdrawn. However, with the upcoming summer season, the introduction of passenger capacity is expected to balance the overall capacity (including both freighter and passenger) and keep it relatively stable. This is anticipated to create a favourable equilibrium between supply and demand in the market.
Brexit
The UK government has made the decision to abandon its plans of eliminating numerous retained EU laws by the end of the year. This includes the removal of the controversial ‘sunset clause’ from the Retained EU Law (REUL) bill. This would have caused UK laws originating from the EU to automatically expire after December 2023. The ‘sunset clause’ had faced considerable criticism due to concerns about the tight deadline and the potential risks it posed to businesses and consumers.
There were worries that civil servants would struggle to identify all the relevant legislation and implement the necessary modifications within the given timeframe. This raised concerns about the potential loss of important protections in areas like food safety and trade. By early May, only 20% of the nearly 5,000 relevant bills had been addressed, according to the government’s website.
Logistics UK has expressed its appreciation for this decision and had previously written to the Prime Minister, urging careful consideration of the potential costs and risks to the supply chain that could arise from rushing the deadline. Kate Jennings, Director of Policy at Logistics UK, stated that the organisation had been in constant communication with the government regarding the Retained EU Law Bill’s impact on the industry. She emphasised the need for clarification on which specific aspects would be reviewed to ensure the ongoing security of the supply chain, viewing the change in approach as a step towards facilitating the process.
Northern Ireland
Northern Ireland continues to lack a functioning government as the Democratic Unionist Party (DUP) withdrew its participation in protest against the post-Brexit trading arrangements for the region. While the UK and EU recently reached the Windsor Framework to streamline procedures for goods entering Northern Ireland from Britain, the DUP is seeking further assurances.
However, the DUP has faced significant criticism. As many now believe that with the new Windsor Framework, Northern Ireland is in a highly advantageous position. Despite the absence of local ministers, the responsibility of setting Northern Ireland’s budget for 2023/24 has fallen on the current Secretary of State for Northern Ireland, Chris Heaton-Harris. In addition, senior civil servants have taken on the task of managing departments in the region.
Commodities
In the latest tracked commodity update, the month of May brought a mixed bag of price fluctuations across various commodities. One notable change was observed in the price of Nickel, which experienced a decrease of 3.72 USD/KGS. On the other hand, Neodymium saw an increase of 10 USD/KGS, reflecting a potentially growing demand for this particular commodity. Additionally, Aluminium witnessed a modest increase of 0.44 USD/KGS. Cobalt faced a decrease of 1.42 USD/KGS, while Copper saw a decline of 0.47 USD/KGS, possibly influenced by fluctuating market forces. Similarly, Samarium experienced a decrease of 0.10 USD/KGS, and Zinc witnessed a decline of 0.39 USD/KGS. These varying price movements across commodities emphasise the dynamic nature of the market and the importance of monitoring and adapting to changing conditions.
In the month of May, the price of Brent Crude Oil experienced a significant decline, dropping by 7 USD per barrel. The drop in Brent Crude Oil prices at the end of May underscores the complex interplay of economic, geopolitical, and pandemic-related factors shaping the global energy landscape. We will continue to monitor the situation and keep you updated on any further developments.
Goudsmit UK Response
Goudsmit UK continue to communicate with all customers proactively in order to manage expectations. We provide multiple solutions, allowing our customers to make conscious decisions when balancing cost versus supply chain risk.
We’ll continue to advise all customers at the point of quotation and order confirmation of the extended lead times so that they can be factored in when planning. We would request that you review your current requirements and advise of any issues asap. We’d urge you to review your requirements for 2023 through to 2024, at the earliest opportunity.
Whilst freight delays are unavoidable at this time, we are working with our customers by holding larger volumes of UK stock for longer and would encourage that a minimum of 8-10mths of buffer stock is considered when re-ordering new production to help reduce the impact of freight delays and lessen the potential requirement for costly airfreight.
