Daily Brief – Jet Fuel

Jet Fuel

Europe obtains 75% of its jet fuel from the Middle East and since March 1st the price per tonne has risen from USD 831 to USD 1560. Jet fuel accounts for 40% of airline operating costs but the continuing crisis in the Gulf is much more than being simply about higher costs and airline economics. Existing stocks are sufficient with some scheduling efficiencies and cancellations only to last until the end of May. Replacement supply is being sourced from the USA and Nigeria but at best that will replace half of what was being delivered from the Middle East. What is less appreciated is that the replacement fuel from the USA is not earmarked for Europe as the Asian market is actively competing for that same fuel. In summary, unless an immediate cessation of hostilities and the full restoration of oil supplies is achieved this week, there will be flight cancellations on a scale which is at present more than not appreciated, it is not understood.

EUR/USD 1.1763.

Inflation

As is well understood, much higher energy costs post March 1st will be inflationary and the playbook result of higher inflation is for Central Banks to raise interest rates. It is becoming clearer as the weeks have passed that the argument that the energy price hike is a blip as described by POTUS is flawed and that inflation is moving higher than currently priced. That cost push rather than demand led inflation will crush demand and therefore economic activity as consumers will prioritise paying for food which is moving much higher due to the rise in fertiliser and freight costs. That leads to a much more significant economic contraction globally. Following that argument through, that will turn conventional wisdom on its head and rather lead Central Banks to cut interest rates despite that higher inflation. Extending that scenario further and drawing parallels with the economic response to the Pandemic, Central Banks may have to consider a return to Quantitative Easing. As for an investment response to that economic environment, the purchase of assets that benefit from higher inflation is the sensible option i.e. Commodities, Agriculture stocks, Infrastructure, and Real Estate.

GBP/USD 1.3503.

UK Unemployment

Good news for the UK Chancellor that the headline rate has fallen from 5.2% to 4.9%, but hang on, it is apparently due to a reduction in the number of students who are looking for work to concentrate on their studies and who are therefore taken out of the economically inactive who are seeking employment. That’s all right then: it’s back to the Spring sunshine and daytime TV for those re-designated students.

GBP/EUR 1.1477.

Slimline Houses

No sooner had we read about a 7 foot wide 3 storey house in Peel Street, Kensington, W8 London that is on the market for GBP 1,250,000 and boasts 2 bedrooms, 2 bathrooms,  kitchen, dining area, and sitting room than a similar property has come on the market in Pentre, Rhonnda Cynon Taf in Wales. Originally offered at GBP 23,000 but with only 1 bedroom, bidding has been so brisk that the 35 interested parties have driven the guide price up to GBP 45,000. A sign surely of the constrained times that we live in.

EUR/JPY 187.26.

Survivor

This day in 2001 US female band Destiny’s Child went to Number 1 in the UK with this number. Houston, Texas was the birthplace for the band which has been active since 1990 and more pertinently included the legend that is Beyoncé.

Soul survivor, yo
But this the Azza
Destiny’s Child, yeah
Soul Survivor, yo
Soul Survivor, yuh-huh
Soul Survivor, yuh-huh
Soul Survivor, yuh-huh
Soul Survivor

Now that you’re out of my life, I’m so much better
You thought that I’d be weak without you, but I’m stronger
You thought that I’d be broke without you, but I’m richer
You thought that I’d be sad without you, I laugh harder
You thought I wouldn’t grow without you, now I’m wiser
Thought that I’d be helpless without you, but I’m smarter
You thought that I’d be stressed without you, but I’m chillin’
You thought I wouldn’t sell without you, sold nine million

I’m a survivor
I’m not gon’ give up
I’m not gon’ stop
I’m gon’ work harder
I’m a survivor
I’m gonna make it
I will survive
Keep on survivin’

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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