Lunar New Year, Tanks to Ukraine (or not), and An Election Switcheroo in Turkey.

Good morning.

Welcome to the upside-down edition of the Daily SITREP

Don’t worry, it’s not as scary as the Upside Down. Image © Stra Things / Netflix

I like numbers. You like numbers. We all like numbers. (If you don’t…) 

But the danger of writing a daily briefing that leads with the metrics is that it can feel like a market tracker (this isn’t) and you can get a little ‘number blind’. You also might get sidetracked on your way to the updates which are hopefully flagging what you really need to pay attention to (that would be bad).

So I’m flipping the format all week to see which version people prefer. The content is all the same, I’m just moving the metrics to the bottom and leading with the analysis. (Also, the ‘Random Stat’ will become a more general palate cleanser seeing as I’ve realized it takes as long to write that part as it does to write the rest of the newsletter….)

Let me know what you think and I’ll lock in the preferred format for next week.

Let’s go.

Coverage and Analysis

Happy Lunar New Year

Sunday was Lunar New Year and the beginning of a three-week-long celebration in China. As mentioned in last week’s updates, this will be a bittersweet time for many as it will be the first time since COVID that some families have been reunited. However, for many – particularly the elderly in rural settings – it’s also their first exposure to the virus that’s now sweeping China. Beijing reported 12,600 COVID-related deaths in the week before the Lunar New Year and said that 1.1 billion people had been infected since restrictions were lifted. Even these enormous numbers might be downplaying the extent of the illness as Beijing uses a very narrow definition for recoding a death as COVID related.

Rightly or wrongly, Beijing seems to have factored in the effects of COVID and is now focused on the county’s economic reopening which will really start in mid-February as people return from the holidays. Expect iron and steel and crude prices to move higher as China’s manufacturing and construction sectors kick into gear. Exports will assumedly increase as manufacturing picks up but this will lag a few weeks behind.


There were two noteworthy pieces of news concerning Ukraine over the last few days. First, Germany is still delaying approval of sending Leopard II tanks to Ukraine which, due to export regulations, means that other NATO allies who use the tanks are also prevented from sending the vehicles. Many thought that the change in defense ministers last week would give Chancellor Shultz an opportunity to approve the export so it’s not clear what might need to happen to send additional tanks to Kyiv. Too long a delay will prevent the Ukrainians from having the necessary training and setting up the maintenance and supply chains required in time for a spring offensive.

Image (C) Bundeswehr-Fotos

See the LA Times for more 

Second, the Biden administration signaled that it was more open to Kyiv attempting to retake Crimea. Previously, this had been seen as a no-go due to the chances that Moscow would see this as a red line, worthy of nuclear retaliation. However, statements last week indicated that Washington’s stance was changing.

“After months of discussions with Ukrainian officials, the Biden administration is finally starting to concede that Kyiv may need the power to strike the Russian sanctuary, even if such a move increases the risk of escalation, according to several U.S. officials who spoke on condition of anonymity to discuss the sensitive debate. Crimea, between the Black Sea and the Sea of Azov, is home to tens of thousands of dug-in Russian troops and numerous Russian military bases.

White House officials insist there is no change in position. Crimea, they say, belongs to Ukraine.

“We have said throughout the war that Crimea is Ukraine, and Ukraine has the right to defend themselves and their sovereign territory in their internationally recognized borders,” said Adrienne Watson, a spokeswoman for the National Security Council.”

Crimea is of much greater strategic importance to Russia than the Donbas region and other parts of Eastern Ukraine meaning that a fight for Crimea would give Russia the advantage of a defender’s mindset. The troops and materiel required by Ukraine would also be enormous so this would be a considerable expansion and extension of the war, extending the effects on global wheat prices and to a lesser extent the cost of energy. Finally, the chance of Russia using a tactical nuclear weapon to defend Crimea is non-zero as this is wholly within the scope of their doctrine for defensive operations. So there’s also that to keep us up at night…

Turkish Election Date Switch

President Erdogan announced that Turkey’s dual presidential and parliamentary elections would now take place on May 14, not June as had been previously announced. This is a historically significant date and the earlier voting may give Erdogan some advantages but it’s not clear if that would be enough for him to overcome considerable unpopularity. There’s also some constitutional maneuvering in Parliament for the snap elections to progress and for Erdogan to stand as a candidate so this seems to be a higher-risk strategy for Erdogan. The effect of the date-change outside of Turkey is likely to be limited but it will demand a lot of attention internally which may make Ankara less attentive to regional issues.

Here’s a good write-up and some excellent analysis from Al Monitor

Election Watch

26 January: Tokelau, General Fono29 January: Liechtenstein, Constitutional referendumCampaigning has begin for Tunisia’s second round of the 2022 legislative elections. (Voting is scheduled for January 29)Turkey’s elections have been brought forward to May 14.

On to the numbers

Relative Values (90-Days)

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Trends (21-days)

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(Still not sure of how to use these metrics in your risk analysis? There’s a cheat sheet at the bottom of the email but the user’s guide is here. Want to know more? Read the white paper.)

Commentary and Evaluation

Brent Crude

Potentially impacting: Fuel prices | Gound shipping costs. | Plastic prices | Changes to fuel subsidies (potentially leading to unrest) | Cost of living (especially transport and heating) | Changes to traffic volume/transportation choices | Demand for automotive products | Theft and smuggling.

(No change) Brent Crude remains in the mid-range for this 90-day interval. Prices ended relatively flat over the last 21 days after some dips but prices seem to be trending upwards at the moment. 

What to Watch

(No change) Market commentary and analysis vary wildly about what oil will do in 2023 and the broad analysis I shared earlier holds for many: ‘prices will peak around $95 with an average of around $90, a drop from previous 2023 estimates which reflects a gloomy outlook for the year’. 

See Reuters for more

However, within that range, the opportunity for significant movements remain and China’s plans for a great economic boom are leading some to forecast oil moving up as high as $110 by Q3. The exact number is less important here than the reinforcement of the idea that China’s reopening will kick in soon and will lead to significant increases in demand for oil as well as other commodities by mid-year.

Iran remains worth watching as their motivation and ability to inflame tension in the Gulf remain. 

Talk of the rise of the petroyuan in 2023 is overblown. See this update for more.

Iron and Steel

Potentially impacting: Cost of construction projects | Construction project timelines | Cost/availability of raw materials | Infrastructure project timelines/costs | Cost and availability of finished metal goods | Value of scrap | Value of 2nd hand equipment/vehicles.

(No change) Iron and Steel remain very high for this 90-day interval. Prices increased moderately over the last 21 days after slight fluctuation and continue to creep up. 

What to watch

(No change) The Chinese construction and manufacturing boom that many expected in 2023 is off to a very unsteady start as COVID spreads rapidly after December’s relaxations. Sectors that had struggled under the strict COVID restrictions are suffering just as much in the current laissez-faire environment. This is temporarily delaying the expected economic boom but many analysts expect things to take off in late Q1 meaning that demand for oil, shipping and commodities will all rise significantly thereafter. See Bloomberg for more

Market Volatility (VIX-US)

Potentially impacting: Availability of capital for investment | Interest rates| Share prices | Consumer confidence | House prices/rent | Financial certainty/uncertainty | Financial models | Stock-based compensation values.

(No change) Volatility (VIX) is very low for this 90-day interval. The index has decreased sharply over the last 21 days after significant fluctuation and spikes around the New Year although there are signs it might be ticking up again. 

What to Watch

(No change) Messaging from the US Fed and ECB remain consistent and the end-of-year turbulence has faded, meaning that although the news in many sectors isn’t welcome, the general market conditions seem to have been broadly accepted and priced in. Layoffs continue in tech, banking and retail while some large brick-and-mortar stores, like Bed Bath and Beyond, seem to be slipping further into difficulty. So although decision-makers have greater clarity as to what lies ahead, economic conditions are grim for many and look to remain so for short- to mid-term.

However, negotiations around raising the US debt limit will be contentious and cause significant turbulence in the run up to hitting the ceiling, likely in late Q2, early Q3. See last Tuesday’s piece on debt limits for more. 


Potentially impacting: Bread, pasta, couscous & noodle prices | Changes to food subsidies (potentially leading to unrest) | Cost of living | Movement from low-income to food insecure to undernourished | Increased theft or graft in loosely governed areas | Demand on charities.

Wheat is high for this 90-day interval. Prices ended relatively flat over the last 21 days after slight fluctuation.

What to Watch

(No change) Despite agreements brokered by Turkey, Russia could still impose a complete blockade on Ukrainian grain exports to exert pressure on Kyiv and her allies. Meanwhile, even strict controls and inspections for outbound shipments mean that exports remain slowed. Moscow could also conduct military operations to disrupt spring planting meaning that prices could rise again next spring and summer. Read more in AGWeek  

Ocean Freight (FBX)

Potentially impacting: Supply chain costs (direct and indirect) | Supply chain delays | Port capacity/throughput speed | Customs clearance | Availability of goods and materials | Consumer demand/hoarding.

(No change) Shipping (FBX) remains very low for this 90-day interval. Prices decreased sharply over the last 21 days after the spike we saw in December.  

What to watch

(No change) China’s reopening and the effects of recessions on demand in the US and elsewhere remain the biggest issues to track but there are no definitive signs to watch at the moment. Chinese New Year will depress manufacturing and shipping volumes but expect these to rise significantly in late February once the celebrations are over.

Up-to-date shipping data supplied by our partner Freightos

Palate cleansers

A startling road safety ad via Mohandas Menon on Twitter (prepare to jump – I did) 

Apropos of nothing…

That’s a wrap. Please let me know what you think about the layout, style and format of the SITREPS – your feedback really helps make this a better product!

See you tomorrow

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