InvestMacro

By Gokcay Balci, University of Bradford 

Attacks on international cargo ships in the Red Sea from Houthi-controlled Yemen have seen several cargo vessels hit by missiles and drones in recent days.

In response, global shipping companies and cargo owners – including some of the world’s largest container lines such as Maersk, as well as energy giant BP – have diverted ships from the Red Sea. So far, more than 40 container ships have been diverted, with many rerouted to less direct channels than the Suez Canal – an artificial waterway in Egypt that connects the Mediterranean Sea to the Red Sea.

Opened in 1869, the Suez Canal is one of the busiest canals in the world, carrying around 12% of global trade. In 2022, 23,583 ships used this route. Any disruptions can have severe knock-on effects as these ships deliver goods from one country to another. Ultimately, this can even feed into the prices you pay for certain goods, as well as the time it takes to get things delivered from overseas.

Remember when the container vessel Ever Given got stuck in the Suez Canal for six days in 2021? It affected the shipping lane for weeks, playing havoc with global supply chains and disrupting global trade flow to the tune of billions. Previously, when the Suez Canal closed between 1967 and 1975 due to the six-day war between Israel and a group of Arab states, global trade was also negatively affected. Ships had to sale around South Africa’s Cape of Good Hope instead – a much longer route.

While there is also a Northern Sea route that ships can take, it is not navigable in winter season and not yet commercially viable for many shipping companies. And so, the Suez Canal is the shortest and most suitable sea route between Asia and Europe.

Longer journeys will impact global supply chains

The sailing time between eastern Asia and western Europe can increase by about 25-35% when ships use the Cape route. For instance, a vessel travelling at 13.8 knots per hour (the current average speed of global container ships) between Shanghai, China and the Port of Felixstowe in the UK will see its sailing time increase from an average of 31 days to 41 days when sailing around the Cape.

It’s even worse for exporters shipping goods from say Italy to Dubai – the Cape route could take them 160% more time than the Suez route (12 days versus 32 days). These sailing times could be more for container vessels as they stop at other ports along their routes.

When it comes to comparing costs for the two routes though, the figures are not straight forward. Vessels passing through Suez Canal need to pay a toll. This can be as much as US$700,000 (£550,000) for a vessel carrying 20,000 containers (a typical large container vessel commonly used for east to west trades). But the Cape route could still cost 10% more, even with the canal transit fee, according to research published in 2022. The exact cost difference also depends on current fuel prices, as well as size and the type of vessel.

But it will be the reduced shipping capacity due to longer transit times, not the increased operating costs of shipowners, that will really weigh on global supply chains. This is because freight rates (the price companies pay to transport goods) depend on supply and demand.

It was a supply and demand imbalance that caused shipping costs to skyrocket during the COVID pandemic. Shipping supply was reduced because of disruptions, but demand increased because people were spending more on goods than services during lockdown. This time, the magnitude of freight rate increases is unlikely to be as large because there is no indication of a surge in demand for shipping services.

How shipping disruption affects you

If you live in the UK and have ordered new sofa from a manufacturer in China, you could expect a delay of at least ten days. The prices of certain products could also rise if freight levels increase significantly. An International Monetary Fund forecast shows a doubling of shipping costs could increase consumer price inflation by 0.7% percent.

However, sea freight activity generally has a marginal impact on most consumer prices – it only makes up 0.35% of prices for some types of clothing, for example. On the other hand, oil prices could spike if more energy companies follow BP and stop using Suez Canal, especially if this disruption persists over time. The price of Brent Crude – a global benchmark for oil – has already risen from US$73 on December 12 to about US$78 on December 18 2023.

Although you might not have to pay more for the products you buy, there is another cost of this situation, for people and the planet: increased carbon emissions. More than 3,000 extra nautical miles will be taken by vessels using Cape route, which could generate around 30-35% more carbon emissions than if these ships were sailing the Suez route. The shipping industry already creates 3% of global emissions.

Shipowners will be forced to keep diverting ships from the Red Sea if attacks on vessels continue. Of course, it remains to be seen when and how this problem will be solved. Until it is, uncertainty and change could continue to affect your pocket – and the planet.

About the Author:

Gokcay Balci, Assistant Professor in Logistics and Supply Chain, University of Bradford

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By ForexTime 

• SPX500_m pushing higher today to kick off “Santa Rally” period
• “Santa Rally” period typically refers to last trading week of December and first 2 trading days of new year
• S&P 500 has climbed in 4 out of the past 5 “Santa Rally” periods
• US stocks soared this year due to AI-mania and hopes for Fed rate cuts in 2024
• SPX500_m should have enough reasons to reach new record high next year

The SPX500_m is edging higher on this first trading day after Christmas.

NOTE: The SPX500_m tracks the underlying S&P 500 index, which is the benchmark used to measure the overall performance of US stock markets.

Gains today (Tuesday, December 26th) and in the days ahead, would prove true the seasonal occurrence of a “Santa Rally”.

What is a “Santa Rally”?

The classic Santa Rally sees US stock markets rising around Christmastime, and going into the new year.

According to research going back to 1950, this “Santa Rally” period specifically refers to the last week of December and the first two trading days of the new year.

This year-end period has produced a positive return for the S&P 500 nearly 79% of the time.

Furthermore, December has historically been a favourable month for US stocks.

According to Dow Jones, the S&P 500 has ended higher in December more often than any other month.

No other similar duration of trading sessions is more likely to be higher.

The statistics also indicate that this seven-day span has averaged a 1.3% gain which is the third-best seven-day run of the year.

Still, market commentators tend to use the ‘Santa Rally’ term quite broadly to refer to either the entire month of December or a relatively longer time period.

After all, the SPX500_m has been soaring since early November, and really for much of this year (more on that in a bit).

“Santa Rally” happened in 4 out of the past five year-end seasons

Hence, if we take further liberties with the supposed timeframe, extending it from the first post-Christmas trading day until the first weekend of the new year, here’s how the S&P 500 has fared during this festive period:

• 2022 – 2023 = +1.3%
• 2021 – 2022 = -1%
• 2020 – 2021 = +3.3%
• 2019 – 2020 = +1.4%
• 2018 – 2019 = +4.8%

Of course in some years, stock markets have performed poorly, as was the case at the tail-end of 2021 as stocks continued to struggle with the prospects of incoming Fed rate hikes.

So, seasonality and calendar theories are not a guaranteed way to make profits as it is tough to predict what will impact markets in any given year.

5 potential causes for a “Santa Rally”

There are numerous reasons why the last few days of December and the first couple in the new year are good ones for stock markets.

1. The January effect is often cited as institutional investors ready themselves ahead of and into the new year, to set up positions for the coming weeks and months.
2. We also see a rebalancing of portfolios by major institutions for tax-loss selling in December to close out losses, followed by repurchasing in January.
3. Certainly, the holiday period is a time of lower volumes when liquidity is thin. This can make it easier for bullish investors to move markets during the season of goodwill.
4. Increased holiday shopping and optimism over the Christmas season may also include investing holiday bonuses.
5. The impact may simply be a self-fulfilling one as investors know about the trend for a Santa rally so will buy stocks accordingly, leading to further gains.

Santa Rally would cap off a “magnificent” year for US stocks

Of course, 2023 has seen the “Magnificent Seven” take all the plaudits as they have propelled the major indices to (near)record highs.

Here’s a recap of the year so far for these 7 Big Tech stocks:

• Apple and Nvidia secured new all-time peaks this calendar year.
• Tesla and Meta more than doubled (climbed over 100% each) over the course of 2023.
• Amazon, Alphabet (Google’s parent company), and Microsoft have each recorded year-to-date gains of 82.6%, 60.8%, and 56.2% respectively.

All that far surpasses the S&P 500’s year-to-date ascent of 23.8%.

That said, encouragingly the market breadth has broadened in recent months.

In general, the greater the number of stocks that are helping push the overall market higher, the more support the market has.

2023 Recap: What drove US stocks higher this year?

Simply put, US stocks have climbed higher this year due to the AI-mania as well as hopes for Fed rate cuts in 2024.

This once again shows that markets are forward-looking in nature: today’s prices reflects tomorrow’s expectations.

For the first half of the year, much of the gains for US stocks had been due to the optimism surrounding artificial intelligence (AI).

Hence, the stunning double- and triple-digit returns seen for the “Magnificent 7” (Apple, Microsoft, Amazon, Nvidia, Alphabet, Tesla, and Meta).

Then, US stocks pulled back between August through October, as doubts started to creep in about whether the AI-mania had gone too far.

Also, this Aug-Oct period was when markets heeded the Federal Reserve’s (Fed) messaging that interest rates could stay higher for longer as US inflation appeared stubbornly elevated.

However, after the Fed’s final two policy meetings of 2023 (early-November and mid-December), markets ramped up hopes that US interest rates will move lower in the new year.

Such hopes were solidified when FOMC members (Fed officials who vote on interest rates) themselves projected 75-basis points in rate cuts for 2024.

NOTE: US stocks, especially growth/tech stocks, tend to rejoice at the prospects of US interest rates moving lower.
This is because lower interest rates make it cheaper for such companies to borrow money and expand their respective businesses.

Can the SPX500_m keep climbing next year?

US stock markets are expected to enjoy another year of gains ahead, based on 2 key reasons:

1) The aforementioned Fed rate cuts

2) US Presidential Elections seasonality

Since 1980, the S&P 500 has posted an annual gain in every single year featuring a US Presidential Election, except during the 2000 dot com bubble and the 2008 Global Financial Crisis.

The two factors listed above have even prompted Wall Street to forecast a further 7.6% in gains for the S&P 500 over the next 12 months.

If those forecasts prove true, by this time next year …

We could see the S&P 500 index above the 5,100 mark for the first time in its history!

As things stand, the SPX500_m’s highest-ever intraday price now stands at 4820.0, posted on January 4th, 2022.

That said, barring a “black swan” event that blindsides investors and traders in the coming year …

The SPX500_m should have enough reasons to set a new record high in 2024!

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

By Conrad Nunnenmacher, United Nations University; Franziska Gassmann, Maastricht University, and Julieta Morais, United Nations University 

The economic fallout of COVID-19 left people around the world facing a significant threat to their livelihood. As governments scrambled to mitigate the pandemic’s impact on their populations, many decided to use direct payments to support vulnerable citizens.

More than a sixth of the world’s population received some sort of cash transfer in 2020. These programmes were a key source of support for many people during the COVID-19 pandemic, with governments across the globe scaling up or introducing such payments.

Brazil, for example, introduced the Auxílio Emergencial programme, while the US implemented Economic Impact Payments. Both cash transfer programmes aimed to shield vulnerable populations. This was also not exclusive to middle- and high-income countries. Togo, for instance, implemented the Novissi cash transfer programme during the pandemic.

Using cash payments to protect people’s livelihoods and lift the poor out of poverty is not a novel strategy. It can be a simple way to provide basic social protection to people in need, helping citizens to withstand sudden shocks and also facilitating their recovery after a crisis.

Cash assistance as financial burden?

But cash transfers still attract a lot of debate. Besides typical concerns like creating dependency and reducing labour supply, these programmes are costly. This can cause concern about their sustainability and hinder the initial implementation and scale-up.

For example, the Social Assistance Grants for Empowerment programme in Uganda in 2010 became so politicised that it was challenged every step of the way to its implementation and later expansion. Even before its pilot programme, concerns regarding its financial sustainability and the potential creation of welfare dependencies were raised by politicians.

During periods of economic crisis, austerity policies can also directly influence social assistance initiatives. After the 2010 economic crisis, for example, Greece initially suspended and subsequently terminated its housing benefit programme, attributing this decision to budget constraints.

But cash transfer programmes aren’t “handouts”. The positive impacts on the people that receive them are well documented. They are powerful instruments for strengthening household resilience and fostering opportunities that can extend beyond the immediate recipients.

The multiplier effect

There is another vital element of social cash transfers that most people aren’t aware of: the economic multiplier effect. In a recent study with Ugo Gentilini, Giorgia Valleriani and Yuko Okamura of the World Bank, and Giulio Bordon of the UN’s International Labour Organization, we found the multiplier effect can greatly enhance the financial sustainability of social cash transfer programmes.

The core concept is that every dollar transferred that is spent rather than saved can increase the total income in the economy beyond its original value.

Consider a smallholder farmer who uses some of her grant to buy fertiliser at the local market. The local merchant profits from it and then spends this additional income, increasing profits for someone else and setting off a ripple effect through the economy. These taxable gains go beyond the people that get the payment, effectively “multiplying” the original grant’s worth for the economy.

Investing in the entire economy

We reviewed 23 studies of 19 cash assistance programmes across 13 countries and found substantial evidence of this multiplier effect from social cash transfers.

In Brazil, for example, Bolsa Família, the current national social welfare programme of Brazil and one of the largest cash transfer programmes in the world, was found to increase real GDP per R$1 (£0.16) spent by R$1.04. This is a small but positive spillover into the Brazilian economy.

Another noteworthy example is the GiveDirectly initiative in rural western Kenya, a pilot programme that offered a US$1,000 (£791) one-off transfer to 10,500 poor households. This programme led to a strong positive economic shock with a multiplier of 2.5 per US$1. So, every US$1 transferred generated a value of US$2.50 locally – a strong positive spillover to the local economy.

Social cash transfers have the potential to not only support the poor and vulnerable, but also to stimulate the wider economy. Rather than simply accepting the general perception of social transfers as an expense, we should start recognising their true value as an investment in a country’s entire economy.

About the Authors:

Conrad Nunnenmacher, PhD Research Fellow in Innovation, Economics, Governance and Sustainable Development, United Nations University; Franziska Gassmann, Professor of Social Protection and Development, Maastricht University, and Julieta Morais, Researcher in Social Protection, United Nations University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Jay L. Zagorsky, Boston University 

December 2023 marks the 250th anniversary of the Boston Tea Party, one of the most famous events leading up to the Revolutionary War. On the night of Dec. 16, 1773, Colonists marched aboard three ships and threw more than 90,000 pounds of tea into Boston Harbor. No one died, and the only things injured were the tea leaves, but this event helped precipitate a major war.

I am a business school professor who often drives by the Tea Party site while taking his wife to work. Each time, I ponder the lessons this “party” has for people in business. Many aren’t obvious. Here are four that come to mind.

1) Publicity is important

There were actually 10 “tea party” protests across the 13 Colonies in the late 1770s. However, only one ended up in the history books. The others, including a second one in Boston just four months afterward, were largely forgotten. Getting the word out fast, which in those days was done by newspaper, is key. Otherwise, you can do a lot of work that will be ignored.

2) Dramatic changes in the market can cause problems

The volume of tea imports into the Colonies rose at a very fast rate in the four years leading up to the Boston Tea Party. They went from 55 tons in 1770, which was close to the amount dumped in the harbor, to 370 tons the year the tea was dumped. This was an increase of almost seven times. The population of the Colonies was about 2 million people in 1770 and didn’t expand much in that four-year period. Basic economics tells us this dramatic increase in supply without more customers meant the price of tea had to fall a lot.

We don’t know for sure the identities of the ringleaders who convinced people to dump the tea. As a business school professor, I believe it’s clear that some protesters were protecting their commercial interests. Shopkeepers, merchants and smugglers who had stocks of tea on hand didn’t want to see 90,000 more pounds of tea flooding the market. It would make them lose money. Dumping the tea in the harbor was a way of protecting their investment.

3) Even relatively small dollar amounts make big impressions

For all the fuss about the tea that was dumped, the damages weren’t huge. The British East India Company reported 9,659 English pounds in damages. That would be about 1.2 million pounds in today’s money, according to the Bank of England’s inflation calculator. Using the current exchange rate of $1.26 to a British pound means the tea dumped cost about US$1.5 million.

To give you a rough idea of how small this is, last year the U.S. imported half a billion dollars’ worth of tea. In terms of my favorite British import, the destroyed tea was worth about the same price as three Rolls-Royce Phantoms.

4) Timing matters … but it isn’t everything

The Tea Party happened on a night when the tide was especially low, with only 2 feet of water under the ships. Because the tide was so low, much of the tea didn’t get wet. Instead, it ended up in a giant pile, mostly dry, beside the boats. This meant the partygoers had to climb out of the boats and spend hours sloshing in the mud moving the tea into the water.

Given that the tea arrived at the end of November, they could have picked a time that would have made the job less difficult. Nonetheless, the revolutionaries weren’t deterred, since hard work can often overcome the worst timing.

When it comes down to it, history is more than just stories we tell children. The past contains many lessons for adults, including businesspeople. This incident, which played a key role in inciting the Revolutionary War that freed the American Colonies from British rule, is so much more than a cartoon image of men dumping chests of tea into Boston Harbor.

About the Author:

Jay L. Zagorsky, Clinical Associate Professor of Markets, Public Policy and Law, Boston University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By George Prior 

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.