The Nub

The prolonged closure of a key gas route from Russia threatens more turmoil for global gas and power markets, and spells deep trouble for Europe’s economy. Supply issues are set to dominate commodities trading in coming days, with Europe’s natural gas shortage in focus along with an OPEC+ decision on what’s next for oil flows. The prolonged closure of a key gas route from Russia threatens more turmoil for global gas and power markets, and spells deep trouble for Europe’s economy. The region’s leaders will consider extraordinary measures in response. The OPEC+ gathering later Monday comes after Saudi Arabia flagged the possibility of supply cuts for crude.

Why Does it Matter

Through his UK-based hedge fund firm, Phillips bought what is known as “options” for the dollar-rand exchange rate in late October 2017. Options are investment products, which involve investors betting on currency exchange levels. Investors usually select a level at which the currency would trade at a particular date — known as a target price. And through normal and unmanipulated currency movements, traders or investors can make money if the dollar-rand exchange rate hits the target price at a particular date. In Phillips’s case, he purchased options worth $20-million in late October 2017, which were set to expire on 2 January 2018. Before this expiration date, the dollar-rand exchange rate, through normal market forces, had to go below R12,50 (the target price set by Phillips) for him to get back the initial investment worth $20-million and book profits.  

What Next

Last week’s purchasing managers’ indexes suggest some grounds for optimism that conditions have at least bottomed. The steel reading in August showed that the industry was still shrinking, but the pace of the decline narrowed sharply and, lockdowns permitting, China is now heading into one of its peak periods for construction activity. Traders will look to the trade data to see if that has translated into more overseas demand for items like iron ore and copper.