Daily Economic Update

Kuwait: Ministry of Finance begins process for $6 billion bond sale. The Ministry of Finance instructed banks to begin the procedure to issue $6 billion in dollar external debt for the current fiscal year (ending March 2026), marking the first bond sale in eight years. This follows the approval of the debt law in March, which stipulated the borrowing of up to KD30 billion (around $100 bn) over 50 years. The ministry previously commented that the proceeds will go towards the financing of key development projects, in addition to the fulfillment of other goals including building the domestic debt market, establishing a reference yield curve, and enhancing the government’s overall liquidity. A total of up to $20 billion (KD 6 billion) is expected to be raised this fiscal year, a large part of which will be utilized for the financing of a budgeted fiscal deficit of KD6.3 billion. With the expectation of continued deficits and debt issuance over the medium-term, and the limited capacity of the general reserve fund, the public debt level could rise to an estimated 18% of GDP from the current 3%, according to projections by S&P ratings. Although Kuwait’s sovereign rating remains strong (AA- by Fitch; A+ by S&P) thanks to high external reserves and low debt, considerable progress on fiscal reforms will be essential to safeguard the rating and ensure fiscal sustainability. 

Oil: Prices drop on limited Iranian retaliation and Iran-Israel ceasefire. Brent retreated sharply yesterday, dropping 7.2% d/d to settle at $71.5/bbl (-4.2% ytd) as geopolitical tensions in the Middle East showed signs of de-escalation. The pullback followed a carefully calibrated attack by Iran on the US’s Al-Udeid air base in Qatar in retaliation for the latter’s strike on its nuclear facilities over the weekend. The base had been evacuated beforehand after Tehran informed both Doha and Washington about its intentions, something which President Trump later acknowledged when he thanked the Islamic Republic for “giving us early notice”. The deliberate signaling and limited missile response allowed the regime to both save face at home and extend a de-escalatory hand to the Americans, which President Trump later accepted in a White House announcement of a “complete and total ceasefire” between Iran and Israel that would officially conclude the “12-day war” if both sides maintain peace for 24 hours. The announcement led to further losses for oil this morning in Asian trading, with Brent dipping to $69.5/bbl at the last reading. With oil’s geopolitical risk premium looking to have substantially and dramatically unwound, barring a return to hostilities, market participants will be hoping for a period of relative calm and to refocus on fundamentals. The first signal here could be on the supply side, with OPEC+ widely expected to rubber stamp at its early July meeting another month (for August) of accelerated supply increases (+400 kb/d).

US: Growth in business activity slightly eases, while price rises remain sharply elevated. The S&P Global Flash composite PMI in June fell slightly to 52.8 from 53.0 in May. Growth in manufacturing remained steady at 52.0 but moderated in services activity to 53.1 from 53.7, though both were better than the consensus forecast. Firms cited continued robust domestic demand but weak external demand, mainly in the services sector. Strong stock-building and higher workload led to employment gains accelerating in June, with manufacturing positing its highest rate of job creation in a year and services reaching a five-month high. However, amid higher tariffs, input and output price pressures strengthened in manufacturing to their three-year high and remained elevated in services, with the combined rise in selling prices at its second highest since September 2022. We note that the impact of the steep rise in tariffs is yet to be reflected in actual reported inflation data, with CPI inflation at a modest 0.1% m/m in May for both headline and core prices. However, it is very difficult to ascertain when and to what extent this would change over the coming months. Meanwhile, US equity markets posted strong rises (S&P 500 up almost 1% d/d), with UST 10Y bond yields down about 5 bps yesterday, following signs of de-escalation in the Middle East. US equity futures point to further gains this morning after a reported ceasefire between Iran and Israel.

Eurozone: Composite PMI unchanged in June, but below expectations driven by manufacturing. The HCOB Flash Eurozone Composite PMI for June was unchanged at 50.2, missing consensus expectations of 50.5, but remaining above the 50 neutral level for the sixth straight month. The manufacturing PMI was steady at 49.4, which is the highest level in around three years though still in contraction territory. The services PMI inched up to 50.0 in June (49.7 in May), in line with expectations. Average PMI numbers for Q2 were slightly lower than in Q1 when the economy expanded by 0.6% q/q, noting that the latest (from early June) ECB projections put 2025 growth at a modest 0.9%. Employment ticked up in June, though at an unchanged pace, driven by services while manufacturing declined. Although overall input cost inflation eased for the fourth consecutive month, output price inflation picked up from May’s level. Finally, business confidence improved in June driven by services while manufacturing fell, though from a more-than-three-year high in May. 

UK: Business activity in June mildly improves, flash PMIs show. The S&P Global Flash composite PMI inched up to a three-month high of 50.7 in June from 50.3 in May, versus the 50.5 consensus forecast, as both manufacturing (to 47.7 from 46.4) and services (to 51.3 from 50.9) improved from May. Though there was some early optimism following some rollback of US tariffs, businesses were concerned about elevated global trade tensions, rising geo-political uncertainty and the subdued domestic operating environment. Amid higher staffing costs, firms continued to trim employment for the ninth month in a row and accelerated the cuts in June. Meanwhile, cost pressures eased as output prices increased at the softest rate in nearly four and a half years, especially in the services sector. Despite a mild improvement in business activity in June, the overall outlook is still muted as seen in recent economic releases, such as May’s retail sales. On a positive note, softer inflationary pressures could encourage the Bank of England to resume its policy interest rate cuts soon to support growth.

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