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Daily Economic Update
02.06.2025Oil: Prices drop on OPEC-8 supply increase for July and Trump China tariff remarks. Oil prices closed lower last week on the news that OPEC-8 was considering an even faster rate of supply increases for July compared to previous months and after President Trump’s comments about China violating its tariff-truce reignited markets’ fears about global trade and economic disruption. Brent (July contract) declined 1.4% w/w to $63.9/bbl on Friday (-14.4% ytd), posting a second consecutive weekly loss, before OPEC-8 announced on Saturday that they would instead maintain the market resupply pace at 411 kb/d for a third month in a row. This would bring the cumulative unwinding since April to 1.3 mb/d, when the group first started to roll back the cuts, At this accelerated pace (the original schedule called for monthly increases of 131 kb/d), the group will, at least on paper, have unwound the entirety of its supply cuts (2.2 mb/d) by October 2025, about a year ahead of the original schedule. Actual output increases over the next few months will likely come in below this, though, given that certain members, such as Kazakhstan, have already been pumping well above their quota and are close to capacity limits, while others look to honor their compensatory cut pledges, offsetting some of their supply increases. Kazakhstan, for its part, has made it clear that it cannot and will not instruct international oil majors operating on its soil to reduce production in accordance with its quota and compensatory cut pledges. It has also indicated that it fully intends to maximize available space capacity in the coming months. What this intransigent stance holds for Kazakhstan’s future in OPEC+ is up for debate, but a mutual parting of ways cannot be discounted the longer this carries on. Brent (August contract) was ranging higher in Asian trading this morning at $64.6/bbl (2.4% d/d) on a mixture of Ukraine and Iran-linked geopolitical anxieties and relief that OPEC-8 did not ramp-up even further its supply increases for July as had been feared before the weekend.
China-US: Authorities accuse US of violating trade pact, markets cautious on involving trade situations. Following US President Trump’s claim that China “totally violated” the trade truce between the two countries, Chinese authorities this morning responded by stating that the US unilaterally violated the trade framework agreed earlier, vowing to take strong measures to protect its national interests. The latest trade friction comes as Beijing accuses the US of restricting chip sales to China, issuing new warnings about the use of Chinese chips globally, and canceling US visas for some Chinese students. Last Friday, US Trade Representative Greer blamed China for continuing to restrict exports of rare earth minerals. These accusations, after the May 12 trade truce between the two countries for 90 days, could seriously undermine the longevity of the deal once it expires in August. Following such developments, along with the US doubling its steel and aluminum tariffs to 50%, most Asian equity markets are trading in the red this morning, led by the Hang Seng Index, with US equity futures also down.
Global: Tariff developments, US jobs data, and ECB meeting key matters this week. Tariff-related updates will remain a key matter to monitor especially following last week’s legal developments and President Trump re-igniting tariff concerns with his doubling of steel and aluminum duties. In terms of data releases, in the US, non-farm payrolls for May will be out on Friday, and the consensus estimate points to moderating job gains of 110K versus 177K in April, likely reflecting an early impact of tariff-related uncertainties, but a steady unemployment rate of 4.2%. ISM business activity surveys will be released this week, with manufacturing later today (forecast of a flat reading of 48.7 in May) and services on Wednesday (expected at 52, improving from April’s 51.6). In the UK, residential price indices for May are due from Nationwide today (forecast of a 0.1% m/m rise, improving from a drop of 0.6% in April) and from Halifax on Friday (forecast of a 0.4% m/m increase, up from 0.3% in April). In the Eurozone, the ECB’s interest rate decision is due on Thursday, with solid expectations of another 25 bps cut, bringing the deposit rate down to 2%. The ECB will also release updated GDP and inflation projections. In addition, May’s inflation figures are due on Tuesday with consensus expecting headline inflation to decrease to 2.1% y/y (from 2.2% in April) and core inflation to 2.5% from 2.7%. Finally in Japan, the Council on Economic and Fiscal Policy (CEFP), a key government economic panel, will meet on Thursday to start discussing the annual economic and fiscal policy guidelines, which will form the basis for budget planning. The guidelines are expected to be finalized by June 13, ahead of the BoJ’s policy meeting on 16-17 June.
UAE: Abu Dhabi’s inflation hits a five-month low in April. Headline consumer prices declined on a yearly basis by 0.1% in April, with inflation reaching its lowest level since November 2024. The decline came mainly on a steep drop in transport prices (-11.2% y/y versus -6.3% in March), in line with the decrease in domestic fuel prices, while increases in “recreation & culture” (8.4% versus 5.4%) and “Insurance & financial services” (14.4% versus 13.3%) helped stem the fall. Overall inflation is expected to remain subdued in 2025 due to easing oil prices and softer rises in the price of imported goods amid a gradual moderation in global inflation.