Daily Economic Update

Oil: Brent under pressure amid oversupply and trade barriers-linked demand concerns. Oil prices fell last week, roiled once more by bearish impulses across-the-board. On the supply side, worries intensified over OPEC+ cohesion amid Kazakhstani intransigence over quota compliance and, on the demand side, confusion grew by conflicting signals from the Trump administration and the Chinese about the state of trade negotiations between the two countries. Brent closed down 1.6% last week at $66.9/bbl and is on track for a sharp decline of more than 10% in April. Last week saw tensions between OPEC+ and serial overproducer Kazakhstan rise after the latter’s energy minister Erlan Akkenzhenov appeared to reject the notion of bringing the country’s output down in line with its quota. This left many traders fearing that OPEC+ would look to once again ramp up supply increases in June as it did in May (trebling incremental output increases from 138 kb/d to 411 kb/d for that month) ostensibly to punish quota non-compliers. OPEC+ will decide on its production strategy on 5 May, but market traders are beginning to price in the risk of further oversupply. Meanwhile, conflicting messages about the state of trade negotiations between the US and China over tariffs and each side’s insistence that the other deescalate first by either removing recently imposed tariffs (China) or by offering “something substantial” (US), has only added to the uncertainty and volatility. The potential hit to global oil demand from an all-out trade war between the world’s two largest economies was the major driver for the International Energy Agency’s steep, 300 kb/d cut to global oil demand growth (to 730 kb/d) this year.       

Chart 1: Oil prices ($/bbl) Source: Haver

Global: Trade negotiations, US/Eurozone GDP, US jobs, and BoJ meeting key matters this week. Tariff-related news-flow, including trade negotiation progress or lack of it, has overshadowed economic releases in recent weeks and will likely continue to do so in the coming period. In terms of data releases, in the US, Q1 GDP is due on Wednesday, with the consensus forecast indicating a near-stalling in growth to 0.4% (annualized) from 2.4% in Q4. Several job indicators are due this week, with non-farm payrolls on Friday; forecasts indicate more modest 130K gains in April after 228K in March and a steady unemployment rate of 4.2%. As for March’s core PCE inflation (due on Wednesday), the market forecast is for a milder 0.1% m/m increase following February’s sharp 0.4% rise. In the Eurozone, Q1 GDP is due on Wednesday, with the street expecting 0.2% q/q growth, unchanged from the previous quarter. Inflation for April is due on Friday and is seen easing to 2% y/y from 2.2% in March, but the core rate inching up to 2.5% from 2.4%. If the inflation print comes in tame, that should increase the likelihood of an ECB rate cut in June. In China, April’s NBS PMI figures are due on Wednesday with consensus expecting some softening after the previous two months showed a rebound. The manufacturing PMI is seen slipping again to contraction territory (49.9) for the first time since January while the non-manufacturing PMI is expected to ease marginally to 50.7 (50.8 in March). Finally in Japan, the BoJ meets and is widely expected to keep its policy rate unchanged at 0.5% on Thursday. The market will be looking for the bank’s updated forecasts for economic growth and inflation as well as for commentary on the impact of the US tariffs and the ongoing trade negotiations with the US at large.

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