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Daily Economic Update
12.05.2025US-China: Authorities make progress on trade talks, details to be announced today. US trade authorities concluded their initial talks with their Chinese counterparts yesterday and announced that “substantial progress” has been made, but no details were disclosed. The US Trade Representative Greer said that “differences were not so large as maybe thought” and Chinese authorities described it as “an important first step” and “good news for the world.” Treasury Secretary Bessent stated that a briefing would take place later today. The markets cheered the potential thaw in US-China trade relations, which is another de-escalatory move in the global trade situation, with US equity futures firmly up this morning, Chinese stocks trading higher, and the US dollar index strengthening.
Oil: US-China trade talk optimism lifts oil prices. Brent futures closed Friday up 4.3% w/w at $63.9/bbl (-14.4% ytd), boosted by the news that negotiations between the US and China on a trade deal would take place over the weekend. The news imbued the market with bullish sentiment, especially as Chinese oil demand growth could come in higher under a lower US tariff regime. Indeed, the oil market has recently been fraught with uncertainty regarding US trade policy and positive news vis-à-vis lower tariff rates and trade deals (including the recently announced US-UK deal) have generally been positive for the market. Meanwhile, also supporting prices was the release of weekly data from the US Energy Information Administration which showed both a decline in US commercial crude inventories (-2 mb w/w in the week ending May 2) and a fall in US crude oil production (to 13.37 mb/d), taking output to its lowest level since last November (excluding January’s declines related to cold weather). It therefore seems clear that lower oil prices are having a negative effect on US oil output. Last week, two large US energy firms stated that in response to the price decline that they would have to lower the number of active oil rigs; one firm even declared that US production is at a “tipping point”, implying that output had already peaked. This chimes with what the EIA forecasted in its 2025 annual energy outlook – that it sees US crude production peaking at 14 mb/d by 2027 (with shale peaking at 10 mb/d) before entering a slow-gradual decline afterwards. Looking to the week ahead, the market will be closely watching OPEC and the International Energy Agency’s monthly oil market reports on Wednesday and Thursday, respectively, for any changes to oil demand growth projections especially.
Global: Details on the US-China trade agreement, Trump’s GCC visit, US inflation, and UK/Japan GDP in focus this week. The markets will be squarely focused on the details of the US/China trade talks, such as the extent of the de-escalation already agreed and indications of the likely path forward for the two countries’ negotiations. Meanwhile, President Trump’s visit to Saudi Arabia, UAE, and Qatar starting Tuesday will be key to monitor, including what he mentioned last week as a “very, very big announcement” which is expected to precede his visit. In terms of data releases, in the US, April’s CPI inflation will be out on Tuesday with consensus forecasts indicating a sharp rebound in headline and core rates to 0.3% m/m each (-0.1% and 0.1%, respectively, in March), as the impact of higher tariffs starts to be seen. PPI inflation is due on Thursday and is seen rising to 0.2% m/m from a negative 0.4% in March. Meanwhile, April’s retail sales are also due on Thursday with forecasts showing a marginal 0.1% m/m rise following March’s outsized 1.5% growth. In the Eurozone, March’s industrial production figures are due on Thursday with consensus estimates pointing to a 1.5% m/m increase, accelerating from 1.1% in February. In the UK, Q1 GDP data will be released on Thursday, with consensus expecting a significant 0.6% q/q rise after an uninspiring 0.1% growth in Q4, likely distorted by skewed trade figures before US tariffs took effect. March’s job data will be released on Tuesday, with expectations showing a slight increase in the unemployment rate to 4.5% from 4.4% and slowing total pay growth of 5.2% y/y in the January-March period from 5.6% in December-February. Finally in Japan, preliminary Q1 GDP figures are due on Friday with consensus estimates pointing to a q/q decrease of 0.1% (+0.6% in Q4) driven by a decline in external demand (-0.6%) amid rising global trade tensions.
UAE: Domestic credit growth eased in February but credit to individuals remained solid. Domestic credit growth slowed to its lowest level in a year, at 5.3% y/y in February compared with January’s 6.4%. The softer growth was mainly due to a 1.7% y/y decline in public-sector (government and GREs) credit following an increase of 2.4% in the previous month. On the other hand, lending to the private sector (around 70% of domestic credit) saw a marginal increase in growth to 8.3% y/y due to a slightly higher expansion (17.5%) in credit to individuals while growth in credit to businesses was stable at 3.5%. Credit growth is expected to slow in 2025 from the robust growth seen in 2024 (9.5% for domestic plus non-resident credit) due to a projected slower expansion in the non-oil economy and a cooling real estate market as well as export activities amid rising global trade tensions.