Daily Economic Update

Oil: Prices post weekly decline, OPEC+ likely to stick with more rapid resupply timetable for July. In a relatively quiet week, Brent futures closed Friday at $64.8/bbl, reversing the previous week’s gains with a loss of 1% w/w on a second consecutive week of US commercial crude stock builds and increasing chatter about another round of accelerated OPEC+ supply hikes at the upcoming OPEC+ ministerial and JMMC meetings. We think there is a good chance that the Saudi-led Group of Eight will indeed opt for a third consecutive month in July of more rapid output hikes (+411 kb/d), partly on expectations of higher summer oil demand and partly because Saudi Arabia probably views one of the main, original motivating impulses for fast-tracking the unwinding of supply cuts – to bring persistent output quota violators, such as Kazakhstan and Iraq, into line by making them experience the fiscal discomfort of freefalling oil prices – as still being in play. That said, due to current overproduction by several members, the actual production increase in July should OPEC+ move ahead with this will be less than the stated 411 kb/d. While last week’s US EIA data that showed commercial crude stocks gaining for the second consecutive week (+1.3 mb) along with refined product builds was bearish for oil prices, the decline in the number of active oil rigs last week (-8 to 465) to the lowest level since November 2021, as reported by Baker Hughes, was perceived to be fairly bullish and a sign that US shale producers were paring back production in response to lower oil prices. 

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

US-EU: Trump postpones the 50% tariffs on the EU by more than a month to July 9. US President Trump postponed the implementation of his proposed 50% duties on EU goods by more than a month. The duties were set to kick-in on June 1, the date when the current 90-day pause window for the 20% ‘Liberation Day’ tariff ends but following a call with European Commission (EC) President Ursula von der Leyen, he extended the deadline to July 9. Von de Leyen stated that the EU was “ready to advance talks swiftly,” but emphasized that a good deal would take “time until July 9.” Trump had earlier mentioned that trade talks with the EU were “going nowhere,” and he was “not looking for a deal” with them, before hitting the EU with much higher 50% tariffs. The EU had previously postponed any countermeasures to the US-imposed tariffs but is working in parallel on a retaliation strategy should discussions fail. Markets gave a thumbs up to such de-escalatory moves, with US and European equity futures trading in the green this morning at the time of writing.

Global: US-EU trade front, FOMC minutes and US PCE inflation key matters this week. Developments in trade negotiations will remain a key area to monitor, especially on the US-EU front with the date of the 50% US-imposed tariffs on the EU being postponed from June 1 to July 9. In terms of data releases, in the US, April’s PCE inflation will be out on Friday and consensus estimates still point to a tame 0.1% m/m increase in the core index. A revised estimate of Q1 GDP data is due on Thursday, noting that the first estimate had showed the economy shrinking by 0.3% q/q (annualized) on surging imports. Prior to this, the FOMC’s May meeting minutes will be released on Wednesday, providing more details on the bank’s thinking about the impact of the US administration’s tariff and other policies on the economy. In the UK, the Nationwide house price index for May is due on Friday, and it will be noteworthy to see if residential prices fall again after they dropped by 0.6% m/m in April given the implementation of the revised stamp duty structure. In China, May’s NBS PMI figures are due on Saturday with the consensus expecting an increase in both the manufacturing and the non-manufacturing components, possibly reflecting improved sentiment after the US/China trade de-escalation and the announcement of several stimulus measures. The manufacturing PMI is seen rising to 49.5 (from 49 in April) while the non-manufacturing one is expected to inch up to 50.6 (from 50.4). Finally in Japan, Tokyo’s inflation for May is due on Friday and consensus estimates point to a rise in the core rate to 3.5% y/y from 3.4% in April.

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