Price of Oil Back in the Spotlight

June 5, 2023

At the weekend’s meeting of OPEC plus oil ministers, Saudi Arabia announced a further production cut of one million barrels barrels per day, effective July 1, and WTI oil is trading 2.6% higher as a result although about $1.5 below today’s earlier peak.

The dollar has opened the week on an up beat, with gains of 1.7% relative to the Turkish lira, 0.6% against sterling, 0.4 versus the Chinese yuan, 0.3% vis-a-vis the Australian dollar and euro, and 0.2% against the Japanese yen and Swiss franc.

Ten-year sovereign debt yields have climbed five basis points in the United States and Great Britain and by an even steeper seven basis points in Germany. The 10-year Japanese JGB yield is two bps firmer.

Equities this Monday rose 2.2% in Japan, 1.0% in Australia, 0.8% in Hong Kong, 0.5% in South Korea, and 0.4% in India. Smaller share price advances have occurred so far in Europe, and U.S. stock futures are steady.

The price of Bitcoin tokens and gold are down by 1.5% and 0.6%.

Turkish CPI and PPI inflation of 39.6% and 40.8% continued to recede in May, but there has also been a sharp drop in the lira in response to the election of President Erdogan to another term. Lira depreciation had been a major inflation driver last year, lifting CPI inflation to highs last October of 85.5% and 157.7%.

Swiss consumer price inflation, which crested last August at a 29-year peak of 3.5%, slowed 0.4 percentage points last month to a a 15-month low of 2.2%.

Indonesian CPI inflation fell to a one-year low of 4.0% last month, two percentage points below last September’s peak.

On the heels of Friday’s Euroland report showing a drop in consumer price inflation to 6.1% in May from 7.0% in April and 8.1% in May 2022 came today’s producer price news of a 3.2% month-on-month decline in April and a 27-month low of 1.0% in the index’s 12-month rate of increase. Non-energy producer price inflation was 5.1%. Service sector consumer price inflation of 5.0%  dipped only 0.1 percentage point in May, and the labor market remains too tight. The European Central Bank is not done raising interest rates.

In other European news,

  • The Sentix measure of investor sentiment toward the euro area reflected rising pessimism with a June reading of -17, a 5-month low and 3.9 points below May’s outcome.
  • The seasonally adjusted EUR 18.4 billion trade surplus in Germany during April was its widest in 27 months, and the year-to-date EUR 65.5 billion surplus was more than twice the year-earlier surplus of EUR 29.5 billion. The unadjusted EUR 15.2 billion surplus in April compared to a surplus of just EUR 2.3 billion in April 2022.
  • Euroland’s composite purchasing managers index for May was revised somewhat lower to a 3-month low of 52.8. That followed an 11-month high of 54.1 in April. Weakness was concentrated in manufacturing, while the service sector PMI reading of 55.1 was not quite as strong as the April reading of 56.2. The business outlook fell to a 5-month low. Price elements in the report were not uniformly on track for a return to the ECB target.
  • The composite Spanish, Italian and French PMI readings in May were at 4-month lows of 56.2, 52.0 and 51.2, while Germany’s reading of 53.9 represented only a 2-month low after April’s 1-year high of 54.2.
  • The British composite and service sector PMI’s slid to 2-month lows but, at 54.0 and 55.2, represented surprising economic buoyancy in May, all things considered.
  • Sweden’s service sector PMI fell 0.4 points to a 2-month low of 50.2 in May.

Among other purchasing manager surveys reported today,

  • Japan‘s revised May readings of 55.9 for services and 54.3 overall were a tad below preliminary indications but nonetheless at a record high and a 115-month high, respectively. Business optimism improved to a 17-month high.
  • China‘s services PMI slid back to a 2-month low of 57.1 from the prior month’s 28-month high, and its composite PMI climbed to a 29-month high of 55.6. The abandonment of zero tolerance policies to fight Covid hasn’t given service sector activity quite as much lift as hoped.
  • India‘s composite PMI reading in May was unchanged from April’s 153-month high o 61.6 despite a 2-month low in the services PMI.
  • Russian composite and service sector PMI scores of 54.4 and 54.3 last month were both at 3-month lows.
  • South Africa‘s private sector PMI printed below 50 for a third straight month and at 47.9 its lowest reading in 22 months.
  • Hong Kong‘s private purchasing managers index weakened to 5-month low of 50.6 in May versus 53.9 in February. Hong Kong needs Chinese demand to strengthen.
  • Australian composite and service sector PMIs were revised a tad higher to 2-month lows of 51.6 and 52.1.
  • Lebanon‘s private PMI, which since August has been below the 50 level that delineates expansion from contracting activity, slid to a 2-month low of 49.4 last month.
  • The non-oil Egyptian PMI rose to a 15-month high in May of 47.8. Alternatively, the non-oil PMI readings of 58.5 in Saudi Arabia and 55.5 in the U.A.E. were at 4- and 3-month lows.
  • The S&P Global U.S. PMI scores of 54.9 for just services and 54.3 overall showed their fastest rates of expansion in 11 and 13 months, respectively.

Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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