Oil extends slide on diplomacy hopes; chip makers under pressure

Global macro

• Oil extends slide on diplomacy hopes: Oil prices extended their slide as hopes rose for a renewed US-Iran peace process. Brent fell 8.7% yesterday and is down a further 1.3% this morning to $87.2/b, from above $100/b at Thursday’s close. President Donald Trump said the two sides were in diplomatic talks and that “there’s a good chance that something could happen”. Treasury yields fell alongside oil, with the 10-year down 3bps yesterday and a further 2bps this morning to 4.63%, though markets now price a full 25bps hike by the September FOMC meeting.

• Chip pressure weighs on Asia: US equities were mixed yesterday. The Dow added 0.5% on broader risk appetite, while the tech-heavy Nasdaq slipped 0.2%. Asian markets are weaker this morning as chipmakers come under renewed pressure: the Nikkei is down 3.8%, while the KOSPI has fallen 9.7% and triggered a 20-minute trading halt, taking the index back to levels last seen in April. Concern over rising chipmaking competition from China has weighed on sentiment.

Regional macro

• Saudi construction costs edge higher: Saudi construction cost inflation edged up to 2.7% y/y in June from 2.6% in May. The index has risen every month since March, when it accelerated to 2.0% from 1.4% in February. The trend is consistent with Riyad Bank PMI responses, where firms have reported stronger input-cost pressures since the US-Iran conflict escalated at the end of February. Houthi militants claimed drone attacks on Saudi oil facilities on Monday, while Saudi officials said they intercepted drones launched from Iraq. Further attacks on the Kingdom could add to shipping disruption and keep pressure on costs.

Today’s key data

• US consumer confidence: The Conference Board consumer confidence index is due at 18:00, with consensus at 92.0.
• India industrial production: June industrial production is due at 14:30 and is expected to rise 5.9% y/y, from 5.1% in May.