OPEC+ further accelerates return of barrels to market

OPEC+ has further accelerated its return of barrels to the market. The group announced following Saturday’s online meeting, brought forward a day early from Sunday, that those eight countries that had implemented additional supply cuts would be returning 548,000 b/d from August. This is even more rapid than the 411,000 b/d brought back online in May, June, and July, which was itself three times the pace that had originally been planned. At this trajectory it seems likely that the additional cuts will have been unwound a year earlier than planned previously. The announcement will likely impose some more downward pressure on prices in a market that looks to be oversupplied in the second half, though requirements that some countries that had overproduced previously compensate for that will mean that not all those barrels are brought back online right away.

Egypt’s S&P Global PMI survey slipped to 48.8 in June, down from 49.5 the previous month. This marked the fourth contractionary reading in a row for the index but the decline in business conditions has been softer in recent months than seen through much of the past recent years. Both output and new orders contracted at a faster pace in June than in May, with new export orders a particular drag on the index as they fell at a sharper rate.

The July 9 deadline self-imposed by the US government to reach new deals with trading partners is due this week, meaning that new tariff rates are likely to be imposed by the US on many countries in addition to the baseline 10% that has been in place for the past several months. President Trump has said that he will send letters to 10-12 countries today informing them of what their tariff rate will be. In other trade war news, China is set to retaliate against the EU’s restriction on Chinese medical device manufacturers from winning public procurement projects by restricting EU countries’ access to medical devices from China.

In European data released on Friday, German factory orders declined 1.4% m/m in May as April’s print was revised up to a 1.6% expansion, compared with 0.6% on the initial print. Orders were up 5.3% y/y despite the monthly contraction, but uncertainty around any trade deal with the US ahead of the July 9 deadline has weighed on investment activity in recent months. Meanwhile, PPI inflation was in line with expectations at -0.6% m/m in May, and 0.3% y/y. France’s PPI inflation rate was -0.8% m/m, while Germany’s was -0.2%.

Today’s Economic Data and Events

No major data releases scheduled today

Fixed Income

• US Treasuries did not trade on Friday due to the July 4 holiday. The 10yr ended the week at 4.3457%, up 7bps, while the 2yr added 13bps to 3.8799%, with both seeing meaningful jumps on Thursday after strong labour market data reduced bets on Fed rate cuts.
• Despite some volatile moves mid-week as questions were raised around the Chancellor’s position, UK gilts were little changed at the short end at the close of the week up just 1bps to 3.852%. The 10yr added 5bps to 4.554%.
• Central banks meeting this week include Egypt, South Korea, Australia, and New Zealand, while the minutes from the last Fed meeting in June are due on Wednesday.

FX

• The US dollar index fell 0.2% last week. EUR was the notable gainer as it added 0.5% against the greenback to close at 1.1778 on Friday. JPY strengthened 0.1% to 144.47, while GBP fell 0.5% to 1.3650 as speculation around the government’s top team heightened.

Equities

• Despite diminished expectations around Fed rate cuts following the NFP report, US equities had a strong close to their trading week on Thursday ahead of the July 4 holiday. All three benchmark indices logged a w/w gain, with the NASDAQ, the S&P 500, and the Dow Jones adding 2.2%, 2.3%, and 3.3% respectively.
• Those markets that were open on Friday saw losses that offset gains seen earlier in the week as tariff-related concerns came to the fore once again. In Europe, the CAC managed a w/w gain of 0.6% despite dropping 0.8% on Friday, while the DAX ended the week 1.0% lower after falling 0.6% on Friday. The FTSE 100 closed flat on Friday for a w/w gain of 0.3%, benefitting from the certainty of the UK trade deal already in place.
• In Asia, the Hang Seng fell 0.6% on Friday for a 1.3% w/w fall, while Japan’s Nikkei managed to add 0.6% on the day but still ended with a w/w drop of 0.9%.

Commodities

• Brent futures closed down on Friday as markets digested both the renewed tariff threats from the US government alongside the prospect of further barrels being brought back online by OPEC+. They fell 0.7% on the day to USD 68.3/b, though that was still 0.8% higher than the previous Friday’s close. WTI did not trade on Friday and closed the week at USD 67.0/b.