OPEC affirms need for deeper cuts

PMI data for the Eurozone showed the economy slowing somewhat in July. The July flash PMI data for manufacturing showed a decline to 56.8 from 57.4 in June, largely down to a miss from German manufacturing as France surprised on the upside. The services index was unchanged. Overall the data remains firmly at expansionary levels and is likely to reaffirm views that the ECB can begin a process of monetary policy normalization although the market may be pricing it in a little ahead of schedule.

In contrast, US PMI data came in ahead of expectations yesterday as both the services and manufacturing component showed some expansion month on month for July. The composite figure hit 54.2, above 53.9 a month earlier and beating market expectations. The PMI data, which has been steadily holding in expansionary territory, will provide some comfort to the Fed today ahead of its rate setting meeting although the market still expects no change this month. Existing home sales in the US, however, disappointed the market, falling 1.8% in June. House prices have been rising thanks to a shortage of supply which indicates strong demand for purchases in the US, itself a good indicator of the strength of the economy. 

OPEC and its partners concluded their monitoring meeting in St Petersburg yesterday without affirming a need for deeper production cuts. The monitoring committee did recommend that Nigeria, which is not currently part of the production cut deal, limit output to 1.8m b/d but was unable to come up with a figure for Libya. Saudi Arabia's energy minister said his country would limit crude exports to 6.6m b/d for August and that a faster draw in inventories would occur in the second half of 2017. The minister also indicated that "mechanisms" could be put in place to ensure compliance by countries that have missed targets. OPEC traditionally has not had an enforcement mechanism for its quotas so it is unclear what action Saudi Arabia or other producers could take. OPEC officials also mooted an extension of the deal beyond the first quarter of 2018.

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