06 July 2021
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OPEC Plus remains in deadlock

OPEC Plus remained in deadlock yesterday as the group failed to reach agreement over the easing of current production curbs.

By Daniel Richards

  • OPEC+ remained in deadlock yesterday as the group failed to reach agreement over the easing of current production curbs. The next steps appear uncertain for now, and with the short-term default for the curbs to remain in place as they are, oil prices have been trending higher.
  • Turkish CPI inflation accelerated to 17.5% in June, significantly higher than the 16.6% projected by analyst consensus. This was up from the 16.8% recorded in May and marked the fastest rate since mid-2019. On a monthly basis, inflation was 1.9% compared to consensus 1.4%, while annual core inflation was also 17.5%. The PPI inflation print also accelerated in June, climbing to 42.9% compared to May’s 38.3%, suggesting that there remains potential for ongoing price pass-through to consumers over the coming months. Following on from TCMB governor Sahap Kavcioglu’s statements over the weekend that there would not be any rapid cut to the benchmark one-week repo rate until inflation had begun to fall, the likelihood of lower interest rates following next week’s MPC meeting appears slim.
  • Egypt’s visitor numbers hit 3.5mn over the first half of the year, according to deputy minister of tourism Ghada Shalaby. While improving, this remains substantially below the pre-pandemic norm as international restrictions on travel continue to impede the sector’s recovery – in 2018, there were 5.0mn visitors to Egypt over the same period. Shalaby expects that H2 will see y/y growth of 45%-60%, but the spread of new variants of Covid-19 poses risks to any recovery in travel. In a positive move for private consumption levels in Egypt, the cabinet has this week eased the capacity restraints on hospitality venues from 50% to 70%. The seven-day moving average of new coronavirus cases in Egypt has fallen to just 241, the lowest level since November last year.
  • Reuters reports that Saudi Arabia will no longer include goods made by companies with less than a 25% local workforce or with less than 40% of value added in the GCC tariff agreement, effectively imposing charges on these imports. The new rules mean goods imported into Saudi Arabia from the UAE’s freezones may be subject to customs duties. In addition, any goods containing components from Israel or made by Israeli companies will also be excluded from the GCC tariff agreement.  Saudi Arabia was the UAE’s largest export market in the first nine months of 2020, accounting for 16% of the UAE’s non-oil exports and reexports.     

Today’s Economic Data and Events

  • 8:30 Australia RBA cash rate target. Forecast: 0.1%
  • 10:00 Germany factory orders m/m, May. Forecast: 1.0%
  • 13:00 Germany ZEW expectations survey, July. Forecast: 75.2
  • 18:00 US ISM services index, June. Forecast: 63.5

Fixed Income

  • Treasury markets were closed at the start of the week thanks to the Independence Day holiday in the US. In early trade today Treasuries have opened on a marginally softer footing with 2yr USTs unchanged while 10yr yields are up slightly to 1.442%.
  • Across European markets it was a day of moderate selling in bond markets. Yields gained in gilts, bunds and French bonds although the moves were reasonably contained.
  • A poor inflation report for June from Turkey and the uncertainty that the central bank will respond either by hiking rates or at least keeping them unchanged weighed on Turkish government bonds. Yields on 10yr bunds added 11bps overnight to push back up near to 17%. Meanwhile in South African bonds gained with yields down around 4bps to 9.233%.
  • In the primary market the Emirates of Sharjah has mandated banks for a 10yr USD sukuk while the Private Department of Sheikh Mohamed bin Khalid al Nahyan has also mandated banks for a USD 5yr sukuk.


  • Currency markets opened the week on a relatively quiet footing with the broad DXY index more or less unchanged. With US markets closed for the holiday overall activity was affected.
  • EURUSD closed more of less unchanged at the 1.19 level while USDJPY saw a modest move lower to settle just below 111. Sterling was a relatively large mover, rising 0.14% to 1.38 against the dollar.
  • Elsewhere, commodity currencies were mixed with USDCAD rising in favour of the US dollar while both AUD and NZD were unchanged with an upward bias.


  • US markets were closed yesterday, but there were some notable moves elsewhere, with UK indices performing especially well as they enjoyed a bounce from the government’s announcmenet regarding the lifting of all domestic Covid-19 restrictions later this month. The FTSE 250 hit a new record high with a climb of 1.2%, while the FTSE 100 climbed 0.6%.
  • Elsewhere in Europe the DAX gained 0.1% while the CAC closed up 0.2%.
  • Within the region, the DFM closed flat, the ADX gained 0.7% and the Tadawul lost -0.3%.


  • OPEC+ failed to even reconvene for its meeting scheduled on Monday as the divisions between the UAE and Saudi Arabia and the rest of OPEC+ remain too wide to address at the moment. No announcement has been made for a next meeting leaving the market hanging as to what happens to oil production from August onward. At present the default option would appear to be that output remains at the same level from the end of July, leaving markets considerably more undersupplied than had been expecting.
  • The fear of a large shortage helped to set a fire under what had largely been directionless markets for much of the day. Brent futures spiked up to USD 77.16/b overnight, up 1.3% and a fifth day of gains in a row. WTI is up 1.9% in early trade today as it catches up on a public holiday closure to start the week. Time spreads for the front of the curve have also pushed higher in preparation for pending tightness in markets.

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Written By

Daniel Richards Senior Economist

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