01 July 2022
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OPEC plus to increase production by 648k bpd in August

By Daniel Richards

  • OPEC+ agreed to increase production in August by 648k b/d, effectively endorsing a plan announced earlier in June. There was no commentary in the OPEC+ statement about whether the production adjustment, the group’s name for its coordinated production policies, would extend beyond September as, in principle, the increase for August would unwind all of the cuts made by OPEC+ during the Covid-19 pandemic.
  • The UAE raised petrol prices by 12.2% m/m in July following at 13.5% m/m increase in June. 95-octane fuel will cost AED 4.52/l this month, a new record high and up 92.3% from a year ago.
  • China’s Caixin PMI manufacturing PMI rose to 51.7 in June from 48.1, following a similar trend to the official PMIs released yesterday.  The reading also beat analysts’ forecast of 50.2. The Caixin PMI survey focuses on small, private and export-oriented firms.
  • Japan’s manufacturing PMI was unchanged at 52.7 in June, while the Tankan survey pointed to an uneven recovery with the services sector looking stronger while manufacturing sentiment fell in Q2. Large firms indicated they would boost investment but smaller firms plan to cut investment spending. Separately, Tokyo CPI slowed to 2.3% y/y in June from 2.4% in May, but core CPI accelerated to 2.1% last month from 1.9% in May.
  • US personal spending slowed sharply in May, coming in at 0.2% against forecasts for a 0.4% increase, and down from a downwardly revised 0.6% in April. Inflation adjusted spending declined -0.4% as increased food and petrol prices reduced the ability of consumers to spend elsewhere. Encouragingly, the core PCE deflator slowed to 4.7% y/y in May from 4.9% in April.   

Today’s Economic Data and Events

  • 12:30 UK manufacturing PMI (Jun) forecast 53.4
  • 13:00 EC CPI (Jun) forecast 0.7% m/m and 8.5% y/y
  • 17:45 US manufacturing PMI (Jun) forecast 52.4
  • 18:00 US ISM manufacturing (Jun) forecast 54.5

Fixed Income

  • US Treasuries extended their gains into the end of the quarter with a softer than expected PCE deflator and weaker personal spending helping to add to the recession fear factor. Yields on the 2yr UST dropped by 9bps to 2.9533% while the 10yr yield fell about 8bps to 3.0129%. Options markets are now pricing in a peak in the Fed Funds rate at just a bit more than 3.5% by March next year before the Fed starts to unwind hikes in the face of a slowing or shrinking economy.
  • European bond markets also rallied sharply overnight with yields on the 10yr bund down by 18bps to 1.331% thanks to a slowdown in German inflation. Full Eurozone inflation will be out later today. In the UK, gilts also rallied with yields off by 15bps to 2.226% on the 10yr maturity.             


  • The dollar was weaker against peer currencies overnight even as recession risks will amplify the risk-off tone in markets. EURUSD added 0.4% to 1.0484% even as the slower than expected German inflation may flatten the pace of ECB hikes. GBPUSD rosed by 0.45% to 1.2178 while USDJPY fell by 0.6% to 135.72.
  • In commodity currencies USDCAD fell 0.16% even amid a drop in oil prices. AUDUSD rose by 0.3% to 0.6903 while NZDUSD jumped by almost 0.4% to 0.6244.


  • US markets slumped yesterday as recession fears were exacerbated by weak spending data. The Dow Jones, the S&P 500 and the NASDAQ dropped -0.8%, -0.9% and -1.3% respectively. This leaves the benchmark S&P down -20.6% over the first six months of 2022, the worst first half since 1970. The NASDAQ, heavy on growth stocks and even more susceptible to interest rate rises, has slumped -29.5% ytd.
  • In Europe, there were more sharp losses yesterday, as the DAX (-1.7%), the CAC (-1.8%) and the FTSE 100 (2.0%) all closed lower. The CAC and the DAX have had a similarly bad first half to the S&P, down -17.5% and -19.5% so far, but the FTSE 100 has held up well comparatively, down just -2.9% at end-June.
  • There were losses locally yesterday also, as the ADX fell -0.4% and the DFM -0.7%. However, over the first half the DFM has gained 0.9% while the ADX has added 10.4%, making it a global outperformer.


  • Oil prices settled lower for the end of the month, recording their first month/month decline since November last year. August Brent moved off the screen at USD 114.81/b, down 1.25% on the day while WTI dropped by 3.7% to USD 105.76/b. As expected, OPEC+ affirmed its plan to increase production in August by about 650k b/d, a largely notional target given that many OPEC+ members are already running up against capacity restraints. The announcement was widely expected by markets, ourselves included, so had a limited impact on prices. The more critical question of what happens once all the production adjustments introduced during the pandemic comes to an end has seemingly been put off for another day.

Click here for charts and tables

Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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