07 July 2021
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US tries to settle OPEC Plus disagreement

The US has entered the OPEC Plus dispute, trying to help find agreement between the parties following the allies' failure to settle on easing oil production curbs at the meeting held last week.

By Daniel Richards

  • The US has entered the OPEC+ dispute, trying to help find agreement between the parties following the allies’ failure to settle on easing oil production curbs at the meeting held last week. White House Press Secretary Jess Paski confirmed that the Biden administration had held talks with both Emirati and Saudi Arabian officials. Brent futures have retreated from the levels hit at the start of the week.
  • US ISM services dipped to 60.1 in June, down from 64.0 the previous month and below expectations of 63.5. While this did mark the 13th consecutive positive month for the index, it was at the slowest pace since January. As we have seen in other recent surveys around the world, shortages with regards to materials and labour, and associated price rises, held back business. This could start to not only hold back output but could prove a drag on demand if these prices are increasingly passed on to consumers.
  • There was evidence out of Germany yesterday that the global economic recovery from the Covid-19 pandemic crisis is still far from assured as manufacturing orders declined by -3.7% m/m in May, following an (upwardly revised) expansion of 1.2% in April. Consensus projections had been for an increase of 0.9%, and while the data is quite backward-looking, it underscored the pressures in the global economy still prevalent in the second quarter. The decline was driven by foreign orders which fell by -6.7%, with ex-Eurozone foreign orders declining by a sizeable -9.3%. Aside from the pandemic weighing on demand, there were also supply-side issues as the global chip shortages continued to exert a drag on the crucial automotive sector. There is little indication that this will ease any time soon, as major carmakers warned yesterday that the global shortage was in fact worsening.
  • More positively, domestic orders in Germany rose 0.9% and the July ZEW surveys released yesterday were broadly constructive, albeit with somewhat weaker expectations for the future. The expectations survey fell to 63.3, down from 79.8 in June and far off projections of 75.2. Nevertheless, this remains strong by historical measures, with the 10-year average just 16.3, and there was a marked improvement in the current situation survey too which at 21.9 was the first positive reading for the index since June 2019. German foreign minister Heiko Maas yesterday suggested that all restrictions in Germany could be lifted by the end of August once everyone has been offered a vaccine.
  • There were other signals of a gradual return to normality in Europe, as eurozone retail sales grew 4.6% m/m in May, compared to a contraction of -3.9% in April. This exceeded projections of 4.3% growth and took volumes back to levels last seen prior to the pandemic. The opening up of non-essential retail within much of the bloc in May contributed to a 9.0% y/y gain.
  • Property Finder data showed that Dubai property sales transactions rose to AED 14.8bn in June, representing the highest level since December 2013. There were 6,388 transactions over the course of the month, reflecting a reinvigorated property market which has been picking up as the pandemic crisis has eased.
  • Data published by Dubai’s Department of Tourism and Commerce Marketing showed the number of overnight visitors during the 11-month period from July 2020 to May 2021 reached 3.7mn tourists, marking close to a year since Dubai reopened to international visitors. Dubai received 1.7mn visitors between July and December 2020, close to 2mn visitors in the first five months of 2021. Hotel occupancy rose from 35%in July 2020 to 58% in May this year. Domestic staycations saw 106% rise, with 5.5mn domestic visitors for the period between July 2020 and May 2021, compared to 2.66 million during the period July 2019 to May 2020. Hotel occupancy in Dubai peaked in December at 69% and in January 66%. The average daily rate (ADR) recovered from AED238 in July 2020 to AED383 in May. The tourism body also stated that 591 hotel establishments with 100,000 rooms were operating in July 2020, that increased to 715 hotel establishments offering 128,000 rooms in May this year. From September 2020 to mid-May 2021, there were 3,136 business events that were attended by 813,832 delegates according to the officially released figures.
  • UAE CPI inflation was still in deflationary territory in May, at -0.4%, although at a slower pace than the previous month’s -0.5%. The UAE expects that inflation will turn positive in the second half of the year.

Today’s Economic Data and Events

  • 10:00 Germany industrial production m/m, May. Forecast: 0.5%
  • 15:00 US MBA mortgage applications, July.

Fixed Income

  • A softer than expected ISM services print for June from the US helped to accelerate a rally in US Treasury markets. As data from the US continues to come out mixed the bias for anything less than a blistering upside data surprise appears to be to bid up Treasuries. Gains were concentrated in the belly and long-end of the curve with 2yr UST yields closing down almost 2bps at 0.2179% and the 10yr falling almost 8bps to 1.3481%.
  • Even as Eurozone retail activity has now recovered back to pre-pandemic levels of activity, at least as of May, it failed to dent a recent rally in bunds with 10yr yields falling almost 6bps to -0.269%, their lowest level since April. Gilt yields also moved lower as anxiety mounts over large Covid-19 infection projections from the government.
  • The rally in the Treasury market failed to lift emerging market bonds with yields on 10yr government bonds moving higher nearly across the entire EM spectrum. Turkish 10yr yields added almost 10bps to 16.955% while Indian 10yrs rose 9bps to 6.181%. In South African the sell-off in bonds was more modest and yields added a bit less than 2bps to 9.267%.
  • Sharjah priced a 10yr USD sukuk at 3.2%, tighter than initial guidance and raised USD 750m.
  • Moody’s affirmed its rating on Iraq at ‘Caa1’ with a stable outlook.


  • The dollar benefitted from a general risk-off mood overnight with the DXY index adding almost 0.4% to 92.546. Lower UST yields don’t appear to be a deterrent to drawing investors toward the dollar at the moment even if the mixed US data will affirm the Fed’s still dovish commentary, if not necessarily its projections. Minutes from the FOMC will be released later tonight and will provide the next catalyst for the move in the dollar.
  • Euro and sterling were among the main victims of the dollar’s overnight rise. EURUSD fell 0.34% to 1.1824 while GBPUSD settled at 1.38, down 0.32%. USDJPY is performing its function as a risk-off relief, falling 0.3% overnight to 110.63.
  • Commodity currencies were battered by the substantial move lower in raw materials overnight. USDCAD added almost 1% to settled at 1.2461 while AUD fell 0.44% to 0.7497% and NZD sank 0.23% after an initial pop higher at the start of trading.


  • Global equity markets were largely in the red at the close of yesterday. European stocks were among the biggest losers on the day, with the benchmark indices from the UK, Italy, France and Germany all closing down between -0.8% and -1.0%. The composite STOXX 600 lost -0.5%.
  • Despite disruption to tech stocks in China, the Shanghai Composite lost a relatively muted -0.1% yesterday. In the US the tech-heavy NASDAQ shrugged off the issue with a climb of 0.2%, compared to losses of -0.2% for the S&P 500 and -0.6% for the blue chip Dow Jones.
  • Within the region the EGX 30 was a notable loser as it dropped -1.9%. The ADX lost -0.2%, the Tadawul -0.3% and the DFM -0.7%.


  • The uncertainty around the next steps from OPEC+ held markets on edge for much of the day before they pushed considerably lower midway through the day. Brent futures fell 3.4% to USD 74.53/b while WTI sank 2.4% to USD 73.37/b. The Biden administration has reportedly been discussing oil market issues with both Saudi Arabia and the UAE, likely to avoid prices moving much higher.
  • Saudi Arabia raised their official selling prices for August in a sign to prepare the market for tight supply. Prices for Arab Light, a main export grade, to be delivered to Asia were raised by USD 0.80/b, their largest monthly increase since January.
  • Inventory will delayed a day later than usual thanks to a public holiday at the start of the week.
  • The weakness in oil prices filtered into metals markets as well with weaker prices in aluminium and copper.

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Written By

Daniel Richards Senior Economist

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