WTI Crude futures have risen above $120 per barrel as oil prices soar towards 14-year-highs. This represents an increase of around 2/3rds of a percent in the last 24-hour session as investors weigh on the opening up of the China’s major economic hubs. Moreover, investors are considering the impact of the EU’s agreement to ban 90% of Russian crude by the end of the year.US natural gas futures have also breached the key level of $9.50/MMBtu, similarly, putting it on 14-year highs as weather predictions nod to warmer weather in the States and thus higher usage of cooling and air-conditioning systems. The diversion of much of the US’ LNG has also led to rising gas prices while average gas output appears to have fallen in the first week of June, exacerbating supply side shortages caused by the conflict in Ukraine. Indeed, the US now accounts for close to 50% of Europe’s LNG imports, which is around double the share in 2021. US natural gas prices have risen close to 200% this year, with many analysts predicting further rises as demand and supply side shocks continue to play into the market.
Eurozone GDP and ECB Rate Decision
Q1 GDP figures are released later this morning where the market expects a Q-on-Q print of 2.6% – roughly in line with the previous print while the annualised figure is predicted at 5.1%. Just three weeks ago, citing rising inflation, persistent supply chain issues and the prevailing risk off sentiment given the conflict in Ukraine, the EU slashed their GDP 2022 predictions to 2.7% (down from previous predictions of 4%). Moreover recently, growth disparities amongst eurozone countries have increasingly manifested themselves as the conflict in Ukraine – and subsequent sanctions – have hit countries and economies to differing extents.
This morning’s print comes ahead of the ECB’s interest rate decision tomorrow where the prevailing view is that rates will remain unchanged at 0% before three subsequent rate hikes of 25bpts reaching 0.75% by the end of the year. The ECB are also expected to provide further information on the winding down of their QE programme. Many analysts had previously predicted September as a possible end date to the ECBs APP and PEPP programmes, however given rising inflation across the eurozone (currently at 8.1%), it is expected that Frankfurt may end these programmes tomorrow in a nod to further monetary tightening.
Apple’s Orchard Turns to By Now Pay Later
Apple have announced that they will be launching a Buy Now Pay Later (BNPL) option as part of their new iOS 16 system. BNPL usage has soared in the UK, and many analysts are fearing that as the country’s economic climate deteriorates more will turn to this option of financing purchases. Indeed, the BBC estimates that around 15m consumers across the UK actively make use of such schemes while the Citizens Advice Bureau have warned that around 8% of users do so for buying essential products such a food and toiletries.
Apple have increasingly pivoted towards finical services in recent years and payment plans for their products and just a few years ago the world’s second largest company went into close partnership with Goldman Sachs and Mastercard to establish Apple Card which allows US based customers to use credit with a similar such BNPL scheme. However, with rising inflation and interest rates, governments and organisations are increasingly concerned that consumers are unaware the many pitfalls associated with BNPL schemes and as such there have been calls for tighter controls on such schemes. For now, however it seems as though Apple are keen to get more of their consumers to take a bite from their financial services fruit.
Later This Week
Later on in the week, the markets will be paying close attention to US CPI figures released on where the prevailing market consensus is that we will see a fall of 0.1 percentage points from 8.3% to 8.2%. This comes ahead of the Michigan Consumer Sentiment index where the markets are expecting to see a slight fall off from the previous month’s print as consumers weigh on the impact of the rising cost of living and forecasts of a turbulent economic climate ahead.
Have a great day.