Sunak Announces Increase to North Sea Licenses

Data from NBS this morning indicates that Chinese manufacturing PMI dropped for the fourth consecutive month in July. This comes as investors continue to monitor the world’s second largest economy’s post-pandemic recovery, following successive lockdowns throughout much of last year. New orders came in at 49.5 against June’s figure of 48.6 in June while export sales slipped to 46.3 from 46.4. Input costs also rose, bucking the trend of falling price levels seen each month since March, though output costs fell for the fifth successive month.

Concerns over China’s mid to long term economic performance are continuing to mount with many economists considering the impact of country’s debt-ridden municipal governments, high levels of colleague graduate unemployment (currently around 20%), a fragile housing market and demographic pressures.

As we enter the final day of July, WTI crude futures are heading for largest monthly gain since January 2022. This comes as prices have risen above $80.50 dpb during early morning trading, its highest level since April, with the benchmark WTI being some 14% up on the month. On the supply side, this month saw investors weigh up Saudi Arabia’s plans to cut output by a further 1 million barrels of oil each day throughout September. Meanwhile, on the demand side, with Beijing being poised to introduce fiscal measures to help boost the flagging Chinese economy, oil prices have seen further appreciation. Given that China is the largest importer of crude oil (accounting for around 25% of the world’s total import), any prospect of increased demand from the world’s second largest economy will likely attract considerable attention. As such, earlier this month, the International Energy Agency indicated that global oil demand is expected to rise by 2.2m bpd to a record of 102m bpd this year. But global oil production is forecast to increase by only 1.5m bpd to 101.5 million.

German retail sales have unexpectedly fallen by 0.8% on a month-on-month basis over June, raising concerns over the health of the German economy, which fell into a technical recession earlier this year.  This contraction came against expectations of a 0.2% growth and marks a 4.5% fall in retail sales in H1 for Europe’s largest economy. While the first six months of the year saw sales contact in food and non-food items (falling 5.8% and 3.6%, respectively) online and postal-order sales grew by a considerable 7.3%.

With markets reacting to German retail sales and Chinese PMI both being softer-than-expected, focus now turns to Eurozone inflation data, released at 10:00 this morning. Annualised core HICP is expected to come in at 5.4%, a slight decrease from last month’s print of 5.5%. Meanwhile, markets are expecting a print of 5.3% for headline HICP (which includes food and energy indexes). Last month, eurozone inflation showed signs of decelerating to its lowest level since January 2022, though core inflation came above preliminary estimates and remains just 0.2 percentage points off all-time highs.