“Oil….”

Oil

There are no big plans by OPEC and its allies to change the supply deal even if the price of oil remains at $50 a barrel. In a meeting held in Russia it was discussed there are no plans to cap the oil production from Nigeria and Libya which currently are exempt from the current agreement.  In June oil slumped into a bear market with Brent Crude which is the international benchmark trading at $48.  This is $2 more than when the cuts were agreed last year.  Oil posted the biggest intraday gain on Tuesday in more than a week as Saudi Arabia pledged crude export cuts next month and the supplies in the US are declining.

LIBOR

The London Interbank Offered Rate, the benchmark that underpins more than $ 350 trillion of financial products will be phased out by the end of 2021 according to the UK regulator and banks.  The benchmark is the average rate a group of 20 banks charge each other for short-term loans.  LIBOR is administered by the ICE Benchmark Administration (IBA) and is based on five currencies: US Dollar, EUR, Pound Sterling (GBP), Japanese Yen (JPY) and Swiss Franc (CHF) and serves several different maturities: overnight, one week, and 1,2,3, 6 and 12 months.  The most quoted rate is the three-month US dollar rate.   LIBOR has been subject to corruption after traders manipulated the benchmark leading to about $9 billion in fines and the conviction of several bankers.  The FCA had spoken to banks over halting the use of LIBOR and how much time it would take to wind-down.  Although it is a tough process it could take four or five years and the FCA has asked banks to continue submitting rates until the end of 2021.  Even the Governor of the Bank of England said earlier this month that LIBOR is no longer suitable.

US – Health Care

President Donald Trump is trying to put maximum pressure on senators ahead of the vote to pass some kind of repeal measure. In a televised statement on Monday from the Whitehouse, Trump said that, “any senator who votes against starting debate is telling America that you are fine with the Obamacare nightmare”.  Tuesday will also see the return to vote Senator John McCain who was diagnosed with brain cancer. Senate Republican leaders and President Trump were determined to begin a debate on Tuesday on repealing Obamacare without lawmakers knowing what they’ll be voting on.   It was unclear whether they have the 50 votes needed to begin considering a version of Majority Leader Mitch McConnell’s replacement bill or a stripped-down version of a bill that would repeal Obamacare with a two-year delay. On Tuesday the Senate rejected the health care proposal of Majority Leader Mitch McConnell.

US – The FOMC

The US Federal Open Market Committee in its 26^th July Statement said that the labour market has continued to strengthen and economic activity has been rising moderately so far this year.  The unemployment rate has been declining, while household spending and business fixed investment continued to expand.  The Committee continues to expect that with gradual adjustments in monetary policy, economic activity will expand at a moderate pace and labour market conditions will strengthen further.  The Committee is monitoring inflation developments closely as inflation has remained below the 2 percent target. For the time being the committee is keeping the existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage backed securities in agency mortgage-backed securities and rolling over Treasury securities at auction.  Should the economy continue evolving as planned, the committee expects to start implementing the program of balance sheet normalization.

EU

According to IHS Markit a composite Purchasing Managers’ index fell to 55.8 in July from 56.3 in June. The figures also show that gross domestic product expanded at 0.6 percent in the first quarter compared to the 0.7 percent in the second quarter.   Mario Draghi the president of the ECB last week said that the region is not yet ready for a reduction in the unprecedented stimulus.  Although growth is picking up prices are not increasing as fast to reach the ECB target rate without help from low interest rates and continued bond buying.  Growth in new orders and employment is still strong.

Spain

According to the National Statistics Office unemployment in Spain declined to its lowest level in eight years, falling to 17.2 percent in the second quarter. The number of people without a job was reduced by almost 350,000 which is the biggest quarterly decline since 2001.  This is the first time since 2008 that the figure is below the 4 million.

Germany

According to Munich-based IFO institute the business climate in Europe’s largest economy improved for a six month period. The index based on a survey of 7000 German companies from manufacturing, trade and construction rose to 116 from 115.2, which is the highest level since 1991.  Steadily declining unemployment has been supporting domestic demand and the Bundesbank predicts that “lively” export demand will turn manufacturing into a growth driver.  The International Monetary Fund expressed confidence in the growth prospects of the country as it lifted its outlook through 2018 earlier this month.  For 2017 and 2018 expansions of 1.8 percent and 1.6 percent respectively will be supported by robust domestic demand and solid global trade.

United Kingdom

In the second quarter the economy has picked up only 0.3 percent and the Office for National Statistics (ONS) called it a “notable slowdown in the first half.”  Services were the only positive contributor to gross domestic product as the sector was mainly driven by retail and the film industry.  On the contrary, according to the ONS, production and construction dragged on the economy and agriculture had zero impact. Households are under pressure from rising inflation and weak wage growth.  The central bank will announce its next policy decision and publishes new forecasts on 3^rd August.

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