Written Commentary
Ag Market View for July 26.24
July 26, 2024
Quieter day for data and events: digesting OPEC+ breakdown, RBA ‘taper’, German Orders slide, Japan Wages and Household Spending; awaiting UK Construction PMI, US Services ISM & PMI; smattering of ECB speakers; Austria, Germany and UK bond auctions
Germany Orders: foreign / capital goods orders pace unexpected drop, only partially mitigated by upward revision to April, supply chain bottlenecks restraining?
OPEC+ agreement failure a likely recipe for rising volatility
US Services ISM: marginal setback from record high expected; focus on supplier deliveries and prices
EVENTS PREVIEW
It will be a relatively light day for statistics as the US returns from the Independence Day holiday, with Japan’s Wages (at multi year highs, but less than expected) & Household Spending (in line with forecasts) and German Factory Orders to digest, ahead of the UK Construction PMI and US Services ISM and PMI. In event terms the RBA held rates and unexpectedly tapered its QE programme, while effectively signalling no rate hikes before 2024 given it does not expecte to meet its inflation and employment targets beforehand, and there a few ECB speakers also due. Govt bond auctions see the UK sell 10 & 40-yr, Austria 5 & 10-yr and Germany a small amount of inflation-linked Bunds. OPEC+’s failure to reach an agreement on a roll-back of production cuts will be the other talking point, though in contrast to 2020 informal negotiations will be ongoing, though Saudi Arabia and U.A.E.’s positions look to be entrenched, but for the time being the lack of an agreeement will underpin prices, but leaves the oil market subject to considerable volatility on the back of the usual leaks and ‘sources say’ headlines, with the oil curve going into an even steeper backwardation (see chart)
** Germany – May Factory Orders / July ZEW survey **
– Once again Factory Orders were much weaker than expected at -3.7% m/m 54/3% y/y against forecasts of 1.0% m/m, even if the weakness was mitigated by a revision to April from -0.2% to +1.2% m/m. A sharp drop in foreign Orders (-6.7% m/m after +3.2% in April), paced by weakness in overall Capital Goods (-4.6% m/m) and Intermediate Goods (-3.6% m/m) accounted for the drop. It is again a reminder that survey optimism is not a guarantee for strength in hard data, even if supply chain bottlenecks are likely to account for some of the unexpected weakness, and Order Backlogs remain high. The ZEW survey is anticipated to see a slight setback in Expectations (exp. 75.2 vs prior 79.8), but the Current Situation to move back into positive territory at 5.5 for the first time since June 2019.
** U.S.A. – June Services ISM **
– The Services ISM is expected to remain robust, but ease back slightly from May’s record high of 64.0 to 63.7, with the focus on Supplier Deliveries (following a modest easing in the Manufacturing measure from its cyclical high), and Prices Paid (see chart). The read across from a sharper drop in the flash Services PMI (seen unrevised at 64.8 from May 70.8) is never a good one, and overall the sector should continue to see strong support from re-opening, the real test will come towards the end of Q3, as the initial pent-up demand plateaus.
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