Oil dropped by more than 1% on Monday after weaker than expected Chinese economic growth fueled concern over demand in the world’s second-biggest oil consumer while a partial restart of halted Libyan output also pressured.
China’s gross domestic product (GDP) grew 6.3% year on year in the second quarter, compared with analyst forecasts of 7.3%, with its post-pandemic recovery faltering rapidly owing to weakening demand at home and abroad.
“The GDP came in below expectations, so will do little to ease concerns over the Chinese economy,” said Warren Patterson, ING’s head of commodities research.
Brent crude last fell 52 cents, or 0.65%, to $79.35 a barrel after losing more than 1% earlier in the session. U.S. West Texas Intermediate crude dropped by 43 cents, or 0.57%, to $74.99 on a second straight day of losses for both contracts.
“China data was always looked forward to with a degree of hope; well, for bulls anyway,” John Evans of oil broker PVM said in a report. “However, the contemporary economic backdrop for Asia’s driver seems to now be wheeled out for the bears.”
Both benchmarks had notched three weeks of gains and touched their highest since April last week, finding support from OPEC+ output curbs and unplanned outages in Libya and Nigeria.
Oil also came under pressure on Monday from the resumption of output at two of the three Libyan fields that were shut last week. Output had been halted by a protest against the abduction of a former finance minister.
In another sign of tighter supplies, Russian oil exports from western ports are set to fall by 100,000-200,000 bpd next month, a sign that Moscow is making good on a pledge for supply cuts in tandem with Saudi Arabia, two sources said on Friday.
First inked in July 2022, the U.N.-brokered Black Sea Grain Initiative has been repeatedly elongated in short increments.
It was set to lapse on Monday at midnight, Istanbul time.
Russia on Monday said it has suspended a humanitarian corridor to deliver key Ukrainian grains to global markets, hours before the agreement’s expiry.
First inked in July 2022, the U.N.-brokered Black Sea Grain Initiative has been repeatedly elongated in short increments, amid increasing discontent from Russia over perceived restrictions that limit the full dispatch of its own grain and fertilizer exports. The initiative was set up to abate a global food crisis, after Moscow launched a full-scale invasion of fellow key grain exporter and neighbor Ukraine.
It was set to lapse on Monday at midnight, Istanbul time.
“In fact, the Black Sea agreements ceased to be valid today. As the President of the Russian Federation said earlier, the deadline is July 17. Unfortunately, the part relating to Russia in this Black Sea agreement has not been implemented so far. Therefore, its effect is terminated,” Kremlin spokesperson Dmitry Peskov said, in Google-translated comments reported by Russian state news agency Tass on Monday.
The pact allowed the export of commercial food and fertilizer supplies, including ammonia, from three Ukrainian ports in the Black Sea – Odesa, Chornomorsk and Pivdennyi, previously known as Yuzhny. Cargo ships proceed through the agreed humanitarian corridor to Istanbul, one of the busiest ports of Turkey, whose administration under President Recep Tayyip Erdogan has been deeply immersed in the negotiations.
This is a breaking news story, please check back later for more.
BEIJING — China said Monday that second-quarter gross domestic product grew by 6.3% from a year ago, missing expectations.
The unemployment rate among young people ages 16 to 24 was 21.3% in June, a new record.
The 6.3% GDP print for the second quarter marked a 0.8% pace of growth from the first quarter, slower than the 2.2% quarter-on-quarter pace recorded in the first three months of the year. Analysts polled by Reuters had predicted a 7.3% increase in the second quarter GDP.
Retail sales for June rose by 3.1%, a touch below the 3.2% expected.
Industrial production for June rose by 4.4% from a year ago, better than the 2.7% forecast.
Fixed asset investment for the first half of the year rose by 3.8%, better than the 3.5% predicted.
The unemployment rate for people in cities was 5.2% in June.
Domestic travel has been a bright spot in the recovery. Urban residents more than doubled their tourism spending in the first half of the year from a year ago, to 1.98 trillion yuan ($280 billion), according to the Ministry of Culture and Tourism. However, it said rural residents’ spending on travel only rose by about 40% during that time.
The combined first-half total of 2.3 trillion yuan was less than the 2.78 trillion yuan reported for the first six months of 2019, before the pandemic, official data showed.
Beijing last week said it would extend property support measures. Authorities have also announced broad support for exports. The country has also extended tax breaks for electric car purchases, a growing industry the government is keen to support.
But Beijing has otherwise shown reluctance to embark on greater stimulus, especially as local government debt has soared. A Politburo meeting expected later this month could provide more details on economic policy.
This is breaking news. Please check back for updates.
Russia has yet to decide if it will extend the terms of the Black Sea Grain Initiative, which is set to expire on Monday.
Under the deal, more than 1,000 ships carrying nearly 33 million metric tons of agricultural products have departed from Ukrainian ports.
WASHINGTON — A landmark agricultural deal brokered between Ukraine and Russia is set to expire on Monday, a revelation that is expected to further exacerbate the global fallout of the Kremlin’s ongoing war if Moscow refuses to renew the agreement.
Last week, Secretary-General Antonio Guterres sent a letter to Russian President Vladimir Putin outlining proposals to salvage the deal. On Friday, U.N. spokesman Stephane Dujarric told reporters that conversations with the Kremlin via Signal and WhatsApp would continue over the weekend.
Moscow maintains that the current agreement only supports Ukrainian agricultural products and not Russian fertilizer exports which are also included in the deal but have yet to depart for global destinations.
On Thursday, Putin reiterated Moscow’s position and threatened for the fourth time since the inception of the agreement to not renew it.
A Ukrainian serviceman stands in front of silos of grain from Odesa Black Sea port, before the shipment of grain as the government of Ukraine awaits signal from UN and Turkey to start grain shipments, amid Russia’s invasion of Ukraine, in Odesa, Ukraine July 29, 2022. REUTERS/Nacho Doce
Nacho Doce | Reuters
Before Russian troops poured over Ukraine’s borders in late February 2022, Kyiv and Moscow accounted for almost a quarter of global grain exports. Those agricultural shipments came to a halt for nearly six months until representatives from Ukraine, Russia, the U.N. and Turkey agreed to establish a humanitarian sea corridor under the Black Sea Grain Initiative.
The deal, which was brokered last July, eased Russia’s naval blockade with the reopening of three key Ukrainian ports.
Under the deal, more than 1,000 ships carrying nearly 33 million metric tons of agricultural products have departed from Ukraine’s war-weary ports of Odesa, Chornomorsk and Yuzhny-Pivdennyi.
The agreement has also overseen the transport of 725,167 tons of wheat to sail on World Food Program ships to some of the world’s most food-insecure countries, such as Afghanistan, Ethiopia, Somalia, Sudan and Yemen.
The U.N.-backed organization responsible for tracking exports under the deal said in an update on Saturday that for nearly three months, no ships have sailed from Ukraine’s port of Yuzhny-Pivdennyi. What’s more, no new vessels have been approved to depart Ukraine for the past two weeks.
‘Not the deal we agreed to’
Russian President Vladimir Putin and Moscow’s top diplomat Sergei Lavrov both blamed the West for creating global insecurity and instability.
Sean Gallup
In April, Russian Foreign Minister Sergey Lavrov warned that if the Black Sea Grain Initiative did not soon incorporate fertilizer products, Moscow would not renew the agreement.
“It was not called the grain deal it was called the Black Sea Initiative and in the text itself the agreement stated that this applies to the expansion of opportunities to export grain and fertilizer,” Lavrov told reporters during an April 26 press conference at the U.N.
“That’s not the deal we agreed to on July 22,” he said, adding that there are dozens of Russian ships loaded with approximately 200,000 tons of fertilizer waiting for export. In addition to the inclusion of fertilizer exports, the Kremlin has also requested the resumption of a pipeline that weaves through Russia and ends at a Ukrainian port.
One of Moscow’s top demands though is for the Russian Agricultural Bank, or Rosselkhozbank, to return to the SWIFT banking system.
Moscow’s exclusion from SWIFT, which stands for the Society for Worldwide Interbank Financial Telecommunication, severed the country from much of the world’s financial networks in the days following Russia’s full-scale invasion.
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Wheat prices to ‘spike again’ if Black Sea grain deal is not renewed: Strategist
China second quarter GDP and June industrial production and retail sales data.
Italy releases consumer price index for June.
G20 finance ministers and central bank governors meeting in India (July 15-18)
(830 am ET) Canada wholesale trade data for May.
(830 am ET) Canada international securities transactions for May
(830 am ET) Canada new motor vehicle sales for May. It’s expected to be up 13.5% year over year
(830 am ET) U.S. Empire State Manufacturing Survey for July.
Earnings include: PrairieSky Royalty, Platinum Group Metals
Tuesday July 18
(815 am ET) Canada housing starts for June. They are expected to rise 5% to an annualized rate of 212,600 after contracting 22.5% the month before
(830 am ET) Canada consumer price index for June. Consensus is for a monthly rise of 0.3%, or 3% year over year. Those would be lower than May’s readings of 0.4% and 3.4%, respectively.
(830 am ET) Canada industrial product price index for June.
(830 am ET) U.S. retail sales for June. Consensus is for a rise of 0.5%, or 0.3% when autos are excluded.
(915 am ET) U.S. industrial production for June. Consensus is for a rise of 0.1%.
(10 am ET) U.S. NAHB housing market index
(10 am ET) U.S. business inventories
Earnings include: Bank of America, Morgan Stanley, Lockheed Martin, Charles Schwab, Mueller Industries, Goodfood Market
Wednesday July 19
Euro area CPI for June. It’s expected to be up 5.5% from a year earlier, easing from the previous month’s 6.1% rate. UK CPI is also due out, with expectations for inflation to slow to a 8.2% year over year rate from 8.7% a month earlier.
(830 am ET) Canada construction investment for May.
(830 am ET) U.S. housing starts. Consensus is for a 9.7% drop to 1.47 million annualized. Building permits also to be released.
Earnings include: Tesla, Netflix,, IBM, Goldman Sachs, Las Vegas Sands, Baker Hughes, Kinder Morgan, Haliburton, Equifax, Nasdaq, Steel Dynamics, United Airlines Holdings, Alcoa, Johnson Matthey, A&W Revenue Royalties Income Fund
Thursday July 20
Japan trade deficit and machine tool orders
Euro area consumer confidence. Germany producer price index, and France business confidence.
(830 am ET) Canada household credit.
(830 am ET) U.S. initial jobless claims for previous week. They are expected to rise by 7,000 to 244,000.
(830 am ET) Philadelphia Fed Index.
(10 am ET) U.S. existing home sales for June. Consensus is for a 2% decline to a 4.22 million annualized rate.
(10 am ET) U.S. leading indicator.
Earnings include: Johnson & Johnson, Abbott Labs, Philip Morris, Intuitive Surgical, Blackstone Group, CSX, Freeport-McMoran, Newmont Goldcorp, Capital One Financial, Travelers, American Airlines, West Fraser Timber, Alaska Air, Kimberly-Clark, Choice Properties REIT, Mullen Group, Enterprise
Friday July 21
Japan CPI for June
France retail sales for June, plus UK consumer confidence and retail sales
(830 am ET) Canada retail sales for May. Consensus is for a rise of 0.5%, or 0.2% excluding autos.
(830 am ET) Canada new housing price index for June. It’s expected to be down 0.6% year over year.
The bad news just keeps coming for China’s ailing economy.
Exports tanked 12% in June, according to data released Thursday.
Slumping growth and deflationary risks are also sparking concern.
China’s plan for a swift post-pandemic revival looks likely to be scuppered by a growing number of red flags, including deflation and sputtering growth.
Beijing finally curtailed three years of harsh zero-COVID lockdowns late last year, but its economy has subsequently run into significant turbulence that’s sparking alarm across the world.
Taken alone, headline figures still suggest robust growth, with the country’s Gross Domestic Product likely to rise 7.3% in the second quarter, according to a Reuters poll.
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There are other signs that China’s economic reboot is faltering, too:
Factory activity is shrinking, according to the manufacturing Purchasing Managers’ Index, which has shown output contracting three months in a row.
Data released Thursday also showed exports falling 12.4% from a year ago, badly underperforming economists’ expectations. Making goods and then sending them abroad is a huge engine for Chinese growth.
Earlier this week, China also announced that its inflation rate was 0% – meaning it’s now teetering on the edge of deflation. That could mean people start to spend less, holding off on buying things with the expectation that they’ll soon become cheaper.
Foreign direct investment in China has also dried up, with spending from outside China dropping by $20 billion, or a sixth, year-on-year, per data from the Wall Street Journal.
It’s a growing list of concerns that makes grim reading for Beijing, whose dreams of a smooth revival have quickly turned nightmarish.
The producer price index for June had a smaller than expected increase, the Labor Department reported Thursday, in the latest sign that inflation is calming in the United States.
The PPI for final demand rose 0.1%. Economists surveyed by Dow Jones were expecting a rise of 0.2%. PPI rose 0.1% when excluding food, energy and trade services, which was in line with expectations.
The producer report comes a day after the consumer price index showed a smaller-than-expected increase. The CPI rose just 3% year over year, its lowest since March 2021, bolstering hopes for investors that the Federal Reserve is near the end of its rate-hiking cycle.
The wholesale producer numbers have declined faster than the consumer inflation data. In May, the headline PPI number actually declined 0.4%, and was unchanged when excluding food, energy and trade services.
Dollar value of China’s exports plunged 12.4% in June from a year ago, a far bigger drop than expectations for a 9.5% decline in a Reuters poll and the 7.5% annual decline in May.
Imports declined 6.8%, in June from a year ago, also worse than expectations for a 4% decline and the 4.5% annual decline in May.
The Bank of Canada has increased its benchmark interest rate to 5 per cent and pushed out the timeline for getting consumer prices under control, warning that the downward momentum of inflation could stall over the next year as the economy proves surprisingly resilient to higher borrowing costs.
The quarter-point increase, which was widely expected by analysts, brings the policy rate to a level last seen in April, 2001. This will further squeeze Canadians’ finances and push up costs for mortgage holders.
In an updated forecast, the central bank said it expects the annual rate of inflation to remain around 3 per cent for the next year, declining to the bank’s 2-per-cent target by the middle of 2025.
“This is a slower return to target than was forecast in the January and April projections,” the bank said in its rate announcement. “Governing council remains concerned that progress towards the 2-per-cent target could stall, jeopardizing the return to price stability.”
The bank gave no hints about future rate decisions but left the door open to further hikes.
“We are trying to balance the risks of over- and under-tightening,” Bank of Canada governor Tiff Macklem said in a news conference after the decision. “If new information suggests we need to do more, we are prepared to increase our policy rate further. But we don’t want to do more than we have to.”
Canadian bond yields fell after the announcement, suggesting that markets were expecting a more explicit signal about further rate hikes.
Mr. Macklem and his team are grappling with the surprising strength of the Canadian economy. Many analysts expected the economy to be in a recession by now, squeezed by the most aggressive interest rate increases in a generation. However, consumer spending, job creation and the housing market have turned out to be less responsive to rate hikes than anticipated.
The bank raised its economic growth forecast for 2023 to 1.8 per cent from a previous forecast of 1.4 per cent. It expects GDP growth to slow to around 1 per cent in the second half of this year and first half of next year, but predicts the economy will avoid an outright contraction or recession.
The resilience of the economy has been good for many workers and businesses. But it’s become a headache for central bankers, who are intentionally trying to slow spending and investment to reduce upward pressure on prices and stabilize the purchasing power of the Canadian dollar.
“Today’s move can be characterized as a moderately hawkish hike, in that the BoC is certainly not closing the door on the possibility of further moves,” Bank of Montreal chief economist Doug Porter wrote in a note to clients.
“While we are not looking for further hikes this year, we are tweaking our rate call in light of the Bank’s view on growth and inflation – we now see rate cuts beginning only in the second quarter of 2024, one quarter later than our prior view,” he wrote.
The bank paused its monetary policy tightening campaign in January, betting that it had raised interest rates enough to bring inflation down over time. Interest rate increases work with a lag, and Canada’s highly indebted economy was thought to be more sensitive to rising debt-servicing costs than many other economies.
By June, this “conditional pause” seemed untenable. Consumer spending grew a massive 5.8 per cent in the first quarter and house prices began to rebound through the spring. Meanwhile, Canadian employers added almost 300,000 jobs through the first half of the year, keeping the unemployment rate near a record low.
“We have been surprised by the persistence of excess demand and underlying inflation in Canada and globally. We know that higher rates are having an impact, but how big their impact will be is uncertain,” Mr. Macklem told reporters.
Consumer price index inflation has come down significantly, reaching 3.4 per cent in May from a four-decade high of 8.1 per cent last summer. But most of this decline has come from year-over-year comparisons in the price of oil, which spiked after Russia’s invasion of Ukraine last year and has moderated since then.
Core measures of inflation, which strip out more volatile energy and food prices, have been stickier, with three-month rates averaging around 3.5 to 4 per cent. That suggests the next leg down in inflation could take longer than previously expected.
“With the downward momentum in inflation waning and our forecast suggesting inflation will be around 3 per cent for the next year, we are concerned that the progress to price stability could stall, and inflation could even rise again if there are upside surprises,” Mr. Macklem said.
The bank pointed to several factors behind the surprisingly strong demand in the economy, including high population growth, a tight labour market, accumulated savings and spending by federal and provincial governments.
The Bank of Canada raised interest rates to five per cent, hitting the economy with higher borrowing costs as new projections suggest it will take longer for inflation to fall back to two per cent. Bank of Canada governor Tiff Macklem said the bank’s assessment was that the cost of delaying action was larger than the benefit of waiting. (July 12, 2023)
Another rate increase means more financial pain for Canadian households, who face higher costs to service their debt.
So far, signs of acute financial strain remain relatively limited, the bank said in a special section of its quarterly Monetary Policy Report, published Wednesday. Delinquency rates are rising but remain below pre-pandemic levels, even for variable-rate mortgage holders who have been squeezed the most by rising interest rates.
But there are some pockets of concern, the bank said.
“Credit card data show that borrowers are using their credit cards more extensively than they have in the past,” it said.
“In addition, although overall delinquency rates on loans remain relatively low, the share of borrowers moving from 60 to 90+ days late on any credit product has risen and is now close to a historical high.”
Many homeowners have been cushioned against rising rates because their lenders have let them extend the amortization periods of their mortgages rather increasing their monthly payments. The bank noted that only one-third of mortgage holders have been affected by higher rates so far.
“As this share increases over the coming quarters, more households will face higher debt-service costs. Mortgage holders with variable-rate fixed payments could be particularly exposed,” the bank said.
The bank’s next interest rate decision is scheduled for Sept. 6.
