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LGT Navigator: Tight supply boosts oil prices

June 24, 2021

US stock markets take a breather in the middle of the week. The European economy benefits from the easing of corona measures and is experiencing a boom last seen in 2006, while growth momentum in the US slows at a high level.

Oil price

After a strong start to the week, US stock markets took a breather on Wednesday. The S&P 500 closed -0.1% lower and the Dow Jones fell -0.2%. The Nasdaq Composite posted slight gains (+0.1%) and closed at another record high. 

Recent figures suggest that economic growth in the US is likely to slow at a high level. According to IHS Markit on Wednesday, the purchasing managers' index fell from 68.7 to 63.9 points in June. However, the index is still well above the threshold of 50 and signals an acceleration in economic activity.

Oil hits two-year high

On Wednesday, oil prices have risen to the highest level since October 2018 in intraday trading, after inventories in crude oil in the US unexpectedly shrank sharply. At the same time, demand for the commodity is rising as travel activity, among other things, picks up in the wake of easing corona measures. Brent crude cost as much as USD 76.02 per barrel in the course of trading, and US WTI crude rose to USD 74.25. Since the beginning of the year, the price of oil has risen by around 45%, which is partly due to the economic recovery, but at the same time the bottleneck has been exacerbated by production cuts by the oil-exporting countries (OPEC). The focus therefore shifts to the next meeting of the oil cartel, which will meet on July 1 to discuss how to proceed. 

European economy is humming

The easing of the corona measures is brightening the outlook for the European economy. The Purchasing Managers' Index, which measures activity in the industrial and service sectors in the euro area, climbed by +2.1 to 59.2 points in June, the strongest growth in 15 years, according to IHS Markit on Wednesday. Economists had expected an increase to 58.8 points. Above a threshold of 50, the barometer signals an expansion of business activity. The upswing is becoming increasingly broad-based. Industrial production, for example, rose for the twelfth time in a row, fueled by booming demand. But the revival is also gaining momentum in the service sector, with business currently doing better than at any time since 2007. The hospitality and travel sectors in particular are benefiting from relaxed protection measures. Markit expects the upswing to continue in the summer and to affect consumer-related businesses in particular.

Swiss economy to grow more strongly than expected

Swiss economists expect economic growth of +3.5% on average for the current year. They have thus raised their forecast slightly compared to the previous quarter, according to the KOF Swiss Economic Institute. In March, the economic experts were still expecting GDP growth of +3.3%. Growth expectations for 2022 remain unchanged at +2.2%. The situation on the labour market is also likely to develop better than previously forecast. The economists surveyed expect an unemployment rate of 3.1% by the end of the year and +3.0% by the end of 2022, a significant downward revision compared to March (2021: +3.6%, 2022: +3.3%). In contrast, the increase in consumer prices is likely to be somewhat stronger at +0.5% this year, followed by +0.7% next year. 

 

Economic Indicators June 24

MEZ Country Indicator Last period
10:00 EZ Monthly report ECB
13:00 UK Interest rate decision Bank of England
14:30 US Gross domestic product (Q1) +6.4%

 

Earnings Calender June 24

Country Company Period
US Nike Q4

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: David Wolf, +41 44 250 83 48, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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