Oil price hits 2-year high
Credit to the private sector; Weekly oil market; inflation gauge; China data
What happened? Last week, world crude oil prices rose more than 4% to their highest levels in more than two years.
Implications: Rising oil prices will keep the global focus on inflation and, in turn, investors will wonder what this means for interest rate parameters.
Other economic data to note: The monthly inflation indicator fell 0.2 percent in May, but rose 3.3 percent on the year – the highest rate in a decade. Credit to the private sector increased 0.2 percent in April, up 1.3 percent for the year. The Chinese manufacturing purchasing managers index (PMI) fell from 51.1 to 51.0 in May, while the services PMI fell from 54.9 to 55.2.
Energy price movements can affect consumer spending and, in turn, the outlook for retailers. The inflation gauge estimates month-to-month price movements for a wide range of goods and services. Private sector credit numbers have implications for lenders, retailers, and businesses that depend on corporate spending. Chinese data is important for exporters, especially rural producers, consumer goods, mining and energy companies
What does all this mean?
• World oil prices are trading at the highest prices recorded in two years. In fact, the price of unleaded in Singapore is trading near the levels seen in September / October 2019. As the number of Covid-19 cases increases in developing countries, in richer countries, the focus is on on the growing number of vaccinations performed. Investors therefore remain optimistic that global oil demand will continue to rise as economies reopen with the start of the summer “driving season” in the United States last weekend. At the same time, the OPEC + countries are doing a good job of restricting oil production and thus supporting prices. OPEC and its allies are due to meet this week with a focus on the supply of crude. Decisions made can be important to oil producers and fuel retailers.
• High and rising gasoline prices have a number of implications. Rising oil prices are spurring inflation, forcing investors to focus on the possibility of rising interest rates. At the same time, rising oil prices increase business costs and serve to restrict the purchasing power of consumers. In short, the evolution of the oil market is a priority area for investors.
• With crude oil prices pushing annual inflation rates up, it’s time for the latest monthly inflation gauge to be released. And the interesting point is that both overall and underlying metrics have fallen over the past month after firm gains in February and March. But even with the price drop in May, the overall annual rate rose to 3.3 percent, the highest in a decade. Now, while most investors are aware that this annual rate is unsustainable (other than a low base), the concern is that it could still be used to raise inflation expectations. And so this is a trend to watch out for.
• In addition to housing, Australians are still reluctant to borrow. But with the new loans backed by loan repayments, there are still healthy levels of activity for financiers. Inflationary fears are also pushing up long-term rates and supporting financial sector stock prices.
What do you want to know?
Weekly oil market
• During the week, Brent crude prices rose 4.8% to a two-year high of US $ 69.63 per barrel. And the US price of Nymex rose 4.3 percent to US $ 66.32 per barrel. The Nymex hit a 31-month high on May 27.
• Last week, the key Singapore gasoline price rose US $ 4.71 or 6.5 percent to US $ 77.50 per barrel. In Australian dollars, the price of gasoline in Singapore rose $ 6.45 or 6.9% to $ 100.30 per barrel or 63.08 cents per liter. The last time Singapore gasoline was above AU $ 100 a barrel was at the end of February 2020.
• The national wholesale price of unleaded gasoline last week averaged 126.5 cents per liter, broadly unchanged during the week according to the Australian Petroleum Institute. Today, the average Australian price is 126.6 cents per liter.
• MotorMouth today records the following average retail prices for unleaded gasoline in capital cities: Sydney 152.8 c / l; Melbourne 139.2c / l; Brisbane 134.5 c / l; Adelaide 143.4 / 1; Perth 128.5c / l; Hobart 145.0c / l; Darwin 139.8c / l; and Canberra 140.3c / l.
Credit to the private sector
• Credit to the private sector (actually outstanding loans) increased 0.2 percent in April after rising 0.4 percent in March. Annual growth fell from 1.0 percent over the year (the lowest annual growth rate in 11 years) to 1.3 percent.
• In April, homeownership credit increased 0.6 percent (6.2 percent per year); investor housing increased 0.4 percent (1.1 percent); other personal loans remained stable (down 7.8%); and business credit declined 0.3 percent (-3 percent).
Chinese purchasing managers indices (PMI)
• China’s “official” manufacturing PMI fell from 51.1 in April to 51.0 in May (consensus: 51.1). The non-manufacturing or services PMI fell from 54.9 to 55.2. Readings above 50 indicate an expansion of activity.
Melbourne Institute inflation gauge
• The measure of headline inflation fell 0.2 percent in May, but was still up 3.3 percent from a year ago – the highest annual growth rate in a decade . The reduced average gauge – the Reserve Bank’s preferred measure – fell 0.1 percent – the first drop since October 2020. The annual rate fell from 1.6 percent to 1.8 percent.
Posted by Craig James, Chief Economist, CommSec