Oil price rises on Libyan supply concerns

In focus today

From the US, Conference Board's consumer confidence index for August is due for release. The preliminary survey from the University of Michigan that was released earlier showed consumers turning increasingly optimistic about the future, but also more worried about the current economic situation.

We expect the Central Bank of Hungary to keep their policy rate unchanged later today, at 6.75%.

Economic and market news

What happened overnight

Yesterday, market sentiment was a slight risk-off in tech ahead of the much-awaited Nvidia earnings on Wednesday, while the USD posted modest gains. This continued overnight in Asian markets where Japanese technology shares slipped, following their western peers.

What happened yesterday

Supply uncertainty sent oil prices up by 2.8% from Monday morning as Brent crude price climbed to around 81.2 USD/bbl. this morning. The move came after the government in Eastern Libya, which is not internationally recognized, said it would halt production from its oil fields from where most of Libya's oil is sourced. While neither the national oil company nor the western Libyan government have confirmed this, several subsidiaries of the former have said they plan to cut production citing internal tensions as the reason. Libya has vast oil resources, but the long-standing conflict has hampered production, and currently the country's output constitutes only 4% of OPEC production.

German IFO indicator declined less than expected printing at 86.6 (cons.: 86.0). The drop was due to a deterioration in respondents' assessment of the current economic situation, which mimics the weakness seen over the past months in growth data and August PMIs. Momentum, particularly in manufacturing, has become even weaker while service sector activity keeps the economy afloat.

Equities: Global equities started the week on a lower note, primarily due to setbacks in US tech and tech-related growth stocks. Despite several sectors, regions, and styles ending higher yesterday, the performance of tech heavyweights dominated. There was no clear top-down candidate to blame for the weak performance. However, the sensitivity of tech to the AI narrative has been evident before, especially in the days leading up to Nvidia's earnings report. With Nvidia delivering blowout results for seven consecutive quarters, it is natural to feel a bit more apprehensive ahead of their results. (Nvidia will report tomorrow). In the US yesterday, Dow +0.2%, S&P 500 -0.3%, Nasdaq -0.9%, and Russell 2000 -0.04%. Most Asian markets are lower this morning, while European futures are marginally higher and US futures are mixed.

FI: There were modest movements in global bond yields despite more comments from Fed officials regarding easing monetary policy. However, much is discounted as 2Y US Treasury yields are below 4% and some 20bp lower than in late December 2023/early January 2024, when the market was pricing in some 6-7cuts. Furthermore, the slope of the 2-10Y US curve is set for a test of 0bp.

FX: In a relatively quiet start to the week the USD rebounded whilst NOK, PLN and HUF were trading on the backfoot. EUR/GBP still hovers just above the 0.8450 mark while EUR/SEK had edged modestly higher towards 11.40 since last week's lows. USD/JPY rebounded slightly after Friday's drop but remains below the 146-mark.