Wednesday 10 August 2022
Market Report: oil demand comes under pressure and Royal Mail faces walk outs
- Unexpected rise in US Brent crude inventory sees prices under pressure
- Consumer prices in China increased 2.7% in July
- US dollar steadies as markets wait for US inflation data
- Royal Mail faces one of summer’s biggest strikes over postal worker pay
Matt Britzman, Equity Analyst at Hargreaves Lansdown
“US Brent crude inventory unexpectedly rose last week put pressure on oil prices, with a barrel now hovering between $95-$96. Stockpiles rose by a little over 2 million against expectations of a drop of 400 thousand in the latest signal that demand’s under pressure from a looming global recession. Uncertainty around the supply of oil to Europe also weighed on traders’ minds. The flow of oil along the key Druzhba pipeline, which moves Russian crude to central Europe, has been halted by Ukraine amid a row over payments. It’s a further start reminder of just how reliant Europe is to Russian imports.
In China, markets had a benign reaction to the latest inflation data showing prices rising 2.7% in July. The Shanghai Composite fell 0.4%, while the Shenzhen Component lost 0.6%. This was the fastest rise in two years but came in below expectations of 2.9%. Producer prices also rose at a slower pace than expected, coming in at 4.2% vs expectations of a 4.8% rise. Inflation levels within the country’s 3% target mean accommodative policies can continue, as the country tries to rebound from Covid and rising global interest rates.
Following a turbulent couple of trading sessions, the US dollar steadied its course as traders wait for US inflation data coming out later today. Economists are predicting an easing from the 9.1% figure seen in June, to 8.7% for July, though that’s unlikely to sway the Federal reserve from its current course of monetary tightening and markets are still pricing in a third straight 75 basis points rate hike in September. Today’s inflation data follows a strong US jobs report last week, that slightly eases fears of a near-term recession, but suggests the economy’s still in need of some cooling.
In company news, Royal Mail Group finds itself in a tricky spot as the workers union have confirmed a four-day strike over pay, in what will amount to the biggest strike of the summer with over 100 thousand postal staff expected to take part. This comes as the union rejected a previous proposal for a 2% pay rise with a further 3.5% subject to additional terms and is a real blow for a company that’s already losing £1 million per day. Should the strikes go ahead, Royal Mail in the UK’s expected to be heavily in the red this year.”
