What has happened
With US markets closed on Monday, European equity markets eked out a small gain, with cyclical sectors leading the advance. Supporting sentiment was the afterglow of the better-than-expected US jobs data from last Friday. Also helping risk appetite was Monday’s latest purchasing manager survey data for June for countries and regions globally, which were on the whole constructive. However, it should be noted that month-on-month changes in some of the survey data simply reflects timing differences from economic reopening as countries come out from under the shadow of COVID-driven restrictions. Elsewhere, Australia’s central bank left interest rates unchanged but indicated that it plans to do a mild taper of its QE programme after September, with a review in November.
OPEC+ meeting fails to secure a deal on production
After several days of tense talks, OPEC+ held another meeting of its members on Monday. The oil group had tried again to break the deadlock over future oil production plans, but in the end, no deal was reached. The debate had been over the details around plans for a continued easing of production curbs put in place in April 2020 at the height of the pandemic. The stand-off between the United Arab Emirates (UAE) versus Saudi Arabia and some other OPEC+ members looked to be a case of UAE attempting to leverage better production quota terms for itself. According to Reuters news reports, some OPEC+ sources said there would be no oil output increase in August, while others said a new meeting would occur in the coming days, and they believed there would be a boost in August. The market’s immediate take was that supplies would be constrained, pushing oil prices up to over $77 per barrel (Brent). However, one of the risks for the oil price this year is that OPEC+ production discipline breaks down, and current production curbs might unwind faster than expected should individual members break ranks. Currently, OPEC+ members are collectively still holding back close to 6% of the pre-pandemic global supply. Weighing it all up, oil price volatility looks to be the only certainty near-term.
Pfizer’s COVID vaccine less effective against Delta variant infection
An Israel study has found that the Pfizer vaccine is less effective against the Delta variant than previously thought. Preliminary data from Israel’s health ministry showed that the vaccine protected 64% of people against the Delta variant. Previously, efficacy against earlier strains had been estimated at around 94%. However, the drop in effectiveness was observed as the Delta variant spread in Israel, according to the health ministry. On a positive note, the same study found that the vaccine continued to offer good protection against serious illness, with 93% efficacy against hospitalisation. Nonetheless, the Israeli government is reportedly considering whether to recommend a third vaccine dose, having already reinstated a mandate to wear masks indoors in public places. Separately, it is worth noting that Pfizer CEO Albert Bourla has previously said that people will ‘likely’ need a third dose of vaccine within 12 months of getting fully protected.
What do we think?
We are less than two weeks away from the UK Prime Minister’s ‘terminus date’ of 19th July, yet the UK recorded 27,334 new cases on Monday, making it the 8th day in a row over 20,000 a day. On Monday, UK PM Johnson said he was still planning to end most legal limits on social contact in England on 19th July, with a shift in emphasis away from legal restrictions towards personal choices. Looking forward, however, the success of the vaccines to keep new-variant-driven cases from turning into hospitalisations and deaths will be critical for the forthcoming UK ‘freedoms’ to be maintained over the Summer and into the traditional flu season later in the year.
