- Ban on Russian oil imports to Europe, with caveats
- Chinese manufacturing may be rebounding
- UK credit conditions raise concern
After weeks of intense diplomacy the EU finally agreed terms on a ban on Russian oil imports into the economic bloc late last night. Although there are caveats, mainly the concession secured by Hungary to allow pipeline deliveries of Russian oil to continue, something which will also benefit Slovakia and Czech Republic.
But the EU has committed to returning to the topic in due course, meaning either Hungary concedes at some point or the whole embargo falls apart - but that is for another day. In the round, this means that seaborne deliveries, effectively around two thirds of Russian oil imports into the EU, will be halted. Brent Crude prices responded by ticking up another 1.2 per cent in early trading this morning to push through the $124 level. Meanwhile, for some, there is an interesting arbitrage opportunity as Russian crude oil is trading some 25 per cent below the Brent Crude price, although the EU has put in safeguards which mean re-selling of Russian oil into the EU market once it is refined is also banned.
The oil embargo is part of a sixth wave of sanctions the EU has introduced against Russia since it invaded Ukraine with additional features of these sanctions including further freezes on the assets of individuals and the ejection of Sberbank from the international Swift payments system.
Elsewhere in the European energy complex, it looks at though Denmark and the Netherlands could see their supplies of Russian gas cut off due to disputes over payment terms. Similar spats have already seen Poland, Bulgaria and Finland have their gas contracts with Russia cancelled.
Further east, Covid restrictions are expected to lift in Shanghai overnight tonight, giving fresh hope that China’s economic recovery will gather pace into the second half of the year. The latest economic indicators from China’s manufacturing sector suggest that activity picked up in May with the official Purchasing Managers’ Index for the sector showing a reading of 49.6, up from 41.9 in May, although 50 is the baseline above which any score indicates growth.
What does this all add up to for markets? Not much if the muted reaction so far is anything to go by. The FTSE100 is being pulled up by its energy exposure, rising 0.5 per cent while the more domestically exposed FTSE250 is down by a similar margin. In Europe the DAX is down 0.3 per cent and the CAC 40 off by 0.4 per cent.
Meanwhile, the latest economic data from the Bank of England suggests the cost of living crisis is already beginning to bite, and may take a chunk out of the property market in the coming months - mortgage approvals fell to their lowest level since mid-2020 in April while consumer credit in the form of credit cards, car finance and personal loans expanded by £1.4bn, significantly up on the pre-pandemic levels of around £1bn.
