Oil prices in view as OPEC+ and Gaza developments shape sentiment

• Manufacturing PMI dominates, with China and Spain metrics on the rise
• Biden-led Gaza ceasefire could ease oil prices
• OPEC+ extend production cuts, but plans to start increasing output from October

European markets are on the rise in early trade, with the Spanish Ibex pushing ahead thanks to a sharp rebound in the manufacturing PMI this morning. With a firm focus on the sector, we saw the Caixin manufacturing PMI metric push further into expansion overnight, lifting sentiment around the Chinese recovery. That theme looks set to continue into the US session, with all eyes fixed on the ISM manufacturing PMI metric out of the US this afternoon. The expected rebound back towards the 50 threshold highlights the potential return to growth in the coming months, building on a recovery that has been over a year in the making. However, it will be the prices paid element that could be most notable, with expectations of a sharp 0.9 decline bringing optimism that we will see manufacturing inflation head lower.

Optimism around a potential Biden-led ceasefire in Gaza helped drive oil prices lower at the open, with the potential repercussions for improved relations across the Middle East coming as a welcome development. Joe Biden will undoubtedly see this as a major accomplishment if he manages to halt this highly contentious war, bolstering his credentials at a time when Donald Trump has been busy losing face in the New York courts. Nonetheless, the impact any of this will have on the polls remains unclear, with Trump’s ability to remain popular through controversy remaining unparalleled.

The initial crude oil weakness seen at the open failed to persist thanks to a weekend OPEC meeting that saw Saudi Arabia push for further extensions to the deep oil production cuts that have been in place to keep crude prices elevated over recent years. Nonetheless, this meeting does provide some grounds for optimism, with the pact allowing OPEC+ members to start selling additional barrels of oil from October, increasing further in 2025. While OPEC+ noted that these increases would be reliant upon market conditions, this deal looks to draw a line under attempts to drive energy prices sharply higher for the time being.