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[Quick Facts]

1. The U.S. service sector nearly stagnated.

2. Russia's revenue from oil and gas fell by more than a third in May.

3. Demand-side drag on commodity performance, a rebound is still expected in 2H 2023.

4. European natural gas prices soar as LNG supply is expected to tighten.

5. Canada's strong economy puts the central bank's next move in doubt.

[News Details]

The U.S. service sector nearly stagnated

The U.S. service sector nearly stagnated in May as business activity and orders downshifted and a measure of prices paid slipped to a three-year low. Data released on Monday showed that the Institute for Supply Management's (ISM) overall gauge of services fell to 50.3, the weakest level this year, from 51.9 in April. The May reading was barely above 50, which separates growth and contraction, weaker than expected. U.S. Treasury yields and the U.S. dollar fell after the data were released, and traders scaled back bets on a Fed rate hike next week. The ISM measure of prices paid for materials and services dropped more than 3 points to 56.2 in May, closer to pre-pandemic levels.

Russia's revenue from oil and gas fell by more than a third in May

Russia's revenues from oil and gas slumped by more than a third in May as crude oil prices dropped under Western sanctions and gas exports to Europe declined. Budgeted revenues from oil and gas taxes fell 36 percent year-on-year to 570.7 billion rubles ($7 billion), according to data released on Monday by Russia's Finance Ministry. Gas revenues fell nearly 46 percent y/y to 145 billion rubles in May. Higher revenues from mineral extraction taxes failed to compensate for the loss of export duties. Revenues from tariffs on gas export plummeted 81% to 38.3 billion rubles after Gazprom reduced pipeline gas supplies to Europe, its largest market of all time.

Demand-side drag on commodity performance, a rebound is still expected in 2H 2023

Since February this year, global commodity prices have continued to adjust sharply. Important commodity indices have fallen by more than 20% compared with the high point in May last year. Insiders believe that the economic downturn and recession expectations in Europe and the United States are important factors driving the continued adjustment of commodity prices since this year. In general, global monetary policies, economic fundamentals, and commodity supply and demand are three important aspects to judge the trajectory of commodity prices. This year, due to the lack of effective demand, commodity prices are expected to remain weak, but some inventory replenishment activities and the already weak enough real estate industry and other factors may promote a rebound in the commodity market.

European natural gas prices soar as LNG supply is expected to tighten

European natural gas futures rose 12% intraday to €26.53/MWh, after falling to their lowest level in two years last week. There are signs of tightening supply in the LNG market and Asian demand is likely to be stronger. The U.S. can profit more by exporting gas to Asia in July, August, and September. The rise in European gas prices may also be related to the oil market. Last weekend, Saudi Arabia decided to further restrict crude oil supplies in July to boost the falling oil prices. Long-term LNG contracts are usually tied to oil, which means buyers may prefer spot shipments for now.

European gas prices have trended back up after the oil price crash, and prices could move higher. So far, weak demand has kept gas prices low, possibly masking a dwindling supply buffer in Europe through next winter and a possible recovery in Asian LNG demand in the second half of the year.

Canada's strong economy puts the central bank's next move in doubt

In January, the Bank of Canada became the first major global central bank to pause on rate hikes. Canada's economy has been surprisingly strong since then. It will test Governor Tiff Macklem's resolve to keep a wait-and-see attitude this week. A return to rate hike mode would raise questions about how high the central bank can crank up borrowing costs without causing the economy to fall into chaos. Between March 2022 and January this year, the Bank of Canada has raised interest rates eight times in total, bringing them to a 15-year high of 4.50%. But still, the rapid rise in currency prices has failed to cool an overheated economy. This resilience has boosted the possibility of another rate hike by the central bank after a rapid improvement in the housing market and an unexpected uptick in CPI in April. They now consider it more likely than not that the Bank will raise interest rates.

[Focus of the Day]

UTC+8 12:30 The Reserve Bank of Australia announces its interest rate decision

UTC+8 17:00 Eurozone Retail Sales MoM (Apr)

UTC+8 00:00 EIA publishes its monthly short-term energy outlook report

UTC+8 04:30 U.S. API Weekly Crude Oil Stocks