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US equity markets closed higher, Europe was lower, and APAC was
mixed. US government bonds closed higher on the day, while
benchmark European bonds closed mixed. European iTraxx closed flat
across IG and high yield, while CDX-NA indices closed modestly
tighter. Oil, gold, and silver were higher on the day and copper
closed lower.
Americas
US equity markets closed higher, with the DJIA closing at a new
record high of 30,409; Russell 2000 +1.1%, DJIA/Nasdaq +0.2%, and
S&P 500 +0.1%.
10yr US govt bonds closed -1bp/0.93% yield and 30yr bonds
-2bps/1.66% yield.
CDX-NAIG closed -1bp/51bps and CDX-NAHY -3bps/296bps.
The DXY US dollar index closed -0.3%/89.68.
Gold closed +0.6%/$1,893 per barrel, silver +1.3%/$26.57 per
ounce, and copper -0.3%/$3.55 per pound.
Crude oil closed +0.8%/$48.40 per barrel.
The IHS Markit GDP-weighted US weekly containment index rose
0.4 index point this week to 51.9, reflecting increasing
containment efforts in Massachusetts, Tennessee, and Louisiana. The
index is at the highest level since early June, as the rate of new
infections remains elevated. (IHS Markit Economists Ben Herzon and
Joel Prakken)
The US Pending Home Sales Index (PHSI) fell for the third
straight month in November, edging down 2.6% to a still-solid
125.7, but still up 16.4% from its year-earlier reading. (IHS
Markit Economist Patrick Newport)
All four regional indexes, mirroring the national index,
plunged in March and April, shot up over May and August, and have
edged down since, but remain more than 10% above their year-earlier
level.
"The latest monthly decline is largely due to the shortage of
inventory and fast-rising home prices," wrote Lawrence Yun, the
National Association of Realtors' chief economist. (Note: housing
has become less affordable in recent months because rising home
prices have eroded savings from lower mortgage rates.)
Applications to buy homes—particularly high-end
homes—remain strong: the Mortgage Bankers Association's
Purchase Index is currently 26% higher than a year earlier. The
index has leveled recently, though—a sign that sales may have
peaked.
The PHSI leads existing home sales by a month or two, according
to the National Association of Realtors. Expect solid but
flat-to-declining existing home sales in December or January or
both.
The US goods deficit widened in November by $4.4 billion, a
larger widening than expected, reflecting unexpected strength in
imports. Meanwhile, the combined inventories of wholesalers and
retailers rose 0.3% in November, less of an increase than we had
assumed. (IHS Markit Economists Ben Herzon and Lawrence
Nelson)
Exports of goods rose 0.8% in November, and imports of goods
rose 2.6%. Imports have already surpassed the pre-pandemic trend,
and exports have now reversed a little more than three-quarters of
the pandemic-induced decline.
Areas of relative strength within exports include food, feeds,
and beverages; automotive vehicles, parts, and engines; and
consumer goods excluding foods and autos.
The increase in inventories (wholesale plus retail), though
smaller than we had anticipated, was the fifth consecutive monthly
increase following steep declines earlier this year.
In response to the unexpected weakness in inventories, we
lowered our forecast of fourth-quarter inventory investment by $43
billion.
Crowley Logistics has added 355 new reefer containers to its
fleet. The new units, all 40-foot-long high cubes, are intended for
the Central America and Caribbean markets. They have wireless asset
monitoring (WAM) technology, which provides continuous monitoring
as the reefers move from origin to destination, both at sea and
over land, to ensure the integrity of the cold chain in transit.
"We realize the importance of having the best refrigerated
equipment in the right quantities - all strategically positioned to
meet customers' needs during peak perishables season and throughout
the rest of the year," said Brett Bennett, senior vice president
and general manager of US-based Crowley Logistics. The new
containers arrived in Santo Tomas, Guatemala, last week and are
already being used in support of Central America's ongoing heavy
northbound reefer season. The new containers are equipped with
environmentally friendly Star Cool refrigeration units. The company
expanded its on-terminal, perishables handling capabilities by
constructing a new USDA inspection dock in Port Everglades,
Florida, earlier this year. The USD1.6 million dock has more than
doubled its capacity to 80 reefers. The dock also has individual,
shoreside power plugs for each reefer, allowing for continuous
temperature control, cutting cargo handling time and the need to
move the container to a separate location for separate USDA
inspections. (IHS Markit Food and Agricultural Commodities' Neil
Murray)
The United States Department of Defense (DOD) has awarded
Moderna Therapeutics (US) a contract worth USD1,966,580,000 for the
supply of an additional 100 million doses of its mRNA-based
COVID-19 vaccine mRNA-1273. As reported by BioSpace, the additional
doses are due to be supplied by 30 June 2021. US financial news
source Street Insider has reported on the deal, indicating that the
contract involved the participation of the US Army Contracting
Command. BioSpace reports that Moderna currently has agreements
with the US authorities for the supply of 200 million vaccine
doses, not including those covered by the DOD contract. (IHS Markit
Life Sciences' Brendan Melck)
Recently published data by the Central Bank of Costa Rica
(Banco Central de Costa Rica: BCCR) show that GDP declined by 7.2%
y/y in the third quarter. All components of GDP, except government
consumption, remain below 2019 levels. (IHS Markit Economist
Lindsay Jagla)
Although the global spread of the COVID-19 virus continued to
put downward pressure on Costa Rica's economic growth in the third
quarter, preventing a full recovery to pre-COVID-19 levels, the
relaxation of various isolation measures and the transition to
economic reactivation resulted in a partial rebound. Thus, after
GDP reached record-lows in the second quarter, the economy began to
grow slowly, resulting in quarter-on-quarter (q/q) growth of 1.7%
in quarter three.
The reopening of businesses and the resumption of various
economic activities boosted internal demand and domestic
consumption; compared with the second quarter, private consumption
grew by 4.1% q/q and import demand grew by 5.3% q/q.
Similar reopening and reactivation trends were seen around the
world, with Costa Rica's key trading partners also beginning to
recover. As a result, demand for Costa Rican exports increased by
5.5% q/q in the third quarter compared with the second.
Government spending was the only component of GDP to remain at
nearly the same level in both the second and third quarters.
Government stimulus, which has included a package that provided
loans to micro, small, and medium-sized businesses, bonuses for the
unemployed, and tax moratoriums, stayed at the same level as the
government struggled to scale up stimulus spending during the
reactivation phase because of financing constraints.
On the supply side, almost all economic sectors showed
quarterly improvements in the third quarter compared with the
second, with the manufacturing sector and information and
telecommunications also reaching above 2019 levels. However,
agricultural activities, utilities, retail and wholesale, and
professional activities in technology, administration, and support
services all contracted in quarterly terms for the second quarter
in a row, declining even further in the third quarter from the
already record-low second-quarter levels.
The BCCR's data release is in line with our expectation that
the economy would partially rebound in the third quarter following
the severe contraction in the second. This is largely due to the
transition from a focus on COVID-19 containment that resulted in
strict lockdown measures in the second quarter to a focus on
economic reactivation with a phased reopening plan set in motion in
the third quarter.
We expect the initial rebound following the severe contraction
in the second quarter to taper off, preventing a full economic
rebound in 2020. Overall, we expect the Costa Rican economy to
contract by 5.3% y/y in 2020 even with the beginning of recovery
evident in the third quarter.
Prevalent downside risks continue to dampen the economic
outlook. Reopening has stalled both at home and abroad amid the
continued spread of COVID-19 cases, which limits the recovery of
domestic and external demand.
Europe/Middle East/Africa
European equity markets closed modestly lower; UK -0.7%,
Germany/Spain -0.3%, France -0.2%, and Italy -0.1%.
European govt bonds closed mixed; Italy/Spain -1bps, Germany/UK
flat, and France +1bp.
iTraxx-Europe closed flat/48bps and iTraxx-Xover
-1bp/238bps.
Brent crude closed +0.8%/$51.63 per barrel.
The EU and China have announced a long-awaited deal on an
investment treaty, in a move that is aimed at opening up lucrative
new corporate opportunities but risks antagonizing president-elect
Joe Biden's incoming US administration. The deal will remove some
barriers to EU companies' possibilities for investing in China,
such as specific joint-venture requirements and caps on foreign
equity. Industries where the EU has secured improved access terms
include automotive, private healthcare, cloud computing and
ancillary services for air transport, the EU's trade commissioner
Valdis Dombrovskis said. The improved market access arrangements
for car manufacturing cover electric vehicles and hybrids, he
noted. (FT)
CAR magazine reports that Ferrari is planning two EV spin-offs
from the upcoming Purosangue utility vehicle, due in 2024 and 2025,
citing Ferrari sources. In addition, CAR confirmed the known
codename F175 and an early 2022 calendar-year launch. According to
the report, the Purosangue will be powered by an 800hp V12 engine
at launch, followed by a hybridized V8 engine. However, CAR also
reports that the two all-electric spin-offs are planned for 2024
and 2026; these reportedly have the program codes F244 and F245.
The report says that these two projects are related to the
Purosangue, which has "electric-ready" hardware, which suggests
that they will also be some type of utility vehicle. However, the
shape of these future projects was not confirmed. The magazine says
that the Purosangue's platform is a flat skateboard that is
electric-ready, capable of packaging up to four e-motors with an
initial output of 610 bhp comprising a scalable fast-charging
lithium-ion battery pack with standard capacity of 80 kWh. It also
says that its sources have confirmed that the working name of the
Purosangue is expected to be the production badge as well. The
sport utility vehicle (SUV) is expected to prioritize dynamics over
rock crawling performance but is also expected to be sportier than
the Lamborghini Urus, Bentley Bentayga, Aston Martin DBX, or
Rolls-Royce Cullinan. The development of the Purosangue utility
vehicle has been one of the worst-kept secrets, with Ferrari
executives sharing some hints earlier. (IHS Markit
AutoIntelligence's Stephanie Brinley)
The European Commission is considering abolishing 'best before'
date labels to stop people throwing away edible food because they
are confusing them with 'use by' labels. Unlike 'use by' dates
which are based on microbiological criteria and signal when it is
no longer safe to consume a food, 'best before' dates denote
quality so the product is safe to eat but might not taste as good.
Consumers often throw away perfectly edible products, adding to the
EU's food waste mountain, because the 'best before' date has passed
and they believe they can no longer consume the food safely. The
idea of abolishing 'best before' date labelling is among several
options set out in an Inception impact assessment paper on
different plans for a revision of the 2011 food information to
consumers regulation (FIC - 1169/2011) on which the Commission is
seeking feedback until 3 February. Based on the feedback the
Commission will polish up its plans ready for a full 12-week
consultation in the first half of 2021. A proposal to revise the
FIC regulation will then follow in the fourth quarter of 2022
"Consumers often misunderstand and misuse date marking," explains
the paper setting out the Commission's plans for the FIC revision.
"According to a 2015 Eurobarometer, less than 1 in 2 consumers
understand the meaning of date marking: "use by", which indicates
the ultimate food safety date, and 'best before', which refers to
the date food retains its optimal quality," the paper continues.
"This contributes to the 20% of food that Europeans waste annually.
A Commission study on date marking published in 2018 concluded that
up to 10% of all food waste generated in the EU could be linked to
date marking." (IHS Markit Food and Agricultural Policy's Sara
Lewis)
Advanced Petrochemical Co. (Jubail, Saudi Arabia) says that its
wholly owned subsidiary, Advanced Global Investment Co. (AGIC), has
signed long-term offtake agreements for the sale of polypropylene
(PP) with three international firms totaling almost 620,000 metric
tons/year. Agreements have been signed with Vinmar International
and with Tricon Dry Chemicals—part of Tricon Energy—for
250,000 metric tons/year each, and with Mitsubishi Corp. for
120,000 metric tons/year, Advanced says in a statement to the
Tadawul stock exchange. The value of the contracts will be in
accordance with marketing fees specified in the agreements, based
on prevailing market prices during the term of the agreements, the
statement says. Contracts are for the sale of PP to be manufactured
by Advanced Polyolefins Co. (APOC). They will be effective from the
date of commercial operations of APOC until 31 December 2028. APOC
will build and operate a propane dehydrogenation (PDH) and PP
complex at Jubail with design capacity for 843,000 metric tons/year
of propylene and 800,000 metric tons/year of PP. Advanced said
earlier this month that construction would start in 2021 with
start-up scheduled for 2024. Advanced announced in March 2020 the
signing of a partnership agreement between AGIC and SK Gas
Petrochemical, a unit of SK Gas, to establish APOC as a closed
joint-stock firm. (IHS Markit Chemical Advisory)
Zimbabwe's central bank, the Reserve Bank of Zimbabwe (RBZ), on
18 December decided to keep its key interest rate at 35%. The rate
was last raised on 1 July to curb speculative borrowing and support
the 8 June updating of the formal market-based foreign-exchange
trading system, which came into operation on 23 June. The
medium-term lending rate for the productive sector remained at 25%.
(IHS Markit Economist Alisa Strobel)
Although annual headline inflation remains at alarmingly high
rates, it continued to decline gradually in November, reaching
401.7%, the lowest rate since January. Furthermore, the economy has
recorded an increase in the production of goods and services across
most of the productive sectors, according to the RBZ. Productive
gains were especially strong during the second half of 2020.
IHS Markit expect Zimbabwe's monetary policy to remain tight in
2021 to address the high price inflation and depreciating currency;
Zimbabwe's Ministry of Finance targets annual inflation to slow
down drastically to an average of below 135% in 2021. Recent
figures by the RBZ for the week ending 13 November show that the
Zimbabwean dollar lost 0.2% against the US dollar, from
ZWD81.5453/USD1 to ZWD81.6741/USD1 in the foreign-exchange auction
market.
As part of tighter monetary policy, money supply management is
expected to remain conservative in the short-term outlook. As the
government continues to put emphasis on fiscal consolidation, net
credit to the government is expected to continue to decline while
growth in broad money will mainly be driven by credit to the
private sector. Data available for the month of September show that
credit to the private sector was mainly extended towards
agriculture at 27.38%, followed by manufacturing at 18.59%,
households at 17.00%, distribution at 10.68%, and mining at
10.68%.
We see multiple challenges for an economic recovery in 2021.
Monetary and fiscal policy would need to be maintained in the
medium term so that macroeconomic fundamentals reach the stability
that would anchor sustainable growth. The lack of structural
adjustments and the monetary overhang of past monetary financing of
deficits through continued quasi-fiscal activities by the RBZ and
the removal of subsidies on fuel and electricity have contributed
to the current misbalance in macroeconomic fundamentals.
The economy is challenged by the country's severe
foreign-exchange crunch; therefore, we expect to see continuing
emphasis on foreign-exchange auctions in the new year, which will
remain the RBZ's key monetary policy instrument. Exchange controls
and other restrictions on access to foreign exchange are expected
to continue to provide additional deep distortions to economic
activity in the short term.
Asia-Pacific
APAC equity markets closed mixed; Hong Kong +2.2%, South Korea
+1.9%, Mainland China +1.1%, India +0.3%, Australia -0.3%, and
Japan -0.5%.
On 22 December, Asia Securities Industry & Financial
Markets Association (ASIFMA) published a report on sustainability
data in the Asia-Pacific region, recommending a policy drive to
establish common standards. (IHS Markit Economist Brian
Lawson)
The trade body's report, prepared jointly with the Future of
Sustainable Data Alliance (FOSDA), reflected a 12-month review
including online discussions involving 500 participants.
It suggests that East Asia is lagging behind global
environmental, social and governance (ESG) development with 5% of
regional assets under management invested in sustainable projects
versus 30% in North America.
It also argues that rapid economic growth, expanding
populations, industrialization and urbanization create large-scale
need for climate-related financing.
In an ASIFA poll, 56% of respondents described "inconsistent
data" as the most serious data challenge to ESG development, while
35% of respondents cited "poor quality data".
The report noted that the region lacks standardized ESG
measurement criteria, suggesting that metrics differ between
countries and sectors and within industries.
ASIFMA made eight key policy recommendations. These include
global or at least regional convergence towards a principles-based
taxonomy, higher and more consistent corporate disclosure
standards, encouragement of stronger analysis, policies and
regulation to encourage development of ESG/sustainable financing
capabilities, and a focus on ESG development through
education.
Mainland China updated the 2020 list of industries in which
foreign investment are encouraged on 28 December, according to the
National Development and Reform Commission (NDRC) and Ministry of
Commerce (MOC). Consisting of two sub-lists—national and
central and western regions—the 2020 list was expanded to 1,235
items, up by 127 from 2019. (IHS Markit Economist Lei Yi)
The national list continued to focus on attracting foreign
investment especially into the manufacturing sector for
strengthening domestic supply chains, as well as aiming to promote
the integration between services and manufacturing.
Newly added items cover high-end equipment manufacturing in
areas including integrated circuits and sophisticated medical
devices like ECMO, as well as the application of leading
technologies such as 5G, artificial intelligence, and
blockchain.
Other items include waste disposal and clean energy
development, which are in line with the nation's transition towards
a more environmental-friendly growth path and the carbon neutral
pledge.
On 16 December, NDRC and MOC also published an updated version
of the negative market access list applying to all market entities.
While the number of total restricted items were reduced to 123
compared with 131 in the 2019 list, the reduction was mostly coming
from merging relevant items. Still, specific measures got waived or
simplified, especially those relating to regulatory review and
approvals.
Using an annually updated list system helps manage investors'
expectations and stabilize foreign investment. Thanks to mainland
China's successful pandemic control measures, foreign direct
investment (FDI) into the country continued to recover, recording a
year-on-year growth of 4.1% through November (USD denominated
figures).
Tesla has signed a deal with Chinese supplier Sichuan Yahua
Industrial Group for lithium hydroxide supply. According to a
statement from Yahua, Tesla will purchase battery-grade lithium
hydroxide from the company starting from 2021; the contract will
run through 2025. The value of the deal is estimated to be between
USD630 million and USD880 million. According to Reuters, Tesla has
already reached a deal with Chinese supplier Ganfeng Lithium to
source a key ingredient in electric vehicle (EV) batteries. The US
EV maker's new contract with Yahua will enable it to further secure
key material supply to support production ramp-up at its Shanghai
plant. The contract with Yahua has led to renewed discussions about
the possibility of Tesla further lowering the selling price of its
Model 3 in the Chinese market. (IHS Markit AutoIntelligence's Abby
Chun Tu)
China's Jiading district has signed an agreement with
artificial intelligence (AI) companies to infuse momentum into the
development of the automotive industry. The AI companies include
Horizon Robotics, CITICPE, and Baidu Group, which will help the
district build smart cars and cities, reports SHINE. Horizon
Robotics will provide AI chips to help traditional car enterprises
in the district to develop smart cars and their computing platform.
In Jiading, CITICPE will build its headquarters, which will involve
in science technology and intelligent internet of things (IoT) and
will also provide financial support for regional industrial
development. CITICPE also plans to invest in the "Cloud+
Intelligent Driving Innovation Base" project in Jiading that
intends to meet the cloud computing requirements of smart cities.
Baidu will establish a demonstration zone in the district to test
intelligent connected vehicles. The Chinese government is strongly
prioritizing the electrification and autonomous vehicle (AV)
sectors for it to gain the leadership position in the global
automotive industry. China is pushing to commercialize smart AVs,
which is a key part of the country's 'Made in China 2025' plan.
Recently, the country released the Technology Roadmap for
Intelligent-Connected Vehicles 2.0, which expects vehicles with
partial autonomous functions to account for 50% of new vehicle
sales by 2025. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Olam group acquired the US chilli grower and processor CPB from
the Japanese sauce-maker Mizkan for USD108.5 million this December.
The chilli specialist is located in New Mexico and works with
manufacturing, retail, private label and foodservice customers.
CPB's plantations and factory are close Olam Spices' red chilli
manufacturing facility in Las Cruces, New Mexico. "Combining CPB's
specialty and green chilli range with our red chilli portfolio
(which includes paprika, chilli powder and chilli pepper) means we
can deliver a wider range of ingredient solutions for customers
looking to satisfy the rising demand for authentic Mexican
flavors," the chief officer of Olam Spices, Greg Step, said. (IHS
Markit Food and Agricultural Commodities' Jose Gutierrez)
Indian electric vehicle (EV) solutions firm EV Cosmos has
partnered with chargeNET Sri Lanka to set up public EV charging
stations in India, reports ET Auto. The two companies plan to set
up 500 charging stations with installed capacity of 50 MW in the
next two years at strategic locations in cities, as well as on
highways and around hotels. The stations will be capable of
charging an EV in 15-30 minutes. The companies are also looking at
integrating solar power into their charging stations. EV Cosmos is
a Bhopal-based EV charging solutions provider and chargeNET is a
group company of a UK-based CodeGen Group with a manufacturing
facility in Sri Lanka. chargeNET has set up more than 80 commercial
charging stations in Sri Lanka. The latest development is in line
with the Indian government's intention to support the uptake of EVs
and related infrastructure. This year's key initiatives by the
government include the sanctioning of 2,636 EV charging stations in
62 cities across 24 states or union territories under the second
phase of the Faster Adoption and Manufacturing of Electric Vehicles
(FAME) scheme. (IHS Markit AutoIntelligence's Isha Sharma)
The government of Indonesia and South Korea-based LG Group have
signed a memorandum of understanding (MOU) on a USD9.8-billion
electric vehicle (EV) battery investment deal, reports Reuters,
citing Bahlil Lahadalia, head of Indonesia Investment Coordinating
Board. The deal, which was signed on 18 December, would also see LG
collaborate with other companies, including Hyundai, and includes
investments across the EV supply chain. The agreement makes
Indonesia the first country in the world to integrate the electric
battery industry from mining to producing EV lithium batteries,
according to Lahadalia. Nickel-rich Indonesia is keen to develop a
full supply chain for nickel in the country, especially to extract
battery chemicals, make batteries, and eventually build EVs. Nickel
and cobalt are key materials to make lithium-ion (Li-ion)
batteries. The country has stopped exports of unprocessed nickel
ore to support investment in its domestic industries. The
Indonesian government aims at making the country an
electrified-vehicle hub in Asia and beyond, targeting to start
production of such vehicles in 2022. (IHS Markit AutoIntelligence's
Jamal Amir)
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