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All major European and most US equity indices closed higher,
while APAC was mixed. US government bonds closed slightly lower and
benchmark European bonds closed mixed. European iTraxx and CDX-NA
closed almost unchanged across IG and high yield. Natural gas,
copper, silver, and gold closed higher, while the US dollar and oil
closed lower.
Please note that starting with today's edition, we will be
including a link to the profiles of contributing authors who are
available for one-on-one discussions through our newly launched Experts
by IHS Markit platform.
Americas
1. Most major US equity indices closed higher, with the S&P
500 +0.2% closing at a new record high; Russell 2000 +1.2%, Nasdaq
+0.9%, and DJIA -0.2%.
2. 10yr US govt bonds closed +1bp/1.57% yield and 30yr bonds
+1bp/2.25% yield.
3. CDX-NAIG closed flat/51bps and CDX-NAHY -1bp/291bps.
4. DXY US dollar index closed -0.1%/90.81.
5. Gold closed +0.1%/$1,780 per troy oz, silver +0.5%/$26.21 per
troy oz, and copper +2.4%/$4.44 per pound.
6. Crude oil closed -0.4%/$61.91 per barrel and natural gas
closed +5.3%/$2.87 per mmbtu.
7. The US and UK reported stronger economic growth than Japan
and the eurozone in April, according to flash PMI data from IHS
Markit, reflecting better vaccine rollouts and easing COVID-19
lockdowns, which buoyed business confidence and boosted service
sector growth in particular in the US and UK. The major source of
divergence in growth rates between the four economies was the
service sector. A survey record expansion was seen in the US,
accompanied by the fastest UK growth for over six years. In
contrast, the eurozone eked out only a marginal expansion and Japan
remained in contraction, though recent months have seen both report
the best performances since the pandemic began. (IHS Markit
Economist Chris
Williamson)
8. The trend in US seated diners on the OpenTable platform is
rising again following a setback in the recovery a week or so ago.
As of the week ending yesterday, the count of seated diners was
down about 23% from the comparable week in 2019. Meanwhile, small
business activity (revenues and the number open for business)
firmed in mid-April, according to the Opportunity Insights Economic
Tracker, but remains well below pre-pandemic levels. Finally, what
looked like early signs of recovery in the movie-theater industry
have fizzled, as box-office revenues (relative to 2019 levels) have
declined for two consecutive weeks, according to Box Office Mojo.
(IHS Markit Economists Ben
Herzon and Joel
Prakken)
9. US manufacturers' orders for durable goods rose 0.5% in March,
while shipments rose 2.5% and inventories rose 1.0%. (IHS Markit
Economists Ben
Herzon and Lawrence Nelson)
a. In response to the details in this report that inform our GDP
tracking, we raised our estimate of first-quarter GDP growth by 0.2
percentage point to 6.2% and left our forecast of second-quarter
growth unrevised at 8.2%.
b. Both orders and shipments of manufactured durable goods
remained well above their pre-pandemic trends, as goods consumption
has apparently replaced, at least temporarily, consumption of
services forestalled by the pandemic.
c. An area of particular strength has been capital goods. Orders
for core capital goods in March were 10.2% above the February 2020
level, while shipments of core capital goods were up 8.9% over the
same period.
10. House Democrats in the United States have announced that
they have re-introduced H.R.3, the so-called "Elijah C. Cummings
Lower Drug Costs Now Act", which aims to allow the federal
government to negotiate the cost of prescription drugs. The
proposed legislation was re-introduced by Education and Labor
Committee Chairman Robert C. Scott, Energy and Commerce Committee
Chairman Frank Pallone Jr., and Ways and Means Committee Chairman
Richard E. Neal. If approved, H.R.3 would cap Medicare
beneficiaries' out-of-pocket spending on prescription drugs at
USD2,000 per year; require drug manufacturers to pay a rebate to
the federal government if they increase prices faster than
inflation; empower the Secretary of Health and Human Services to
negotiate better prescription drug prices in Medicare, and make
those negotiated prices available to commercial health insurance
plans; and introduce international reference pricing (IRP) to cap
prices in the US. (IHS Markit Life Sciences' Milena
Izmirlieva)
11. Tesla on Monday said revenue in the first quarter jumped
around 74% from the same period a year earlier to $10.4 billion.
The company generated a $438 million net profit, up from $16
million a year ago. Wall Street on average expected the company to
report sales of about $10.5 billion and net income of around $509
million for the January through March period, according to analysts
surveyed by FactSet. (WSJ)
12. Containers piled high on giant vessels carrying everything
from car tires to smartphones are toppling over at an alarming
rate, sending millions of dollars of cargo sinking to the bottom of
the ocean as pressure to speed deliveries raises the risk of safety
errors. The shipping industry is seeing the biggest spike in lost
containers in seven years. More than 3,000 boxes dropped into the
sea last year, and more than 1,000 have fallen overboard so far in
2021. The accidents are disrupting supply chains for hundreds of
U.S. retailers and manufacturers such as Amazon and Tesla.
(Bloomberg)
13. Gentex has reported its financial results for the first
quarter of 2021, including record first-quarter net sales of
USD483.7 million, an increase of 7% year on year (y/y). (IHS Markit
AutoIntelligence's Stephanie
Brinley)
a. Gentex's net sales in the first quarter were down 9% from
USD529.9 million in the fourth quarter of 2020.
b. The automotive components supplier reports that its results
in the first quarter were impacted by the components shortages that
caused a decline in worldwide automobile production in the first
quarter, a situation is not yet resolved.
c. Gentex said the impact of the shortages decreased its revenue
by about USD45 million in the first quarter.
d. Gentex stated that, despite the difficulties, the sales in
the first quarter were the second-highest quarterly sales in its
history. Gentex's sales of exterior auto-dimming mirrors in
international markets also increased, by 15% y/y, in the first
quarter.
14. Chile's banking regulator, the Financial Market Commission
(Comisión para el Mercado Financiero: CMF), announced on 23 April
that it will temporarily withdraw additional provisioning
requirements on refinanced corporate loans and in cases where banks
grant companies grace periods. The CMF stated that this measure is
to "ease the conditions for banks to reprogram the debts of their
clients". The measure is only applicable to corporate credit; this
will last until 31 July 2021 and is only applicable for clients
whose loans are up to 30 days in arrears at the date of
refinancing. Grace periods under the ruling are not permitted to
exceed six months. (IHS Markit Banking Risk's
Alejandro Duran-Carrete)
a. A similar forbearance measure was implemented by the CMF
between March and August 2020, with a broader scope of forbearance
that applied to all segments of credit.
b. Currently, the figures reflecting the potential deterioration
of banks' corporate portfolios are lower than in other credit
segments. CMF's "expected deterioration in loans" index stood at
5.4% of total loans in February 2021, when last reported, mostly
reflecting the expected difficulties affecting 7% of non-mortgage
household credit. The index for corporate credit stood at 5.3% in
the same month.
c. The most probable explanation of why the new relief from
provisioning is only applicable to corporate credit is that
although the expected deterioration index for consumer loans is
higher than the overall average, it is within its normal historical
range. By contrast, expectations of difficulties with corporate
credit have risen steadily over the last year.
Europe/Middle East/Africa
1. Major European equity indices closed higher; Spain +1.0%, Italy
+0.5%, UK +0.4%, France +0.3%, and Germany +0.1%.
2. 10yr European govt bonds closed mixed; Spain -1bp, France
flat, Germany/UK +1bp, and Italy +2bps.
3. iTraxx-Europe closed flat/51bps and iTraxx-Xover
+1bp/250bps.
4. Brent crude closed -1.6%/$65.03 per barrel.
5. As with other agricultural products this year, dairy is
feeling the fallout of the UK leaving the EU, with its treatment as
a third country by the bloc pushing dairy export volumes down 87%,
while value suffers a 67% blow in January-February. (IHS Markit
Food and Agricultural Commodities' Jana Sutenko)
a. According to customs data, total exported volumes from the UK
reached 29,500 tons as opposed to 234,600 tons seen in
January-February 2020. Similarly, value dipped to GBP93 million
form the GBP278.7 million in 2020.
b. Exports to the EU alone totaled GBP37.3 million, and 14,800
tons in volume.
c. Declines y/y were reported across all dairy export
categories. The biggest plunge in UK's exports to the EU were
recorded in liquid milk and cream, down almost 100% to 900 tons
from the 139,100 tons exported in 2020.d. Cheese was the largest
export category in the period, with a total of 6,700 tonnes
exported, which is 76% down y/y, followed by whey, with an 83% dip
to 2,100 tons.
6. In April, the headline Ifo index, which reflects business
confidence in industry, services, trade, and construction combined,
edged up only slightly from 96.6 to 96.8. This is its highest level
since June 2019 and almost even with the long-term average of the
series at 97.0. The Ifo Institute highlights that the third wave of
the COVID-19 virus pandemic and bottlenecks in intermediate
products are impeding Germany's economic recovery. (IHS Markit
Economist Timo
Klein)
a. Business expectations corrected downwards from 100.3 in March
to 99.5 in April, having advanced by a cumulative 9 points during
February-March.
b. The assessment of current conditions posted its third
consecutive gain, rising from 93.1 to 94.1, a 14-month peak and
thus its best level since the pandemic began.
c. Retail expectations suffered the largest setback as the
looming return to a stricter lockdown will end
"buying-on-appointment" schemes for the time being. The opposite
was observed with respect to current conditions in retail, however,
as car dealerships reported the largest improvement.
7. Volkswagen (VW) Group is expecting the vehicle production hit
from the semiconductor shortage to worsen, reports the Financial
Times. The president of the automaker's SEAT brand, Wayne
Griffiths, told the newspaper, "We are being told from the
suppliers and within the Volkswagen Group that we need to face
considerable challenges in the second quarter, probably more
challenging than the first quarter." He added that this was the
"biggest challenge" facing the automaker currently, and that the
SEAT brand's Martorell (Spain) site was currently operating "hand
to mouth". The senior executive said, "The name of the game this
year will be flexibility." He said that, once the company received
the semiconductors, it could decide which models and variants to
build, adding, "We have to try to build when we get [microchips]
available." (IHS Markit AutoIntelligence's Ian Fletcher)
8. Porsche is planning a German plant to produce battery cells
for electric vehicles (EVs), in a bid to speed up its electric
mobility drive, reports Reuters, citing Porsche CEO Oliver Blume.
"Battery cells are a key technology for Germany's automobile
industry which we must also have in our own country," said Blume to
a German newspaper. "Porsche wants to play a pioneering role in
this," he said, adding that the battery cell factory would be built
in the Swabian town of Tübingen. (IHS Markit AutoIntelligence's
Jamal Amir)
9. The Central Bank of Egypt (CBE)'s overnight deposit rate
currently stands at 8.25% and the lending rate is 9.25%, while the
main operation and discount rates are now at 8.75%. Rates have been
left on hold since last November, when the MPC unexpectedly made a
50bps cut, following an earlier 50 bps cut in September. The CBE
has made a record cut in March 2020 in response to the outbreak of
COVID-19, bringing the total cut to 400 bps in 2020. (IHS Markit
Economist Yasmine Ghozzi)
a. The CBE remains cautious and is expected to hold off on
making further cuts until the second half of the year, particularly
as a number of emerging markets (EM)'s central banks increased
rates last month.
b. Across 37 EMs, policymakers ended their easing cycles and
hiked interest rates in March, a change in stance since February
2019. The change in direction towards more tightening cycles is
expected to continue owing to rising inflation, strong rebound in
energy prices, and rising US treasury yields, which could put
pressure on some EMs to handle, especially those for which external
and fiscal imbalances were exacerbated recently with spiraling
COVID-19 cases.
Asia-Pacific
1. APAC equity markets closed mixed; India +1.1%, South Korea
+1.0%, Japan +0.4%, Australia -0.2%, Hong Kong -0.4%, and Mainland
China -1.0%.
2. DeepRoute.ai has received a permit to conduct a passenger
trial of its autonomous cars in Shenzhen, China. The company plans
to launch the service in the middle of this year, initially in
small areas of the city, allowing residents to apply for trial
rides. Following this, DeepRoute.ai plans to expand the service to
other areas across the city and involve more passengers, reports
Gasgoo. DeepRoute.ai offers solutions that focus on Level 4
autonomous operations and has research centers in Shenzhen (China),
Beijing (China), and Silicon Valley (United States). Last year,
DeepRoute.ai began transporting passengers and freight using its
autonomous vehicles (AVs) in Wuhan and Xiamen, China. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
3. German auto-parts supplier Continental AG has partnered with
Chinese artificial intelligence (AI) firm Horizon Robotics to form
a joint venture (JV) dedicated to intelligent driving business,
reports Gasgoo. The companies plan to leverage each other's
strengths to develop advanced driver assistance systems (ADAS) and
autonomous software and hardware systems for global automakers.
Continental is to offer its expertise in product quality
management, supply-chain technology innovation, and research and
development (R&D) and Horizon Robotics is to provide its
automotive-grade AI chips of the Journey series and perception
algorithm. (IHS Markit Automotive Mobility's Surabhi Rajpal)
4. Jidu Auto, a joint venture (JV) between Baidu and Geely,
plans to invest CNY50 billion (USD7.7 billion) over the next five
years in developing smart-car technology, reports Reuters. The JV
aims to launch its first electric vehicle (EV), which would
resemble a "robot", in three years, with sales targeted at young
customers. Following this, the company is targeting the release of
a new model every 18 months. To achieve this, the JV is considering
hiring 2,500 to 3,000 staff over two to three years, including 400
to 500 software engineers. According to the report, the branding
for Shanghai- and Beijing-based Jidu Auto is scheduled to be
unveiled in the third quarter of 2021. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
5. Honda Mobility Solutions is to conduct trials of an on-demand
mobility service using a reservation and vehicle dispatch system in
the Japanese city of Utsunomiya. The aim of the trials is to solve
city issues such as an increasing need for smooth connections with
public transportation and an ageing population who have difficulty
in travelling by private car. The service will be available in
city's Kawachi and Kiyohara districts and it will use data
accumulated by Honda's two-way car navigation system. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
6. The Reserve Bank of India (RBI), the country's central bank,
announced on 22 April that banks are allowed to pay dividends "from
profits for the financial year ended March 31, 2021", provided that
they are "not more than fifty percent of the amount determined as
per the dividend payout ratio". According to a previous notice
(RBI/2004-05/451), the maximum dividend payout ratio has been set
at 40%. (IHS Markit Banking Risk's Angus
Lam)
a. The Indian authorities announced the dividend suspension in
April 2020 as part of a series of early COVID-19-virus-related
policies. The relaxation of the suspension is likely to allow
state-owned banks, which account for about 60% of total
banking-sector assets, to pay dividends to the government and
assist its fiscal program.
b. Given the current COVID-19-virus situation in India and the
limited capital injection of INR200 billion announced as part of
February's budget, with INR145 billion already earmarked for
injection into several weak banks, IHS Markit assesses that
relaxing dividend payouts further will be highly unlikely to ensure
that profits are preserved for capital rebuilding.
7. Maire Tecnimont has been awarded an EPCC contract by India
Oil Corporation for the implementation of a new para-xylene (PX)
plant and the relevant offsite facilities at the Paradip plant in
the State of Odisha, in Eastern India. Once completed, the new PX
plant will have a capacity of 800,000 tons per year. The PX
produced will be used to feed the adjacent purified terephthalic
acid (PTA) unit, thus ensuring availability of world-class
feedstock that will provide a significant boost to the country's
manufacturing industry. The contract has been awarded on a lump-sum
basis and is valued at USD450 million. The project will be carried
out by a consortium consisting of Maire Tecnimont subsidiaries
Tecnimont and Mumbai-based Tecnimont Private Limited and is
expected to be completed in 33 months. (IHS Markit Upstream Costs
and Technology's William Cunningham)
8. The Australian economy has rebounded in early 2021 from the
impact of the COVID-19 pandemic restrictive measures that hit
domestic demand during 2020. With economic growth momentum
improving rapidly, the Australian economy is forecast to grow at a
pace of 3.2% y/y in 2021, following an estimated GDP contraction of
2.4% y/y in 2020. (IHS Markit Economist Rajiv
Biswas)
a. The IHS Markit Flash PMI has since risen steeply at the
outset of the second quarter, from a final reading of 57.0 in March
to 58.8 in April. Private sector growth in Australia gathered
considerable momentum in April, according to the Flash PMI data.
The upturn was associated with improved client confidence, buoyant
market conditions, strengthening demand, the easing of COVID-19
restrictions and low interest rates. Aggregate new orders increased
at a survey-record pace.
b. The IHS Markit Flash Services Business Activity Index rose to
58.6 in April, from a final reading of 55.5 in March, signaling the
strongest increase in service sector output in the survey history.
The upturn was boosted by the quickest expansion in new business
inflows on record.
c. The IHS Markit Flash Manufacturing PMI also showed a sharp
increase in 59.6 in April, rising from 56.8 in March to its highest
mark in the survey history. Strengthening demand conditions
encouraged goods producers to step-up output in April. The pace of
expansion was sharp and the fastest in close to four-and-a-half
years.
d. Due to the significant second wave of the COVID-19 pandemic
that impacted on the state of Victoria, the Victorian economy was
substantially affected in the 2020-21 financial year by a
protracted second lockdown during from July to October 2020, for a
period of 112 days. Following the lifting of the lockdown,
household spending by Victorian households rebounded, rising 10.4%
quarter-on-quarter in the December quarter of 2020. The state
government of Victoria have projected strong growth of around 5%
for the 2021-22 financial year, reflecting low base year effects
that will boost growth in output.
Posted 26 April 2021 by Chris Fenske, Head of Fixed Income Research, Americas, S&P Global Market Intelligence
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