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Most major APAC and European equity markets closed higher, while
the US was mixed. Benchmark European government bonds closed lower,
while US government bonds closed almost flat on the day after
yields whipsawed higher then lower post-FOMC meeting. iTraxx-Europe
and CDX-NAIG credit indices closed flat, while their high yield
counterparts were slighter wider on the day. Oil, gold, silver, and
copper all closed higher. The markets will closely be watching
tomorrow's US jobless claims report for additional signs of
deterioration, with the possibility of a second consecutive week of
sizable job losses potentially accelerating the passage of the $900
billion stimulus bill that could be up for a vote before the end of
this week.
Americas
US equity market closed mixed, but with all major indices
rallying from near the lows of the day at that start of the 2:30pm
EST FOMC press conference; Russell 2000 -0.4%, DJIA -0.2%, S&P
500 +0.2%, and Nasdaq +0.5%.
10yr US govt bonds closed +1bp/0.92% yield and 30yr bonds
-1bp/1.65% yield. 10s sold off 3bps on the FOMC statement and then
rallied 3bps between 2:27pm and 3:13pm EST.
CDX-NAIG flat/53bps and CDX-NAHY +4bps/302bps. CDX-NAHY was
2bps tighter an hour after the start of the FOMC press conference,
but most of those gains were lost by 4:00pm EST.
DXY US dollar index closed flat/90.45.
Gold closed +0.2%/$1,859 per ounce, silver +1.7%/$25.05 per
ounce, and copper +0.6%/$3.56 per pound.
Crude oil closed +0.4%/$47.82 per barrel.
Congressional leaders closed in on a roughly $900 billion
coronavirus relief deal that includes another round of direct
payments to households, according to lawmakers who aimed to pass
the aid package before the week's end. The package under discussion
was expected to include, along with direct checks, $300 a week in
enhanced unemployment insurance, funding for vaccine distribution,
schools, small businesses and health-care providers, and other
relief measures. (WSJ)
The Federal Open Market Committee (FOMC) concluded its
scheduled two-day meeting this afternoon (16 December). As
expected, it kept the target for the federal funds rate at a range
of 0.00-0.25%. In the statement issued at the conclusion of today's
meeting, the FOMC also clarified to some extent its plans with
respect to purchases of Treasury and agency mortgage-backed
securities, in essence committing to continue purchases for what is
likely to be at least a couple years. There was only one
substantive change to the post meeting statement, which provided
updated guidance on plans to continue the Fed's large-scale asset
purchases. The guidance commits the Federal Reserve to continue
asset purchases most likely at least at current rates for a
considerable further period, likely to be measured in years, not
months. Previously the FOMC had indicated only that it expected to
continue asset purchases at least at current rates over coming
months. Today's guidance commits the Fed to continue those
purchases until "substantial further progress" is made on getting
to maximum employment and at least 2% inflation. (IHS Markit
Economists Ken Matheny and Kathleen Navin)
The IHS Markit GDP-weighted US weekly containment index rose
0.8 point this week to 51.4, continuing a run of increases since
mid-October amid surging confirmed COVID-19 cases. The increase
this week reflected tightening containment efforts in North
Carolina, Virginia, Massachusetts, and Delaware and was on the
heels of a large increase the prior week. The aggregate containment
measure is at its highest level since early June. Meanwhile,
average consumer credit- and debit-card spending rebounded during
the week ending 6 December following a week that likely was
depressed by unusually low Black Friday spending. A shift away from
in-person Black-Friday spending to online outlets and to days and
weeks surrounding Black Friday could account for this sort of
volatility. (IHS Markit Economists Ben Herzon and Joel
Prakken)
Adjusted for seasonal factors, the IHS Markit Flash U.S.
Composite PMI Output Index posted 55.7 in December, down from
November's 68-month high of 58.6. The rate of expansion was sharp
overall, despite easing to a three-month low. The loss of momentum
was most notable in the service sector, where additional
restrictions and softer demand impacted consumer-facing business
once again. (IHS Markit Economist Chris Williamson)
The seasonally adjusted IHS Markit Flash U.S. Services PMI
Business Activity Index registered 55.3, slipping from 58.4 in
November. The rate of growth was the slowest for three months,
albeit solid. As reported virus cases increased once again, firms
stated that restrictions and softer demand weighed on total
activity.
Manufacturing firms indicated the second-fastest improvement in
operating conditions since April 2018, as highlighted by the IHS
Markit Flash U.S. Manufacturing Purchasing Managers' Index (PMI)
posting 56.5 in December, down slightly from 56.7 in November.
Consequently, input costs increased further in December, and at
the sharpest rate since April 2018. Firms were able to partially
pass-on higher costs to clients, however, as selling prices rose at
the steepest pace since April 2011.
Although input buying rose once again, supplier delays led to
the continued depletion of inventories, with stocks of finished
goods falling at a sharper pace.
Total US retail trade and food services sales declined 1.1% in
November after a downwardly revised decrease of 0.1% in October.
These declines were the first since April, but retail sales through
November remained 3.6% ahead of the pre-pandemic February level.
(IHS Markit Economists James Bohnaker and David Deull)
The unexpected declines in October and November core retail
sales resulted in a 1.3-percentage-point downward revision to our
fourth-quarter forecast of real personal consumption expenditures
(PCE) growth, from 6.2% to 4.9%.
Nonstore retail sales (mostly online) rose 0.2% from an
already-elevated level to +29.2% on a 12-month basis. Holiday
shoppers are doing more gift-buying online relative to previous
years to avoid crowded physical retail locations, especially around
the usual Black Friday rush.
Outside of online sales, home improvement remains a
top-performing segment of retail; November sales at building
material and garden supply stores increased 1.1% and were 18.7%
higher than 12 months earlier. Homeowners are likely gearing up for
an active spring housing market and the possibility of more time
spent at home amid worsening virus counts.
The restaurant industry's retrenchment accelerated in November
as food services and drinking places sales fell 4.0%. Cooler
weather has limited outdoor dining, and tighter restrictions on
indoor dining spells more pain for the industry over the winter
months.
Retail sales were due for a breather after running hot
throughout the summer. Waning fiscal stimulus, slowing job growth
and elevated COVID-19 concerns will keep a lid on retail in the
near term.
On Dec. 11, the same day that Pfizer's vaccine was approved for
use by the FDA, the number of bookings made across Marriott,
Intercontinental Hotel Group, Kayak, and Priceline's
websites—among those of many other boldface industry
names—took a sudden and sharp turn upwards. According to
RateGain, the travel technology company that powers bookings for
the aforementioned brands as well as Hotwire, Trivago, Hyatt, and
Accor, last Friday represented the largest number of daily bookings
since the pandemic began in March, with 9,512 transactions
processed in the U.S., across all its partner sites. That number is
even comparable to a typical day's sales in Nov. and Dec. 2019,
which generally saw between 8,500 to 10,000 bookings; the busiest
day in Dec. saw 12,117 bookings. (Bloomberg)
US biotech ImmunityBio has reported promising preclinical
primate data for an oral version of its next-generation COVID-19
vaccine hAd5-S-Fusion+N-ETSD. This adenoviral-based candidate is
engineered to eliminate any issues of pre-existing immunity (from
previous common colds) and to display both the spike and
nucleocapsid proteins, with an enhanced T-cell-stimulating domain.
An injectable formulation of the vaccine has been in Phase Ib
development in 35 participants in the US since October. In the
preclinical study, five primates received subcutaneous doses on
days 0 and 14 followed by an oral tablet on day 28, and the other
five received a single injected primer dose and then two oral
boosters. Results indicated that the oral version raised levels of
anti-spike antibodies in almost all of the 10 recipients,
particularly after the first or second booster. Following challenge
with SARS-CoV on day 56, viral load and replicating virus in nasal
passages and lungs fell more rapidly in vaccine cohorts versus
controls. ImmunityBio plans to move the oral formulation into Phase
I testing, both alone and as a booster to the injectable version
already in trials, according to a Fierce Pharma report. In
addition, the firm plans Phase II/III recruitment for the
injectable version shortly, according to the source. (IHS Markit
Life Science's Sacha Baggili and Janet Beal)
The headline US housing market index fell four points to
86—still marking the second-highest reading in its 35-year
history. A reading above 50 says that more builders view conditions
as good rather than poor. (IHS Markit Economist Patrick
Newport)
Coincidentally, all three sub-indexes dropped four points from
record highs. The current sales conditions index fell to 92, the
index measuring sales prospects over the next six months slipped to
85, and the traffic of prospective buyers' index dropped to
73.
All four regions fell from record highs. The West fell from a
near-perfect score of 98 to 96; the South, the Northeast, and the
Midwest all shed three points to still solid figures of 87, 78, and
82, respectively.
Builder sentiment ended the year on a solid note—the
second-highest reading on record—despite two headwinds: soaring
lumber prices and an economy mired in a pandemic. Random Lengths
lumber prices were above $650 per thousand board feet last
week—down from a record $950 per thousand board feet in
September—but up from $400 per thousand board feet in February.
Tariffs on Canadian softwood lumber were cut from 20% to 10%
earlier this month—that will help matters some.
Why is housing demand so strong? Part of the story is mortgage
rates dropping to all-time lows; another is that social distancing
is possible in building homes; a third is bidding wars brought
about by record-low interest rates and inventories, and pent-up
demand from bidders displaced from the market earlier this year.
And a fourth, perhaps pivotal—but hard to measure—is demand
from those working remotely because of the pandemic wanting to
relocate.
With little fanfare, Amazon has posted a new policy that bans
certain chemicals, including PFAS, lead, phthalates and BPA, in
food packaging for products sold under its Amazon Kitchen brand.
(IHS Markit Food and Agricultural Policy's Joan Murphy)
Amazon first posted a long list of restricted chemicals the
company will "seek to avoid" for its Amazon-owned Private Brand
Baby, House Cleaning, Personal Care and Beauty products in the US
and EU.
And earlier this month the online retail giant came out with a
new list of chemicals it has restricted from being added to food
packaging for its Amazon Kitchen brand, which includes Amazon Go,
Amazon Go Grocery, Amazon Fresh, and Fresh grocery delivery.
"We define chemicals of concern as those chemicals that: (1)
meet the criteria for classification as a carcinogen, mutagen,
reproductive, or other systemic toxicant; or (2) are persistent,
bioaccumulative, and toxic."
The list includes heavy metals (lead, cadmium, hexavalent
chromium, mercury), arsenic, ortho-phthalates, per- and
polyfluoroalkyl Substances (PFAS), perchlorate, five bisphenol
compounds (A, B, F, S, A diglycidyl), and benzophenone. The list
also includes four selected solvents: 2-ethoxyethanol,
2-methoxyethanol, N-methyl-2-pyrrolidone, and toluene.
Along with those chemicals, Amazon is banning several
non-recyclable materials for the Amazon Kitchen brand food contact
packaging: polystyrene or expanded polystyrene; polyvinyl chloride;
polyvinylidene chloride; polycarbonates; polyhydroxyalkanoates and
polylactic acid as a rigid structure.
The retailer signaled the list is likely to expand. "These
policies are in addition to applicable local legal requirements and
associated compliance plans, and will be expanded to additional
brands, product categories, and geographies over time," the company
said on its website.
Gatik AI and Walmart has announced that their delivery pilot in
Bentonville (Arkansas, US) is going driverless, starting in 2021.
Last year, the companies partnered to transport orders on a
two-mile route between a dark store, one that is not open to the
public, and a neighboring market. Since then, the vehicles have
logged 70,000 miles in autonomous mode with a safety driver. Next
year, the companies intend to use autonomous trucks without safety
drivers for deliveries in Bentonville. In addition, beginning early
next year, the companies will expand the service area to Louisiana
to test a longer delivery route. The autonomous vehicles, featuring
a safety driver, will operate on a 20-mile route taking customer
orders from a Walmart Supercenter in New Orleans to a customer
pick-up location in Metairie (Louisiana). Significance: With these
two autonomous delivery pilot schemes, Walmart aims to save time
for its customers, as well as gaining more of an insight into how
customers use the service. Walmart has also previously partnered
with multiple tech startups and automakers on autonomous delivery
programs. Gatik has deployed its autonomous vehicle system in the
Ford Transit, which can drive up to 200 miles a day. To date, the
company has raised USD29.5 million in funding. Recently, Gatik has
launched an autonomous delivery service for Loblaws Inc., Canada's
largest grocer. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Peru's National Institute of Statistics and Information
(Instituto Nacional de Estadística e Informática: INEI) reports
that monthly output rose in October at a seasonally adjusted rate
of 3.2% month on month (m/m), corresponding to a 3.8% year-on-year
(y/y) decline. (IHS Markit Economist Jeremy Smith)
In yearly terms, Peru's best economic performance since the
start of the coronavirus disease 2019 (COVID-19)-virus pandemic
took place in October. The 3.2% m/m expansion made October the
first month since June in which growth exceeded that of the
previous month.
As recently as August, only three sectors - finance and
insurance, telecommunications, and public administration and
defense - made positive y/y contributions to economic activity. By
October, this had increased to seven sectors and each has shown
improvement. Although service industries such as hotels and
restaurants (-44.4% y/y), and transportation and storage (-23.1%
y/y) continued to lag behind, copper mining (+1.9% y/y) and
construction (+8.8% y/y) made notable gains.
Labor market conditions similarly improved in the moving
quarter ending in November; total employment rose by 7.0% m/m, more
than twice the October rate. In addition, the unemployment rate
declined significantly from 16.4% to 15.1% as the number of new
hires started to outpace workers returning to the labour
force.
Nonetheless, the INEI considers as many as 49.8% of employed
workers to be underemployed, an improvement from the 54.1% recorded
in the previous month but far worse than the 34.9% figure from the
same time last year.
COVID-19 cases are declining in Peru, allowing the country to
progress to Phase 4 of its economic reopening plan. To date, Peru
has secured enough vaccine doses for 11.5 million citizens in 2021
and is exploring options to cover the remaining adult population.
According to the Ministry of Health, some doses may arrive as early
as this month, but mass immunization will not take place until the
second half of 2021.
Based on the publicly available information from Peru's
Ministry of Economy and Finance, IHS Markit assesses that through
late October, as much as half of the government's fiscal stimulus
package, worth around 18% of GDP, was still unspent. Most of this
will take the form of social transfers as well as infrastructure
projects under the new Arranca Perú program. These initiatives will
boost consumption and investment in 2021.
As a result, IHS Markit has upgraded the December forecast for
GDP outlook to an 11.9% contraction in 2020 and 9.4% growth in
2021.
Argentina's consumer price index increased by 3.2% month on
month (m/m) during November. The increase in consumer prices was
most pronounced in the leisure and culture activities, food and
beverages, clothing and apparel, and home furnishings and
maintenance sectors. (IHS Markit Economist Paula
Diosquez-Rice)
Argentina's inflation rate in August was driven by price
increases in the food and beverages category, with significant
price rises for beef and deli meats, dairy products, fresh fruit,
and canned tomatoes, as well as rises in the recreation and
leisure, clothing and apparel, and home furnishings and maintenance
sectors. The rise in the transportation component was mainly driven
by the increase in vehicle prices (up by 62.8% year on year in
November).
Prices of regulated items increased by 1.2% m/m, while prices
of seasonal items rose by 2.0% m/m. The core inflation rate stood
at 3.9% m/m. Meanwhile, wholesale prices climbed by 39.2% y/y in
October, a significant acceleration when compared with the previous
month. The annual consumer price inflation rate in November was
35.8%, a deceleration compared with October.
Inflation expectations for the next 12 months came down in
November; Torcuato Di Tella University reported a median of 40%
y/y, a decrease from 45% in October. The average expected annual
inflation rate is 44.5%. However, the inflation expectation survey
by the Central Bank of the Argentine Republic (Banco Central de la
República Argentina: BCRA) shows a median of 52.5% in
November.
The cost of a basic food basket that keeps an adult above the
extreme poverty line increased by 42.9% y/y in November, faster
than the annual headline inflation rate. At the same time, the
price of a basket of basic goods that keeps an individual above the
poverty line increased by 37.7% y/y in November.
Wage indexation is lagging consumer price inflation and more so
in terms of prices of food and essentials. Meanwhile, pandemic
relief is set to retreat with the loosening of the activity
restrictions, which, while reducing the fiscal deficit, will bring
more popular discontent as the economy is still on shaky
ground.
The inflation rate remains high despite all the price controls
in place; retailers anticipate a higher cost of restocking, partly
because of the lack of clear policies that would take the country
out of the vicious cycle of high inflation and strong depreciation.
Although the monetary policy is currently in positive territory in
real terms, Argentina continues with its expansionary monetary
approach with monetary aggregates increasing above 88% y/y in
November 2020.
Europe/Middle East/Africa
Most European equity markets closed higher except for Spain
-0.2%; Germany +1.5%, UK +0.9%, France +0.3%, and Italy +0.2%.
10yr European govt bonds closed lower; France/Spain +5bps,
Germany +4bps, Italy +2bps, and UK +1bp.
iTraxx-Europe closed flat/48bps and iTraxx-Xover
-2bps/246bps.
Brent crude closed +0.6%/$51.08 per barrel.
At 50.7 in December, the seasonally adjusted IHS Markit/CIPS
Flash UK Composite PMI - based on approximately 85% of usual
monthly replies - was up from 49.0 in November and back above the
crucial 50.0 no-change mark to indicate a very modest renewed
expansion. (IHS Markit Economist Chris Williamson)
The improvement in the PMI coincided with an easing of some
COVID-19 containment measures compared to November, which had seen
a national lockdown. In December, a new tiered system of
containment measures was introduced to better target local
outbreaks, which collectively represented a modest easing of
national restrictions.
The recovery lacked vigor, however, as the service sector
remained under particular strain, contracting marginally again as
ongoing social distancing measures due to the new tiered lockdowns
continued to hit many parts of the economy. Services activity has
now fallen for two months as the new lockdowns have hit, following
four months of expansion. Consumer-facing services, notably hotels,
restaurants and tourism, reported further marked declines in output
during December, largely offsetting renewed growth in business
services, transportation and manufacturing.
The manufacturing and transport sector improvements were linked
to reviving global trade and a short-term boost from Brexit-related
stockpiling, which reportedly buoyed order books and exports during
the month. Around 20% of manufacturers, for example, reported that
activity had increased during the month due to Brexit and related
stockpiling.
Brexit stockpiling appears to have exacerbated existing global
supply chain delays, constraining output at some manufacturing
firms. Around 45% of the survey panel reported longer wait times
from suppliers, while only 2% saw an improvement. The resulting
lengthening of lead times in December was the third-steepest since
the survey began in 1992, exceeded only by those seen amid COVID-19
shutdowns in April and May.
While job losses continued to be reported during the month, it
was encouraging to see the rate of job cutting ease to the lowest
since the start of the pandemic. Business optimism about the year
ahead also remained buoyant, reflecting the light at the end of the
tunnel created by the roll-out of the COVID-19 vaccines. Optimism
waned slightly compared to November, however, largely due to rising
concerns over a no-deal Brexit.
London is considering charging non-resident drivers to enter
the city, reports Autocar. Under the proposal being looked at by
Mayor Sadiq Khan, those living outside the city would be charged up
to GBP3.50 per day to use the roads within the Greater London
Authority boundary on weekdays. According to Transport for London
(TfL) analysis, this would raise around GBP500 million per annum.
However, it is also said that it would reduce the number of trips
into the boundary by 10-15%, as well as reducing air pollution. The
proposal comes as Khan is seeking to plug a huge shortfall in TfL's
funding in the wake of the COVID-19 virus pandemic and a reduction
in public transport usage. (IHS Markit AutoIntelligence's Ian
Fletcher)
The PMI survey data suggest that the eurozone economy is faring
better than expected in December. The IHS Markit flash composite
PMI came in at 49.8, ahead of consensus expectations of 45.8, as
polled by Reuters. As such, the data hint at the economy close to
stabilizing after having been plunged back into a severe decline in
November amid renewed COVID-19 lockdown measures. (IHS Markit
Economist Chris Williamson)
The fourth quarter downturn consequently looks far less steep
than the hit from the pandemic seen earlier in the year. Although
down from 52.4 in the third quarter, the fourth quarter average of
48.4 is far higher than the mean of 31.3 seen in the second
quarter.
The picture is nevertheless very mixed by sector. Although
manufacturing output growth accelerated in December, having slowed
in November, the service sector saw output contract for a fourth
successive month, albeit with the rate of decline easing markedly
to the slowest since September as fewer companies reported output
to have been hit by lockdown restrictions compared to
November.
In fact it was this sharp easing in the service sector which
was the main driver behind the PMI coming in higher than
anticipated: analysts were merely expecting the services PMI to
rise from 41.7 to 41.9, but the flash reading came in at 47.3.
However, note that at 55.5 the headline manufacturing PMI also beat
expectations (53.0).
Germany reported an expansion of output for the sixth
successive month, its flash composite PMI rising from 51.7 to 52.5
in December. Manufacturing output growth cooled for a second month
running but remained among the highest seen in the survey's
history, accompanied by a moderation in the service sector's
downturn.
Output meanwhile continued to fall in France for a fourth
successive month, though the flash composite PMI jumped from 40.6
to 49.6 to indicate a sharp easing in the rate of contraction to
the slowest seen over this period of decline. Manufacturing output
returned to modest growth and service sector activity came close to
steadying.
In addition to the fourth quarter coming in ahead of consensus
expectations, companies have also become increasingly optimistic
about the year ahead, with vaccine roll-outs expected to help
restore businesses to more normal trading conditions as 2021
progresses. Business expectations about output in the coming 12
months rose to the highest since April 2018. Sentiment about future
prospects hit a 27-month high in the service sector and a 34-month
high in manufacturing.
Eurozone GDP will still suffer a large quarter-on-quarter (q/q)
contraction in the fourth quarter of 2020, with the chances of
another decline in the first quarter of 2021 increasing given
recent announcements. (IHS Markit Economist Ken Wattret)
Following a 1.5% month-on-month (m/m) rise in October's retail
sales volumes, subsequent eurozone industrial production and export
data continued the strong start to the fourth quarter, with both
rising by 2.1% m/m in October, their sixth consecutive m/m
increases.
However, eurozone industrial production (-3.5%) and exports
(-6.2%) remained some way below their pre-coronavirus disease 2019
(COVID-19) virus pandemic February levels, in contrast to retail
sales (+3.1%).
Production of consumer durable goods continued to outperform
(see first chart below), with output in this sub-sector above
February's level (+1.4%), while production of capital goods has
underperformed (-5.4%) despite a strong rise in October.
The eurozone's seasonally adjusted trade surplus rose to
EUR25.9 billion (USD31.6 billion) in October, its highest level
since March and well above the average of EUR22.1 billion in the
final quarter of 2019 (see second chart below).
Imports to the eurozone rose by 1.0% m/m in October in value
terms and remained more than 7% below their level in February.
Although the fourth quarter started brightly, it will end on a
very weak note given that COVID-19 virus-containment measures have
been ramped up subsequently in many eurozone member states, and a
sizeable q/q contraction in eurozone GDP looks very likely.
Our recently updated baseline forecast assumes a 2.6% q/q
decline, much reduced from the second quarter's extreme drop given
the less widespread restrictions this time around. Unlike during
the prior lockdown period, for example, manufacturing businesses
generally remain operational during the current phase, reflected in
the recent resilience of IHS Markit's PMIs for the sector.
Production of chemicals, including pharmaceuticals, will
increase 1.5% in Germany in 2021, and sales generated by the German
chemical-pharmaceutical industry will rise 2.5%, according to
industry association VCI (Frankfurt). Demand for chemical products
is largely stable at the end of 2020, it says. "Business sentiment
is now confident in most of our companies," says VCI president and
Evonik Industries CEO Christian Kullmann. "More than half of them
expect sales to go up next year both in Germany and abroad." (IHS
Markit Chemical Advisory)
The industry in Germany has had a "difficult year" in 2020 due
to COVID-19, VCI says. The period has been "characterized by marked
ups and downs in the four quarters," it says. Due to weaker demand,
chemical production including pharmaceuticals has decreased by 3%
overall in 2020, with all sectors recording losses, VCI says. The
decline is in line with VCI's latest forecast. Losses by sector
ranged from a minor slip in the output of pharmaceuticals of 0.5%
to a slump of 6.5% in polymers production. Total output of
chemicals excluding pharmaceuticals has decreased 4% in Germany
this year, VCI says.
VCI says that a "corona-related lack of orders" has caused
sales by Germany's chemical-pharmaceutical industry to fall 6.0% in
2020, to €186.4 billion ($227.4 billion), with domestic sales down
5.5% and export sales lower by 6.5%. A 2% fall in producer prices
helped drive the decline. "The strain on our member companies is
considerable," says Kullmann. "However, our industry as a whole has
been hit less hard than other sectors of the economy."
VCI projects a slight drop in employment of 1% in Germany's
chemical industry in 2021, due to the "structural change in the
industry which is being accelerated by the corona crisis."
Employment in the industry is currently stable at 464,000 compared
with a year ago, "irrespective of the weak chemicals business," VCI
says.
The latest VCI members' survey shows that many chemical
companies operating in Germany will need some time to overcome the
crisis. Only 17% of member companies participating in the survey
believe they will return to pre-crisis levels in 2020 and about 25%
expect to be able to make up for the decline by the end of 2021.
The largest number of businesses surveyed, 47%, think they will
have overcome the crisis in 2022 at the earliest.
The recent tightening of the EU emission-cut target from 40% to
55%, "must come with flanking measures to ensure that
energy-intensive products can continue to be manufactured
competitively in Europe," Kullmann says. VCI warns against the
introduction of climate tariffs by the European Commission for
imports of CO2-intensive basic materials into the EU. "Apart from a
lack of controllability and trade conflicts, there is also a risk
of a loss in competitiveness at downstream stages of value chains,"
Kullmann says. "Only more complex compensation models can be
helpful to the chemical industry in Europe. Above all, climate
tariffs cannot substitute existing compensation measures for rising
climate protection costs of European companies."
The Polish government-backed project to build a national
battery electric vehicle (BEV), ElectroMobility Poland (EMP), has
announced that it has selected a new site for the plant to build
the vehicle, according to a Reuters report. The company has chosen
the industrial region of Silesia as the location of the new plant.
The new EV, which has already debuted in concept form and which
will be built under the Izera brand name, will now go into
production in 2024, as opposed to the originally slated timescale
of 2023. Polish Climate Minister Michal Kurtyka said, "Izera is an
opportunity for an efficiently functioning automotive industry here
and for using the potential of electromobility, which fits
perfectly into the economic landscape of the region." EMP is
planning to launch two new models under the Izera brand name, with
part of the rationale behind this bold government-backed project
being to make Poland more attractive as a destination for EV
manufacturers. To lessen the risk, EMP said it will license the
vehicle's platform from a foreign partner, but has yet to say which
this will be. (IHS Markit AutoIntelligence's Tim Urquhart)
The Turkish economic recovery continued into October, as
expected given sustained expansionary economic policies into
November. The tightening of monetary policy and slowing of credit
growth will not begin to damage industrial production and retail
trade until December. (IHS Markit Economist Andrew Birch)
In October 2020, Turkish industrial production continued to
push upwards, recovering from its second-quarter drop. The
implementation of social distancing regulations to slow the spread
of coronavirus disease 2019 (COVID-19) had reduced total industrial
output by 35% in seasonally and calendar adjusted terms between
February and April 2020. With the relaxing of those restrictions,
production returned to pre-pandemic levels as of August and, as of
October, total monthly output was up by 4.9% compared to February
production.
For the first 10 months as a whole, however, total industrial
output remained slightly down, by 0.3% year on year (y/y). Raw data
show a modest expansion of production, by 0.3% y/y.
Meanwhile, expansionary economic policies also kept retail
trade growing rapidly in October, also recovering from the
COVID-19-induced, second-quarter drop. After dropping by 28.1%
between February and April, total retail trade volume returned to
pre-pandemic levels in September, rising by another 4.2% month on
month (m/m) in October.
In November, both industrial production and retail trade growth
may have begun to falter. Leading confidence indices, including the
IHS Markit Purchasing Managers' Index, slipped as compared to
October. The PMI faltered particularly badly, falling back to 51.4,
its lowest level since May and continuing a clear downward trend
since July.
The falling lira is putting negative pressure on companies'
external obligations, particularly those companies that see income
in lira but have obligations in hard currencies. Meanwhile, the
weaker lira is not necessarily buoying external demand, as in
typical times. Instead, ongoing global demand softness due to
COVID-19 is squeezing manufacturers who are facing higher input
costs and external obligation pressures but not reaping stronger
export earnings.
Through November, retail and consumer confidence levels were
more resilient, suggesting that while industrial gains may falter
in November, retail trade should continue to grow relatively
robustly.
Mobileye plans to develop its own LiDAR sensors for an
autonomous car system by 2025, reports Reuters. Mobileye says that
its LiDAR sensors will work on the principle of frequency modulated
continuous wave, which measures distance as well as instant
velocity without losing range. This technology will enable Mobileye
to bring down costs for autonomous vehicle systems for consumer
cars. The company also says that its in-house-built LiDAR, in
combination with cameras and radar, will be used in consumer
vehicles and could replace Luminar's laser-based LiDAR sensors in
robo-taxis. In November, Mobileye signed a LiDAR supply agreement
with Luminar for use in its first generation of robo-taxis. Amnon
Shashua, CEO of Mobileye, said, "We believe the cost of an entire
self-driving system can be in the few thousand dollar range, and
that brings us into a consumer vehicle position. If we can make
this work, it will also be used for robo-taxis. But we have time to
make that decision five years from today." Mobileye, an
Israeli-based company acquired by US chip-maker Intel, develops
advanced perception systems that enable drivers to detect nearby
vehicles, other road users, and unexpected hazards. Mobileye is
making rapid advancements in developing an autonomous vehicle
system using cameras and a custom-made processor chip. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Asia-Pacific
Most APAC equity markets closed higher on the day; Hong Kong
+1.0%, India +0.9%, Australia +0.7%, South Korea +0.5%, Japan
+0.3%, and Mainland China flat.
The flash au Jibun Bank composite PMI, based on around 80% of
normal monthly replies, edged lower in December, down to 48.0 from
48.1 in November, indicating a further deterioration of business
conditions. The lackluster performance in December indicates a
subdued end to 2020 for the Japanese economy, which has struggled
to regain growth momentum as the COVID-19 pandemic continues to
affect many businesses. (IHS Markit Economist Chris
Williamson)
Business activity continued to worsen in December due to an
ongoing marked decline in new business inflows during the month, in
turn reflecting weakened domestic and export demand. The survey's
composite new orders index signalled falling inflows of news work
for an eleventh successive month, in part due to a continued loss
of new export sales, which have now fallen for some 25 straight
months.
Service providers reported an especially tough end to the year,
with business activity having fallen continually since a modest
rise recorded back in January, dropping in December at the fastest
rate since September in response to a further steep worsening of
order books.
Manufacturing, in contrast, saw its PMI output index climb to
the highest since December 2018, though remaining at a level which
merely hints at production volumes approaching levels of a year
ago. Although still deteriorating, the loss of new orders into the
goods-producing sector was the smallest recorded over the past two
years.
The relatively better performance of manufacturing was
reflected in the survey's employment indices, with factories
reporting a net increase in staffing levels - albeit only very
marginal - for the first time since February. The service sector,
on the other hand, reported a further reduction in headcounts
during the month, meaning jobs have now been cut in nine of the
past ten months.
Manufacturers also remained more optimistic about prospects for
the year ahead than services providers in December, largely
reflecting expectations of further COVID-19 restrictions in
activities such as travel, tourism and other historical and
recreational services. However, both sectors saw future
expectations slip lower, despite the month seeing brighter news on
vaccine developments, adding to the subdued picture for the economy
at the end of the year.
The survey also brought news of firms' costs increasing at the
fastest rate since February, rising in both manufacturing and
services, linked in part to higher commodity prices. However,
average prices charged for goods and services fell at an
accelerated rate, as increasing numbers of companies offered
discounts in the face of sluggish sales and weak final demand. The
divergence between the survey's cost and selling price indices
naturally bodes ill for profits, suggesting firms' margins are
being squeezed.
Japan's trade balance was positive for the fifth consecutive
month in November with a surplus of JPY367 billion (USD3.5 billon)
on a non-seasonally adjusted basis. It rose by 57.5% month on month
(m/m) to JPY570 billion on a seasonally adjusted basis. The
sustained surplus reflects a softer year-on-year (y/y) decline in
exports (down by 4.2% y/y) relative to imports (down by 11.1% y/y),
although the contraction in exports widened from the 0.2% y/y drop
in October. (IHS Markit Economist Harumi Taguchi)
The wider y/y drop in exports reflects declines in exports to
the United States and Asia, following rises in the previous month
and a continued decline in exports to the European Union. Major
factors behind the weakness were lower exports of mineral fuels,
iron and steel, automobiles, and scientific optical instruments,
which offset the higher exports of chemical, electrical machinery,
and some other products.
Since the contraction in import volumes narrowed to 2.4% y/y
from the 5.7% y/y drop in October, the continued weakness in
imports was largely due to lower prices, particularly of resources
and mineral fuels. Mineral fuels contributed 8.2 percentage points
to the contraction in imports. Other major contributors to the
decline were imports of automobiles, medical products, and clothing
and accessories, offsetting the increases in imports of mobile
phones and other electrical machinery.
Exports could weaken over the short term, reflecting the global
resurgence of the COVID-19 virus pandemic and related containment
measures. While sluggish imports were partially caused by a modest
pace of the resumption of domestic economic activity, the November
figures suggest that net exports are likely to contribute to the
continued growth of Japan's real GDP in the fourth quarter, but to
a more modest degree compared with that in the third quarter.
Negative impacts of the pandemic remain a downside risk until
vaccines are available for the population at large, which IHS
Markit expects in mid-2021. The yen's recent appreciation could
also be a negative factor for Japan's export competitiveness. Given
that exporting enterprises' average exchange rate assumption for
the second quarter of fiscal year 2020/21 (ending March 2021) is
JPY106.55/USD1.00, whereas the current level is JPY103.58/USD1.00,
persistent yen appreciation could lower corporate profits, weighing
down on fixed investment and employment. (IHS Markit Upstream Costs
and Technology's Genevieve Wheeler Melvin)
Japan Maritime United Corporation (JMU) has started fabrication
of Shimizu's newbuild self-elevating jackup vessel for the offshore
wind market. Early in November, JMU held a steel cutting ceremony
at their yard in Kure, Japan. The jackup vessel will be built
according to GustoMSC's SC-14000XL design, capable of installing 12
MW wind turbines and monopiles. The 130-person vessel will be
equipped with a telescopic crane capable of lifting wind turbines
weighing up to 1,250 metric tons at a height of 161 meters, as well
as 2,500-metric-ton foundations at a height of 121 meters. Shimizu
is aiming for the vessel to start working in October 2022. The
vessel would establish Japan's nascent domestic supply of wind
turbine installation vessels.
Chinese technology giant Baidu is considering making its own
electric vehicles (EVs) and has held talks with automakers about
the possibility, reports Reuters, citing sources with knowledge of
the matter. Baidu is considering contract manufacturing, or
creating a majority-owned venture with automakers, according to the
report. Baidu has held preliminary talks with several Chinese
automakers, including Zhejiang Geely Holding Group, GAC Motor
Group, and FAW Group, about a possible joint venture (JV), although
no decisions have been made at this stage. Over the past five
years, Baidu has primarily been focused on the development of
autonomous vehicle technologies and automotive-related connectivity
solutions. The company is involved in extensive co-operation with
automakers through its autonomous vehicle platform, the Baidu
Apollo. Supported by the technology, automakers including Geely,
Volkswagen, Ford, and Changan have begun pilot programs to bring
robo-taxis to the road. Baidu also provides an artificial
intelligence (AI)-backed vehicle connectivity system to automakers,
which allows drivers to control the vehicle's features through
voice command. These automotive-related technology solutions have
helped Baidu to gain a unique position in the automotive industry,
although it is not clear at this stage whether the company will
become further involved in vehicle manufacturing through a JV with
an existing automaker or through contract manufacturing. (IHS
Markit AutoIntelligence's Abby Chun Tu)
Automated truck startup Plus has expanded its partnership with
Chinese digital freight-matching platform Full Truck Alliance
(FTA). Under this partnership, the FAW J7+ truck powered by Plus's
automated vehicle system will be available for sale on FTA's
platform. This will give Plus access to a sales channel that
handled transactions for over 10 million truckers and 5 million
shippers in 2020. The FAW J7+ intelligent truck, jointly developed
by FAW Jiefang and Plus, will start mass production in the first
half of 2021. Tianye Miao, senior vice-president at FTA, said, "As
a strategic investor in Plus, we have long believed in the team and
its ability to execute on being the first to commercialize
automated trucks. We are excited to see mass production of the Plus
automated trucking system start in 2021, and to realize our vision
of bringing this transformational technology to the millions of
truckers and shippers on our platform". Plus (formerly known as
Plus.ai), which was founded in 2016, aims to make commercial
freight transport safer, more efficient, and less expensive for its
customers. The company has raised USD200 million in funding over
three rounds. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
SsangYong has missed the repayment of KRW60 billion (USD54.9
million) of debt that was due on 14 December to its three
creditors, reports the Yonhap News Agency. The automaker said that
the outstanding loans amounted to KRW59.9 billion and that the
interest was KRW600 million, accounting for 8% of its total equity.
The debt includes KRW20 billion from JP Morgan, KRW10 billion from
BNP Paribas, and KRW30 billion from Bank of America Merrill Lynch.
"[The company] doesn't have enough funds to repay the debt due to
worsening business conditions," said the automaker in a regulatory
briefing, adding "We will try to extend the debt maturity with our
creditors." SsangYong's KRW90-billion debt with the state-run
Industrial Bank of Korea is due for repayment on 21 December.
SsangYong is struggling and recorded a net loss for the 15th
consecutive quarter in the third quarter of 2020. Furthermore, the
automaker witnessed a 19.3% year-on-year (y/y) plunge in its global
sales to 96,763 units during January-November, mainly owing to the
COVID-19 virus pandemic, which has caused a contraction in consumer
spending. (IHS Markit AutoIntelligence's Jamal Amir)
Ashok Leyland's parent company Hinduja Group is looking at
selling a minority stake in its newly created electric vehicle (EV)
arm Switch Mobility, reports The Economic Times. People aware of
the matter have told the newspaper that it is considering selling
between 10% and 20% of the business, raising between USD200 million
and USD300 million. It adds that it has been looking to generate
interest from sovereign wealth funds in the Middle East such as
Mubadala Investment Co, Qatar Investment Authority, Abu Dhabi
Investment Authority, and Saudi Arabia's Public Investment Fund.
The anonymous sources have also said that Google's parent company
Alphabet, Microsoft and Softbank Group have also been approached.
Switch Mobility was announced last month and comprises the assets
of the automaker's UK bus-making arm Optare Group, which is already
offering a range of electric powertrain options alongside its
traditional diesel powertrains. (IHS Markit AutoIntelligence's Ian
Fletcher)
IHS Markit's flash PMI for Australia, measuring output across
both manufacturing and services, rose from 54.9 in November to 57.0
in December, its second highest since June 2017 and indicating a
marked acceleration of economic growth in the closing month of
2020. (IHS Markit Economist Chris Williamson)
The rate of expansion signaled by the PMI has now accelerated
for three successive months, underscoring how the recovery has
continued to regain momentum after the initial rebound from the
first lockdowns faded in August.
December's improvement in the PMI coincided with a relaxation
of virus-fighting measures. IHS Markit's COVID-19 Containment Index
for Australia fell from 38 to 30 between November and December,
indicating that virus-related restrictions are now the loosest
since the pandemic started. The index peaked at 76 at the height of
the initial lockdowns back in April, which led to the PMI falling
to a survey-low of 21.7, pointing to a very steep deterioration in
economic growth.
The rise in the flash PMI, which is an early estimate based on
around 80% of normal monthly replies, bodes well for GDP. According
to the latest available official data, the economy rebounded in the
third quarter, mirroring the recovery signaled in advance by the
earlier PMI numbers, expanding by 3.3%. However, that expansion
followed a 7.0% decline in the second quarter, and still left the
economy 4.2% smaller than its peak seen at the end of 2019.
It was not all good news, however, with exports of both goods
and services continuing to decline during December. Services once
again showed an especially steep fall, largely reflecting ongoing
travel curbs associated with the pandemic, which hit tourism in
particular. Encouragingly, though, the drop in services exports was
the smallest recorded since the decline began back in
February.
Posted 16 December 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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