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Equity markets closed mixed across APAC, Europe, and the US. US
and European benchmark government bonds closed higher, while iTraxx
and CDX indices ended their sessions close to flat across IG and
high yield. Crude oil closed higher, while the US dollar, Brent,
gold, and silver were all lower on the day.
Americas
Most US equity markets closed lower except for the Russell 2000
+0.4%; DJIA -0.6%, S&P 500 -0.5%, and Nasdaq -0.2%.
10yr US govt bonds closed -4bps/0.86% yield and 30yr bonds
-6bps/1.61% yield.
CDX-NAIG closed +1bp/53bps and CDX-NAHY +1bp/329bps.
DXY US dollar index closed -0.2%/92.44.
Gold closed -0.1%/$1,885 per ounce and silver -0.6%/$24.65 per
ounce.
Crude oil closed +0.2%/$41.43 per barrel.
The below chart shows the average current, minimum, and maximum
bond prices during the second half of 2020 (as of 13 November) and
the percent the current price is above the lowest price during the
period for a static pool of BB-rated bonds from the IHS Markit
iBoxx High Yield USD Corporate Bond Index. The chart highlights
that the BB-rated hotel & lodging REITs average bond price is
currently the lowest at 93.86 and the automobile sector has
increased the most (+11.4%) from the lowest average price of
95.20.
About 300 companies that received as much as half a billion
dollars in pandemic-related government loans have filed for
bankruptcy, according to a Wall Street Journal analysis of
government data and court filings. Many of the companies, which
employ a total of about 23,400 workers, say the funds from the
Paycheck Protection Program weren't enough to keep them going as
the coronavirus and lack of additional stimulus payments weighed on
their businesses. The Journal only analyzed the big borrowers from
the program, which accounted for about half of the overall loans
though only about 13.5% of the total participants. And many small
businesses simply liquidate when they run out of cash rather than
file for bankruptcy. (WSJ)
The chart below shows that AA-rated CMBS (average credit
enhancement of 20.6%) is the best performing current rating
category across the IHS Markit iBoxx Trepp CMBS Current Rating
Indices, returning +7.11% year to date (YTD) as of 13 November. The
current BBB-rated index (average credit enhancement of 8.9%) is the
worst performer at -8.97% YTD. It's worth noting that the A-rated
index has been closely tracking the IHS Markit iBoxx High Yield
Index and is currently outperforming the high yield indices by 2bps
at a +1.55% YTD total return.
Total retail trade and food services sales edged up 0.3% in
October, a downshift from the 1.6% gain in September.
Stronger-than-expected core retail sales through October resulted
in a 1.8-percentage-point upward revision to our fourth-quarter
forecast of real personal consumption expenditures (PCE) growth,
from 3.4% to 5.2%. (IHS Markit Economists James Bohnaker and David
Deull)
Nonstore retail sales (mostly online) rose 3.1% from an
already-elevated level, bringing the 12-month gain to 29.1%. Some
of this strength was due to Amazon Prime Day moving from its usual
July calendar slot to October this year; many retailers are
encouraging early holiday shopping to avoid a last-minute delivery
rush. After seasonal adjustment, we may see declines in nonstore
sales over November and December.
Several other outperforming categories continued to do well.
Motor vehicle and parts dealers enjoyed another positive month with
a sales increase of 0.4%, stepping the 12-month gain up to 10.7%.
Elevated demand for home improvement was evident with building
material and garden supply stores seeing a 0.9% increase in October
to move sales up 19.5% over 12 months.
The food services industry may have reached an inflection point
in its recovery, as sales at restaurants and bars edged down 0.1%.
Cooler weather and restrictions on indoor dining will likely limit
activity over the winter.
Retail sales beat our expectations in October but we believe a
slowdown is imminent. An unmitigated rise in COVID-19 cases and
resulting containment measures are the primary reasons. Without
additional stimulus, consumers are unlikely to maintain the current
pace of spending on large durable goods.
Total industrial production (IP) rose 1.1% in October, about as
expected. Growth over recent months was revised higher. The
headline increase in October reflected increases in manufacturing
(1.0%) and utilities (3.9%), partially offset by a small decline in
mining (0.6%). (IHS Markit Economists Ben Herzon and Lawrence
Nelson)
The details in this report that inform our GDP tracking were,
on balance, slightly stronger than we had assumed. However,
unseasonably mild temperatures so far in November led us to lower
our estimates of personal consumption expenditures (PCE) on
electric and gas utilities for November and the fourth quarter. The
net effect was a downward revision to our forecast of
fourth-quarter GDP growth of 0.1 percentage point to 4.4%.
Total industrial production has come a long way from a low
reached in April. From April through October, increases in total IP
have reversed two-thirds of the pandemic-induced decline.
Much of the recovery to date has reflected essentially a full
recovery in IP of motor vehicles and parts. The pace of output in
most other industries has yet to recover pre-pandemic levels.
The monthly profile of total IP is one of rapid growth over
June (6.0%) and July (4.2%) followed by a sharp slowdown since.
From August through October, IP rose at an average monthly rate of
0.5% per month.
This slowing profile is consistent with our forecast of a sharp
slowing in GDP growth from our estimate of 34.0% in the third
quarter to 4.4% in the fourth quarter (both expressed at annual
rates).
The recent surge in new COVID-19 infections in the US and the
possibility that state and local governments could materially
re-engage containment efforts pose some downside risk to this
forecast.
In April, the US housing market index and its three sub-indexes
plunged to record lows. In October, all four indexes set or tied
record highs. In November, all four indexes exceeded the October
record high. Why the historic reversal? 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. (IHS Markit Economist Patrick Newport)
The headline index increased five points to 90—the highest
reading in its 35-year history. A reading above 50 says that more
builders view conditions as good rather than poor.
All three sub-indexes set record highs. The current sales
conditions index climbed six points to 96, the index measuring
sales prospects over the next six months rose one point to 89, and
the traffic of prospective buyers' index climbed three points to
77.
All four regions set monthly three-month average record highs.
The West ranked highest with a score of 94, followed by the South
(86), the Northeast (83), and the Midwest (70).
The report usually highlights an issue. This month's: "Though
builders continue to sign sales contracts at a solid pace, lot and
material availability is holding back some building activity.
Looking ahead to next year, regulatory policy risk will be a key
concern given these supply-side constraints." The report also noted
that the National Association of Home Builders (NAHB) expects
interest rates and construction costs to go up as the pandemic is
brought under control.
Despite these burning numbers, we believe that the recent
strength in the single-family market for new construction is
temporary and that housing starts will overshoot their long-run
trend over the next three quarters before dipping and stabilizing
to a level set by increases in the number of households.
Frito-Lay survey projects 300% increase in online shopping for
holiday foods. As they prepare for the holiday season, as many as
half of US consumers plan to purchase their groceries online - a
steep increase from 15% who shopped online in 2019, according to
the latest edition of Frito-Lay North America's US Snack Index
survey. The survey polled more than 2,200 US adults October 16-18
and found that concerns over the COVID-19 pandemic are increasingly
pushing US shoppers to shop for food online, shop early for holiday
food items and add more snacks to their shopping lists. Maintaining
health and safety is a top concern for more than a third of US
shoppers (37%) and that is the main force driving consumers to
online grocery shopping channels, the survey found. According to
the survey, the average content of US grocery shoppers' online
baskets is up 32% over last year's and three-quarters of consumers
intend to repeat purchases from their most recent online grocery
provider in the next 30 days. The pandemic has also caused a shift
in in-person shopping as more consumers now are buying groceries
during the workweek, the survey found. With respect to online
groceries, snacks are the most likely category to be purchased
online for the holidays and 77% of survey participants indicated
they plan to get their snacks online. "Consumers have shifted their
behavior with 58 percent snacking more since COVID-19, and shopping
through new channels with online adoption up 40 percent," said Mike
Del Pozzo, senior vice president of sales and chief customer
officer at Frito-Lay North America. And while the Thanksgiving
holiday gatherings are expected to be smaller, the majority of
consumers (83%) plan to spend as much or more than they did on
their Thanksgiving meal last year, the survey found. (IHS Markit
Food and Agricultural Policy's Margarita Raycheva)
Canada's province of Quebec has announced a new 2030 Plan for a
Green Economy (2030 PGE), which includes prohibiting the sale of
gasoline (petrol)-powered vehicles from 2035, as well as targeting
1.5 million electric vehicles (EVs) on the road by 2030 and
increasing government purchases of EVs. The 2030 PGE is a
multilayered, multi-year program and does include government
investment of CAD6.7 billion from 2021 to 2026 for the first phase
of the implementation plan; CAD3.6 billion is earmarked for the
transportation sector. A statement released by the provincial
government reads, "With the 2030 PGE, the government is laying the
groundwork for a green economic recovery and reiterating Québec's
commitment to reduce its greenhouse gas (GHG) emissions by 37.5%
below 1990 levels by 2030. In so doing, it is charting the course
that will lead Québec to carbon neutrality in 2050." Quebec expects
its "ambitious electrification and climate change project" will add
CAD2.2 billion to Quebec's GDP in 2030 and create more than 15,500
new jobs. In addition to the CAD3.6 billion planned for the
transportation sector, the province aims to invest CAD15.8 billion
into public transportation from 2020 through 2030, including
electrification of light trains, city and school buses, taxis, cars
and trucks. Measures Quebec intends to take include renewing
rebates for individuals buying or leasing EVs or charging stations,
as well as support programs for businesses and the taxi industry.
By 2030, Quebec aims to have 100% of its cars, vans and sport
utility vehicles (SUVs) and 25% of its light trucks run on
electricity by 2030. Quebec has also said that it will raise the
requirements of the standard on zero-emission vehicles to encourage
manufacturers to supply the Quebec market with a greater number of
vehicles and a greater variety of models. (IHS Markit
AutoIntelligence's Stephanie Brinley)
In October, light-vehicle sales in Mexico continued to decline
y/y on COVID-19 impacts, although the situation has improved since
April. However, as the US looks to replenish inventories,
production (up 8.8%) and exports (up 8.2%) increased y/y in
October. In the YTD, all metrics are down from the same period of
2019. In addition, production of passenger cars continues to
decline as LCV production improves. Mexico's light-vehicle sales
declined in 2018 and 2019, and started off 2020 soft prior to the
COVID-19 pandemic. In October, light-vehicle demand continued its
double-digit percentage y/y decline, although continued to be
better than in prior months since the COVID-19 virus outbreak. The
year-to-date results are still down by 29.6% y/y. Our October
forecast revision sees the country's full-year 2020 light-vehicle
sales falling 27.2% to 934,498 units. IHS Markit also sees
production in Mexico slipping to 3.00 million units in 2020,
compared with 3.82 million units in 2019. The forecast decline in
production is not as steep as expected at earlier points of 2020.
(IHS Markit AutoIntelligence's Stephanie Brinley)
Although the JPMorgan Global Manufacturing PMI, compiled by IHS
Markit from its proprietary business surveys, rose from 52.4 in
September to 53.0 in October, its highest since May 2018, the
recovery of the manufacturing sector has by no means been
universal. Of the 31 countries covered by the surveys, factory
output rose in 22 but fell in nine during October. However, most
striking is the divergence between the two countries which have sat
at opposite ends of the PMI ranking table in recent months: Brazil
and Mexico. (IHS Markit Economist Chris Williamson)
In the three months to October, the manufacturing PMI output
index for Brazil has averaged 66.4, surpassing any rate of
expansion seen since the survey began back in 2006 by a wide
margin. By comparison, the output index for Mexico has averaged
just 40.2 over the same period, indicating a contraction of
production the severity of which has been exceeded over the past
decade only by that seen at the height of the pandemic earlier in
the year.
The divergent performance is also reflected in the official
data, which are only available with a delay compared to the PMI and
hence only currently show the situation up to September. However,
these data already indicate that output in Brazil had risen 2.5%
above levels of a year ago whereas output in Mexico continued to
run some 5% below September of last year, corroborating the
divergent trends signaled by the PMI surveys.
One index that has shown in interesting divergence has been the
survey gauge of new export orders. While exports have now returned
to growth for two consecutive months in Brazil, rising in October
to the greatest extent seen in the 14-year history of the PMI
survey, Mexico's exports continued to fall at a rate only exceeded
over the past decade by the decline seen at the height of the
pandemic. Brazil's superior export performance likely in part
reflects the depreciation of the real, which has plunged by around
35% against the US dollar since earlier in the year; a far greater
fall than the 13% drop seen for the Mexican peso.
Importantly, not only has the currency fall made Brazil's
imports more competitively priced in foreign markets, the weakened
exchange rate has also raised the cost of imported goods, which has
led to import substitution as buyers favor cheaper domestically
sourced goods. Domestic demand consequently appears to have also
benefited, with overall new orders growth in Brazil running far
ahead of that seen for just export orders. The opposite is apparent
in Mexico, where domestic demand appears to be acting as a drag on
manufacturing alongside falling exports.
Peru's National Institute of Statistics and Information
(Instituto Nacional de Estadística e Informática) reports that the
monthly production index grew at a seasonally adjusted rate of 1.5%
on a month-on-month (m/m) basis in September 2020. (IHS Markit
Economist Jeremy Smith)
After averaging a 10.2% m/m growth from May to July, output
rose just 2.5% in August and further slowed to 1.5%, leaving the
production index down -11.5% year on year (y/y) with considerable
loss in momentum.
This pattern has been even more pronounced in the labor market,
where employment growth slowed dramatically from an average of
28.3% m/m in the moving quarters ending in July and August to 3.6%
in the moving quarters ending in September and October. As of
October, employment in the Lima metropolitan area remains 23.1%
below the peak in January, and the unemployment and underemployment
rates stand at 16.4% and 45.2% respectively.
Sector-specific recovery has been uneven. Cumulative through
September, the sectors contributing the most to the year-on-year
decline in production are wholesale and retail (-2.37 percentage
points), manufacturing (-2.14 percentage points), and mining and
hydrocarbons (-2.05 percentage points). The sectors making the
greatest positive contribution to growth have been finance and
insurance (0.64 percentage point), driven by rapid credit
expansion; and telecommunications (0.21 percentage point), fueled
by an increase in mobile phone and internet activity.
Slowing recovery in production and employment continues to be
in line with our expectation that the rebound effects of Peru's
economy reopening are fading. Our overall growth forecast for 2020
is -12.58%, followed by an 8.74% growth in 2021.
Europe/Middle East/Africa
European equity markets closed mixed; Italy +0.6%, France
+0.2%, Germany flat, Spain -0.7%, and UK -0.9%.
10yr European govt bonds closed higher across the region; UK
-3bps and France/Italy/Spain -2bps.
iTraxx-Europe closed flat/50bps and iTraxx-Xover
+1bp/286bps.
Brent crude closed -0.2%/$43.75 per barrel.
With the UK government apparently looking to accelerate its
original deadline for the banning the sale of pure internal
combustion engine (ICE) vehicles from 2035 to 2030, Chancellor of
the Exchequer Rishi Sunak has something of a problem. The United
Kingdom has one of the world's highest rates of light vehicle (LV)
taxation and indeed among the Organisation for Economic Development
and Cooperation (OECD) group of countries it has the highest, with
the current fuel duty for gasoline (petrol) and diesel 57.35 pence
per liter. (IHS Markit AutoIntelligence's Tim Urquhart)
The average national UK price for a liter of gasoline currently
stands at GBP1.14, so the UK exchequer currently takes almost
exactly half the value of a tank of gasoline at the pumps. So if it
takes around GBP100-120 to fill the tank on a larger sport utility
vehicle (SUV), the government takes GBP50-60 of that figure every
time that vehicle is filled up.
With a current UK light-vehicle parc 36.1 million which
translates to a density of 532 cars per thousand people in the
country, the UK government generates significant revenue from fuel
taxation; GBP28 billion in 2019, or around 1.3% of total tax
receipts, according to the institute of fiscal studies. That may
not sound like a great deal but if it were to rapidly to disappear
it would have to be sourced from other areas of taxation,
especially at a time when there is significant pressure on public
finances as a result of furlough programs and other public stimulus
efforts in response to the COVID-19 virus pandemic.
The proposed acceleration of the deadline for banning ICE
passenger car sales from the already aggressive target of 2035 to
2030 requires a solution from the UK government to plug the hole in
the public finances that will result from losing fuel duty
income.
The issue of the move to electrification, which is a major
component for many global governments' plans to meet Paris
Agreement emissions, is not a straightforward one for those
governments that take a relatively high percentage of overall tax
from fuel duty.
One of the main pull factors for consumers is that it is hugely
cheaper to charge an EV than it is to fill the tank of an ICE car
and governments do not want to directly put extra tax burdens on
BEVs to replace loss fuel duty as this will make them less
attractive.
The first tower has been installed on the world's largest
floating wind farm. MHI Vestas confirmed the installation of the
first of five V164 9.5 MW turbines at the installation harbor of
the Kincardine floating offshore wind farm. The turbines are
sitting on WindFloat semisubmersible foundations designed by
Principle Power. (IHS Markit Upstream Costs and Technology's Melvin
Leong)
Germany's Federal Statistical Office (FSO) data show that total
German employment in the third quarter was at 44.644 million, down
slightly further from the second quarter's 44.692 million and down
648,000 from year-ago levels, a decline of 1.4% year on year (y/y).
This compares with a 1.0% average annual gain during 2010-18, and
it is far greater than the aggregate employment setback of about
200,000 (-0.5%) during March-July 2009 triggered by the recession
due to the GFC. (IHS Markit Economist Timo Klein)
In seasonally adjusted terms, employment increased by 63,000 or
0.14% versus the second quarter, which matches the average
quarterly gain during 2019 but falls short of the long-term average
of 0.27% quarter on quarter (q/q) during 2010-18. Separate monthly
data show that the rebound started in July already.
The breakdown by sector shows - as in the second quarter - that
the only sectors spared from y/y declines in the third quarter were
information and communications, public services/education/health,
and construction. Compared with third quarter of 2019, employment
suffered the most in manufacturing, agriculture, business services,
and "other services".
The COVID-19 virus crisis had hit the hours worked around six
times more severely than employment in the second quarter (-8.9%
y/y vs -1.3% y/y), therefore these recovered more strongly in the
third quarter than employment did.
The annual gap for hours worked shrunk to -4.0% y/y as the use
of short-time work schemes was scaled back. This applies even more
to hours worked per employee, which recovered from -7.7% y/y in the
second quarter to -2.6% y/y in the third quarter. This demonstrates
the usefulness of Germany's short-time work scheme, as companies
were able to retain skilled workers during the crisis, thus
enabling them to cope better with the upcoming structural shortages
linked to retiring baby boomers.
The dichotomy between dependent employees (-1.2% y/y) and the
self-employed (-4.1% y/y) is more extreme than ever. This extends a
trend that already began in late 2012. Self-employment had
temporarily seemed to head towards stabilization during 2017 but
has deteriorated anew since early 2018, and the pandemic has
reinforced the worsening tendency as the self-employed cannot
benefit from the short-time work scheme.
Germany's employment should move broadly sideways in the coming
months as the current second wave of the COVID-19 virus pandemic
prevents a broad-based employment recovery for now, especially in
the service sector. There is support from manufacturing, which
benefits from recovering exports (notably to China), and from
relatively resilient consumer spending, which is also linked to the
financial and psychological support provided by the short-time work
scheme. A structurally strong construction sector is also
helpful.
The number of new infections in the Netherlands declined by 14%
last week from the previous seven days, slower than the 32% decline
the week before, according to health agency RIVM. In the week
ending Nov. 17, 37,706 infections were confirmed, down from 43,621.
The number of reported hospital admissions also fell. Dutch Prime
Minister Mark Rutte and Health Minister Hugo de Jonge are set to
host a press briefing later on Tuesday. (Bloomberg)
A survey carried out in five selected EU countries shows that
the public demands better labelling of everyday products containing
nanomaterials, including food and drink, as well as more
information on the risks and benefits of consuming products
containing nanomaterials. The study, commissioned by the EU
Observatory for Nanomaterials (EUON), measured and analyzed how
people in Austria, Bulgaria, Finland, France and Poland perceive
nanomaterials and their potential risks to our health and the
environment. It found that despite manufactured nanomaterials being
a common part of our everyday lives, general awareness about their
nature, characteristics and properties is low. However, the level
of awareness has increased compared to earlier surveys and is
expected to continue increasing in the future. The study identified
some concerns over the safety of some established and newer
applications of traditional and more advanced nanomaterials. The
general risk perception of nanomaterials was nevertheless lower
than for other modern trends and technologies. The results confirm
that concerns often correlate with a lack of awareness of
nanomaterials. People who know more about nanomaterials tend to be
less concerned about the safety of using them in everyday products.
The majority (87%) of study respondents want to know if the product
they are buying contains nanomaterials, principally through
labelling. This particularly holds true for food and food-related
products, such as packaging or other food contact materials. (IHS
Markit Food and Agricultural Policy's Sara Lewis)
Statistics Norway reports total real GDP (mainland economy plus
petroleum activities, pipeline transport, and ocean transport)
rebounded by 4.6% quarter on quarter (q/q) in the third quarter,
revised from an initially reported 5.1% q/q drop. This was preceded
by the whole economy contracting by 4.7% q/q in the second quarter,
the sharpest drop since the series began in 1978. (IHS Markit
Economist Raj Badiani)
The mainland economy posted a stronger rebound up by 5.2% q/q
in the third quarter following a 6.0% q/q drop in the second.
A breakdown of mainland GDP shows that the arts and
entertainment industries and accommodation and food services
recovered during the third quarter after enduring unprecedented
drops in activity in April and May.
The easing of the coronavirus disease 2019 (COVID-19)
containment measures led to solid growth in May and June, but the
pace of recovery appeared to slow through the latter stages of the
third quarter.
Specifically, mainland Norway's GDP rose for the fifth straight
month when declining by 0.6% month on month (m/m) in September.
Nevertheless, the level of activity in September was still close to
3% lower than in February, the pre-pandemic level.
The expenditure breakdown reveals household consumption was the
main engine of growth during the third quarter (see chart below).
Specifically, it grew by 9.6% q/q during the third quarter, clawing
back most of the 10.5% q/q loss in the second quarter.
The consumption of goods rose by 6.0% q/q during the third
quarter and was 10% higher than its level in the final quarter of
2019. Meanwhile, the consumption of services increased by 12.4%
over the same comparison in line with the gradual reopening of
businesses in the second quarter, as well as further easing of
restrictions during the third.
Mainland investment activity continued to be squeezed during
the third quarter, falling by 0.4% q/q to remain 7.5% lower than a
year ago. Statistics Norway argues that the COVID-19 shock has
diminished the appetite to invest, alongside the completion of many
large investment projects within the manufacturing and electricity
power generation industries during 2019.
Fixed investment in the crude oil and natural gas extraction
and transport via pipeline sectors has fallen notably in the first
three quarters of 2020, and was down by 4.6% q/q in the third
quarter.
Net exports were a drag on the pace of the GDP rebound during
the third quarter. Total exports of goods and services grew 5.0%
q/q in the third quarter, primarily led by strong natural gas
sales. Meanwhile, imports jumped higher, rising by 10.3% q/q in the
third quarter but still remained well below its level in
February.
Statistics Norway reports broad-based improvement across the
main industrial sectors during the third quarter. Service
industries output declined notably in April and May before
reporting the strongest recovery during the third quarter (up by
5.5% q/q). Nevertheless, the sector's output remained below its
pre-pandemic level in February.
Industries reporting more modest declines during the toughest
phase of the COVID-19 restrictions, such as manufacturing,
construction, and education all reported more limited output gains
during the third quarter, but all trailed their February
levels.
The positive surprise was again the extraction of crude
petroleum and natural gas, which rose by almost 2% between the
second and third quarters and stood 5% above the level from
February. Statistics Norway reports that natural gas production
increased by just over 15% y/y to 55.2 million standard cubic
meters of oil equivalents during the third quarter.
Norwegian GDP losses in 2020 are likely to be lower when
compared with elsewhere in Europe
According to our November forecast, the Norwegian economy is
set to contract by 3.8% in 2020, but this is likely to be revised
after GDP developments in the third quarter were stronger than
expected.
Estonia-based ride-hailing service Bolt has announced that it
will invest over EUR100 million (USD118 million) in micro-mobility
in 2021. The company plans to deploy 130,000 scooters to more than
100 European cities in 2021. Markus Villig, CEO and co-founder of
Bolt, said, "Our cities are suffering from traffic, emissions and
lack of public space caused by parking. We believe that the future
of urban transport is a network of on-demand services —
ride-hailing, electric scooters, bikes and other light vehicles.
The days where every person needs to buy a car are over." (IHS
Markit Automotive Mobility's Surabhi Rajpal)
On 13 November, Bloomberg reported that Nigerian President
Muhammadu Buhari had signed into law an amended banks and other
financial institutions bill (BOFI). The bill intends to introduce a
credit tribunal with the aim to improve loan recovery and establish
a fund to support failing or distressed lenders. The Central Bank
of Nigeria (CBN) is expected to contribute NGN10.0 billion (USD26.2
million) yearly, and the Nigerian deposit insurer NDIC is to
contribute NGN4.0 billion. Commercial banks and other lenders are
expected to pay annually 10 basis points of their total assets into
the fund, and lenders will not be allowed to pay dividends if they
fail to contribute. (IHS Markit Banking Risk's Ana Souto)
The introduction of the credit tribunal to speed up loan
recoveries is credit positive, given that banks are battling with
asset quality problems because of the country's economic issues
following the outbreak of the coronavirus disease 2019 (COVID-19)
virus and plunge in oil prices in March-April.
Although the non-performing loan (NPL) ratio has been reducing
since September 2017 from 15.1% to 6.4% in June 2020, the Nigerian
banking sector has implemented forbearance measures since the
global decline in oil prices in 2014; as a result, the sector holds
a large proportion of restructured loans mostly in the oil and gas
sector, which likely masks the true levels of problem loans in the
banking sector and limits IHS Markit's ability to accurately assess
the risk that bad loans present to capital buffers.
The creation of the resolution fund will support stability in
the sector as it will prevent small and medium banks that are more
vulnerable to the current economic situation from failing, given
that their business model relies heavily on borrowing to the
low-income segment.
However, banks' contribution to the fund will put additional
pressure on the sector's earnings at a time when banks' earnings
are already under pressure because of a reduction in loan growth,
lower interest rates, and higher provisions.
As per IHS Markit's Coal, Metal and Mining database, during
week-46, RB 6000 NAR, RB 5700 NAR, RB 5500 NAR and RB 4800 NAR
thermal coal prices stood at $67.05 (up 9% w/w), $60.40 (up 6%),
$49.66 (up 4%) and $38.37/t (up 6%), respectively. Apart from
increased demand for RB coal from the Indian sponge iron industry,
there has been a surge in demand from China (Mainland) which
significantly contributed to the recent surge in RB coal prices.
China had stopped importing South African coal way back in 2015 on
trace elements issue. (IHS Markit Maritime and Trade's Rahul Kapoor
and Pranay Shukla)
Indian steel mills commenced exports of semi-finished steel
products to China (Mainland) in small quantities from September
last year. However, shipments accelerated from June 2020 as Chinese
steel mills found it economical to buy cheap semis from the Indian
mills. Even after COVID-19 related restrictions were relaxed in
India, leading to an increase in domestic demand, Indian mills
continued to export semis to China (Mainland).
Chinese steel mills continued drive to buy semi-finished steel
products from India has indirectly benefitted South African coal.
Indian sponge iron producers buy South African coal due to its high
fixed carbon versus coal from other origins. As per IHS Markit's
GTA, imports of semi-finished steel products into China (Mainland)
during the nine months of this year stood at 13.6mt versus just
1.2mt in the previous year. The top three origins of imported
semi-finished products (HS Code 7207) into China (Mainland) were
Russia (20% share), India (19%), and Vietnam (15% share).
India's sponge iron industry appetite for RB coal has remained
strong as the country moved into high demand season domestically in
addition to exports of semis to China (Mainland). Sponge iron
prices in India (ex-Raipur) in the last one month have increased
20% to year high level of INR 24,500/ton (USD 329/ton, USD/INR
~74.51).
As per IHS Markit's Commodities at Sea, during week 46, RBCT
coal shipments increased to 1.6mt (6.9mt on a 30-day basis) versus
1.4mt (5.8mt on a 30-day basis) a week before. TFR railings during
the reported period increased to 1.4-1.5mt levels versus 1.3-1.4mt
a week before. Thermal coal stocks at the Richards Bay Coal
Terminal (RBCT) are presently standing at 4.2-4.3mt (versus
4.1-4.2mt a year ago
Asia-Pacific
APAC equity markets closed mixed; India +0.7%, Japan +0.4%,
Australia +0.2%, Hong Kong +0.1%, and Mainland China/South Korea
-0.2%.
An outage that forced the Australian Securities Exchange (ASX)
to first pause and then abandon trading on Monday has been traced
to a software bug on its refreshed equity trading platform. In a
statement apologizing for the market disruption, the exchange
blamed the outage, which began shortly after the exchange opened at
10am, on "software issues". (iTnews)
Prior to the global pandemic, China's GDP growth figures
exhibited a noticeable degree of stability, with underlying growth
tending to ease in a gentle and broadly predictable pattern over
the decade leading up to the start of 2020. In contrast, higher
frequency indicators - such as the Caixin China Composite PMI
(compiled by IHS Markit) and, for that matter, many official data
statistics - have described more typical cyclical changes in
economic activity, for example indicating slowdowns in growth in
2015 and 2018. With little cyclicality apparent in the official
headline GDP growth statistics, in response - and as a means of
providing timelier and higher frequency estimates of changes in GDP
- there is a growing literature on alternative ways to track
economic performance in China. Two such approaches have been
undertaken by the San Francisco Federal Reserve Bank and the New
York Federal Reserve Bank. (IHS Markit Economist Paul Smith)
There has been a notable development during recent years in the
scope and range of economic indicators available for China. From
these available data sources, we pick 12 that appear particularly
useful in tracking economic activity. These include indicators of
electricity production, industrial production, household
consumption, freight traffic, trade and investment*. Note that the
PMI survey data have been excluded as one of the intentions is to
compare the performance of the new indicator against our own PMI,
and to thereby create an time series against which PMI data can be
more accurately benchmarked than GDP.
To translate our derived monthly indicator into comparable
annual GDP growth rates we have also constructed a 'pseudo' monthly
GDP series from the official quarterly GDP data. Using
interpolation techniques to estimate a monthly time-series from the
quarterly GDP figures, this series is also detrended and the
cyclical component extracted. Linking this series to the first
principal component of our high frequency indicators through linear
regression provides us a new series of year-on-year growth
estimates based on the set of alternative indicators.
Whilst not directly comparable with each other - PMIs tend to
measure underlying changes in activity as opposed to the
year-on-year growth rates indicated by the GDP tracker, which is
why the PMI figures sometimes have a noticeable lead - the positive
relationship between the cyclical component of GDP and the Caixin
Composite PMI reinforces the usefulness of the business survey data
in understanding short-term economic developments.
Taking the latest signal from the monthly data shows that the
economy was growing at a year-on-year rate of just below 5.0%
during October, signaling a positive start to the fourth quarter of
2020 - albeit one below pre-pandemic trends as the recovery in
consumption continued to lag that seen in industry.
Volkswagen (VW) has begun production of the APP 310 electric
drive at its Chinese component factory in Tianjin. The permanent
magnet synchronous motor can deliver an output of up to 150 kW with
a maximum torque of 310 Nm, according to the automaker. The
component will be used in the VW ID.4 variants introduced in China,
the ID.4 CROZZ and ID.4 X produced by the automaker's joint
ventures (JVs), FAW-VW and SAIC-VW. Electric drives produced at the
Tianjin plant will supply the VW Group's future models for the
Chinese market. VW's component factory in Kassel (Germany)
currently produces the APP 310 motor for MEB-based models in Europe
and North America. The two sites are said to have installed
capacity of 880,000 electric drives per year. VW expects to expand
the production capacity for electric drives to 1.4 million electric
drives through its subsidiary, Volkswagen Group Component (VGC), as
early as 2023. VW's Tianjin plant has been primarily engaged in
production of transmissions for VW Group vehicles since 2014. The
start of production of the APP 310 drive in Tianjin is laying
another milestone in the Group's transition to electrification.
(IHS Markit AutoIntelligence's Abby Chun Tu)
Denso has invested for unspecified stake in Envoy Technologies,
an electric vehicle (EV) mobility startup that offer services to
the commercial real estate (CRE) industry. This investment will
allow Denso to offer mobility-as-a-service to businesses and will
provide Envoy the ability to scale with its products and services.
Yoshifumi Kato, a senior executive officer at Denso, said, "As
mobility needs change, Denso continues to change along with them.
Collaborating with Envoy allows us to combine our expertise in
electrification and fleet management with their knowledge of
commercial real estate, helping us both improve mobility for
businesses so they can accomplish their goals more seamlessly."
Envoy Technologies was founded in 2017 to offer electric
cars-haring and EV charging services to CRE industry. The company
is currently available in 14 markets across 10 states in the US
including California, Washington, New York, and Virginia.
Meanwhile, Denso noted that the mobility industry has evolved
rapidly over the last decade, with new technologies such as
internet of things (IoT) and artificial intelligence (AI) affecting
the development of the automotive industry. Denso has invested in
multiple mobility companies including MaaS Global, a Finland-based
developer of all-in-one mobility app Whim and Bond Mobility, which
offers micromobility services. This year, Denso collaborated with
the Tokyo Institute of Technology (Tokyo Tech) to establish a
mobility research center in the Ookayama campus of the institute.
(IHS Markit Automotive Mobility's Surabhi Rajpal)
The contraction of Thailand's real GDP softened to 6.4% year on
year (y/y) in the third quarter of 2020, following a 12.1% decline
in the previous quarter. The improvement largely reflected a softer
decline in private consumption and continued increases in
government consumption. Private consumption fell by 0.6% y/y,
softening from a 6.8% y/y drop in the previous quarter. This was
largely because of improved spending on vehicles, transportation
services, and recreation and culture - reflecting the easing
containment measures and the government's stimulus measures,
including a domestic travel campaign. Government expenditure also
continued to increase, moving up 3.4% after a 1.3% rise in the
previous quarter. (IHS Markit Economist Harumi Taguchi)
Fixed investment continued to decline but the y/y contraction
narrowed to 2.4% y/y from 8.0% in the previous quarter. Investment
in construction rose by 10.7% y/y owing to increased public
investment in construction (up by 18.6% y/y) and improved private
construction, which increased by 0.3% y/y after a 2.0% y/y drop.
However, the rise in construction was offset by a 14.0% y/y drop in
private investment in machinery and equipment.
Exports fell by 23.5% y/y following a 27.8% y/y decline in the
previous quarter. The milder contraction reflected the economic
recoveries of Thailand's trade partners. However, exports were
sluggish largely because of continued declines in service exports,
reflecting border controls to contain the COVID-19 pandemic.
According to the Office of the National Economic and Social
Development Council, total revenue from tourism declined by 84.3%
as the total number of foreign inbound tourists declined by 100%
for a second consecutive quarter.
The third-quarter results were better than IHS Markit expected,
owing to a faster recovery in line with the domestic and global
resumption of economic activity and government stimulus measures.
However, the recovery is still patchy. Although the Thai economy
rebounded by 6.5% from the previous quarter on a seasonally
adjusted basis, the upward momentum of economic activity is likely
to weaken in the coming quarters.
Toyota has confirmed its plan to introduce the Toyota Mirai
hydrogen fuel-cell vehicle (FCV) in Australia. According to
CarAdvice, 20 units of the 2021 Mirai will be imported to Australia
next year, apart from 20 units of the Nexo FCV to be introduced by
Hyundai Motor in December. The vehicles, at this stage, will only
be available for lease to government agencies and select business
fleets. According to the report, the new-generation Mirai will
initially not be available for private-market buyers owing to the
lack of refueling stations in Australia. The arrival of the 40 FCVs
introduced by the world's two leading automakers in the field of
hydrogen FCVs will help raise public awareness and accelerate
infrastructure investment to support the commercialization of FCVs
in the country. The Australian government is accelerating
investments in clean energy technologies, including hydrogen energy
projects. In October, Clean Energy Finance Corporation, backed by
the Australian government, announced AUD300 million (USD219
million) of investment funding for hydrogen energy projects. The
fund will finance large-scale projects with the potential to
substantially drive down the cost of hydrogen in Australia. (IHS
Markit AutoIntelligence's Abby Chun Tu)
Australia's milk powder market will see its import duties to
China doubled under the China-Australia Free Trade Agreement
(ChAFTA), as trade relations between the two countries intensify.
(IHS Markit Food and Agricultural Commodities' Jana Sutenko)
Latest government figures show Australia sold a record amount
of WMP to China this year - enough to trigger a 10% tariff on
exports for the remainder of 2020, as expected by the Department of
Agriculture Water and Environment (DAWE).
A DAWE spokesman said the safeguard was an indication of
China's strong demand for milk powder, the country's main dairy
import category. He added: "The tariff volume for Australian milk
powder in 2020 is 22,335 tons and exports to the end of September
were 19,726 tons. Based on 2019 exports, we would see the volume
likely reached in late October or early November."
According to ABC Rural, under ChAFTA, signed in 2015,
preferential tariffs can be withdrawn once a Special Agricultural
Safeguard (SSG) is triggered. The SSG is expected, by the
Australian side, to be triggered this month, which will result in
doubling of tariffs on WMP from 5% to 10%. The safeguard has never
been triggered on Australian milk powder under ChAFTA.
According to latest trade data, China's total WMP imports in
January-September reached 501,400 tons and were worth USD1.75
billion, the highest in the past five years.
Preferential tariffs would be reinstated at the end of the
calendar year.
Despite the trade tensions accelerating for other agricultural
industries, dairy trade has so far been left unharmed between
Australia and China. However, a new Rabobank report highlights that
the dairy industry plans to become less reliant on the Chinese
market by focusing on ASEAN-6 countries. In 2019, approximately 35%
of Australian dairy exports went to China, while the southeast
Asian countries' share totaled 30%. Australia's market share in the
ASEAN-6 dairy markets has fallen over the past decade as milk
production has dropped and China has been prioritized.
Paerata Rise, a housing development currently under
construction in Auckland (New Zealand), will test an autonomous
shuttle for residents. This is a result of a partnership between
Think Robotics, Dense Air and Ohmio Automation to create the
community as a "Smart Village". Residents can hail the autonomous
shuttle ride through a smartphone app to move between facilities
such as park and the Paerata train station, which is being
developed. The shuttle is manufactured by Ohmio and the network is
deployed by Dense Air. Currently, the companies are testing the
technology and network, which is scheduled to go live in 2021.
Chris Johnston, executive director for Paerata Rise, said, "Our
goal is to be one of the most desirable places to live in Auckland
and becoming a Smart Village is an extension of this. It means we
are able to offer the utmost connection to our residents through a
private network, and the most cutting-edge technologies." Ohmio has
been trialing autonomous vehicles at Christchurch airport in New
Zealand, and plans to launch more driverless cars in more closed
facilities across the country, including airports, university
campuses, retirement villages, and hospitals. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Posted 17 November 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
