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APAC equity markets closed mixed, while major US and European
indices were lower on the day. US and benchmark European government
bonds were sharply lower on the day. European iTraxx and CDX-NA
closed modestly wider across high yield, while IG was close to
unchanged on the day. Gold and copper closed higher, WTI flat, and
the US dollar, silver, and Brent were lower on the day. The energy
sector continues to be one of the top performers in the US debt
market, with BB E&P average yields now at the lowest level on
record.
Americas
US equity indices closed lower; Russell 2000 -1.7%, Nasdaq
-0.7%, and DJIA/S&P 500 -0.4%.
10yr US govt bonds closed +3bps/1.30% yield and 30yr bonds
+5bps/2.09% yield.
IHS Markit's AAA Tax-Exempt Municipal Analytics Curve (MAC)
continued to sell-off today, closing +5bps for 3yr and longer paper
and is now +11bps week-over-week for ≥4yr paper.
CDX-NAHY closed +1bp/51bps and CDX-NAHY +4bps/293bps.
DXY US dollar index closed -0.4%/90.59.
Gold closed +0.1%/$1,775 per ounce, silver -0.9%/$27.08 per
ounce, and copper +2.1%/$3.90 per pound. Copper closed at the
highest price since March 2012.
Crude oil closed flat/$61.16 per barrel.
Energy debt continues to be one of the top performing sectors
across USD investment grade and high yield every month since April
2021, with the below chart highlighting that BB rated E&P's
returning 2.67% MTD as of yesterday 17 February.
The strong performance in the US energy debt sector has
translated into the lowest BB E&P corporate bond borrowing
costs on record (4.04% as of 17 February) and the lowest B rated
average yields (8.17%) since May 2019.
Treasury Secretary Janet Yellen said that $1.9 trillion in
pandemic-relief spending is still needed, despite recent strength
in retail sales and record levels in U.S. stocks. The House is
aiming to vote Feb. 26 on President Joe Biden's stimulus plan. The
tight timeline reflects the urgency to approve another round of
stimulus payments, unemployment benefits and funding for schools
and vaccines before key elements from the last round of pandemic
aid expire on March 14. In less than four weeks, Democrats are
attempting to pass a bill out of the House and get all 50 Senate
Democrats to back the legislation. (Bloomberg)
The Federal Open Market Committee (FOMC) met virtually on 26
and 27 January to discuss monetary policy and related issues. The
decision to maintain current policy settings was unanimous: the
target for the federal funds rate was kept at a range of 0.00-0.25%
and the FOMC repeated its directive to continue purchasing
approximately $80 billion per month in Treasury securities and $40
billion per month in agency mortgage-backed securities (MBS). The
minutes reveal sentiment to better coordinate communication about
the outlook for monetary policy, including eliminating the
possibility of unintentionally sparking a tightening of financial
conditions through premature speculation about when it might be
appropriate to scale back the pace of net securities purchases by
the Federal Reserve. Policymakers expect to indicate well in
advance of the time when progress toward employment and inflation
goals will allow for a reduction in the pace of asset purchases.
The staff's assessment of financial system vulnerabilities struck a
more concerning tone than in November. (IHS Markit Economists Ken
Matheny and Chris Varvares)
Seasonally adjusted (SA) US initial claims for unemployment
insurance rose by 13,000 to 861,000 in the week ended 13 February.
The previous week's level was revised up by 55,000 from 793,000 to
848,000. The level of initial claims has increased over the last
two weeks even as COVID-19 cases have retreated from their January
highs and states have loosened business restrictions. (IHS Markit
Economist Akshat Goel)
Seasonally adjusted continuing claims (in regular state
programs), which lag initial claims by a week, fell by 64,000 to
4,494,000 in the week ended 6 February. The insured unemployment
rate remained unchanged at 3.2%.
There were 516,299 unadjusted initial claims for Pandemic
Unemployment Assistance (PUA) in the week ended 13 February, the
highest since mid-September. In the week ended 30 January,
continuing claims for PUA fell by 258,059 to 7,685,389.
In the week ended 30 January, continuing claims for Pandemic
Emergency Unemployment Compensation (PEUC) fell by 718,036 to
4,061,305. With the latest extension to 24 weeks for PEUC, eligible
recipients can receive up to 50 weeks of unemployment benefits
between the regular state programs and PEUC.
The Department of Labor provides the total number of claims for
benefits under all its programs with a two-week lag. In the week
ended 30 January, the unadjusted total fell by 1,325,567 to
18,340,161.
The trend in passenger throughput at US airports has turned up
in recent days, according to the TSA, but remains well below
year-ago levels, as air travel has yet to show signs of solid
recovery. Meanwhile, gasoline consumption turned up last week,
according to the Energy Information Administration (EIA), to the
lower end of what we consider to be a normal range. Still, it would
take further and sustained improvement to conclude that internal
mobility had recovered. (IHS Markit Economists Ben Herzon and Joel
Prakken)
US single-family permits, arguably the most important number in
this report, jumped 3.8% (plus or minus 0.9%; statistically
significant)—the ninth straight increase—to a 1.269 million
rate, the highest reading since August 2006. Single-family permits
improved in all four regions. (IHS Markit Economist Patrick
Newport)
Multifamily permits rose to a 612,000-unit annual rate, the
second highest reading in 30 years, bested only by a 671,000 spike
in June 2015. Multifamily permits spiked in the South, Northeast,
and West in January.
Total permits climbed 10.4% to a 1.881 million rate—the
highest since May 2005. Permits are quickly approaching the 2.26
million housing boom peak reached in September 2005—but it is a
stretch to think that that level will be surpassed.
Housing starts dropped 6.0% (plus or minus 16.4%, not
statistically significant) in January from a 14-year-high rate of
1.680 million. Single-family starts fell 12.2% (plus or minus
11.3%, not statistically significant) to a 1.162 million rate;
multifamily starts jumped 17.1% to a 418,000-unit rate.
Despite sizzling permits numbers, we believe that the recent
strength in the single-family market for new construction is
temporary and that housing starts will start running out of steam
in the first half of this year, dipping and stabilizing in about
two to three years at a level set by increases in the number of
households.
Bottom line: The permit estimates are more reliable than the
housing starts estimates, especially in the late and early months
of the year—February's cold spell in the South, for example,
will likely depress February's housing starts numbers and boost
those in March, but have small effects on the permits estimates.
This report was solid.
The index of US import prices jumped 1.4% month on month (m/m)
in January following a 1.0% increase in December, marking the
largest monthly increase since March 2012. The index's 12-month
growth rate turned positive, registering at 0.9%. (IHS Markit
Economist Gordon Greer)
The index of nonfuel import prices advanced 0.8% m/m in
January, while its 12-month growth rate was 2.5%.
Fuel import prices rose 7.4% in January after an upwardly
revised 8.1% increase in December. The cost of imported fuel was
down 13.4% versus January in the prior year.
Export prices increased 2.5% m/m in January, and the 12-month
growth rate was 2.3%. Monthly growth of both agricultural and
nonagricultural export prices was positive.
Nonagricultural commodities price growth came in at 2.2% m/m,
the highest monthly rate on record, and was up 1.5% versus January
in the prior year. Industrial supplies and materials export prices
advanced 6.0% m/m, the highest rate on record.
Aker Solutions has signed a FEED contract with Empire Offshore
Wind to study the design and delivery of concrete foundations for
the wind turbine generators (WTG) for the planned Empire Wind
project offshore New York, US. Aker Solutions will analyze how to
design, construct and install concrete substructures standing on
the seafloor to support the WTGs. The scope also includes analysis
of construction methods and models for marine operations to install
the structures. Aker Solutions FEED work will also involve several
U.S.-based partners and suppliers such as construction company
Kiewit Infrastructure and regulatory and permitting expert McLaren.
The FEED award for Empire Wind follows the completion of the
pre-FEED won in 2019. The work starts immediately and will be
completed by August 2021. Empire Wind is being developed by Equinor
and BP through their 50/50 strategic partnership in the US. (IHS
Markit Upstream Costs and Technology's Helge Qvam)
Life Sciences venture capital investment firm Medicxi (UK) has
launched a new company Centessa Pharmaceuticals (US) headquartered
in Massachusetts (US), with the merger of 10 biotechnology firms
with 15 highly validated programs. The unique business model brings
together best-in-class or first-in-class assets led by specialized
teams to help "reshape the traditional drug development process,"
according to the company statement. Medicxi has raised USD250
million in Series A financing, and will include the following
companies as subsidiaries: ApcinteX, Capella BioScience, Janpix,
LockBody, Morphogen-IX, Orexia Therapeutics, Palladio Biosciences,
PearlRiver Bio, Pega-One and Z Factor. Among the 15 programs within
Centessa's portfolio, four are in clinical developments (including
two in late-stage development), and 10 target diseases with a high
unmet need within oncology, hematology, immunology, inflammation,
neuroscience, and rare diseases. The unique "asset-focused"
approach will provide each team and development program with a
significant amount of autonomy to advance promising candidates with
oversight by the highly experienced Centessa management team. (IHS
Markit Life Sciences' Margaret Labban)
The US Department of Commerce (DOC) and the US International
Trade Commission (USITC) on 9 February issued a decision that
phosphate fertilizers imported from Morocco and Russia are unfairly
subsidized, and calculated a 19.97% import duty on Moroccan
phosphate company OCP Group. The US investigation began in June
2020, following a complaint of unfair competition filed by OCP's
American competitor, Mosaic Company. Mosaic accused OCP of selling
subsidized products in the US market, making US phosphate
fertilizers uncompetitive, a claim that OCP denies. The USITC
investigated eight potential subsidy programs under loans, taxes or
credits regarding four phosphate fertilizers: MAP, DAP, SSP/NSP,
and TSP. USITC is due to issue its final decision by the end of
March. The commission will confirm the import duty should it find
that the US fertilizer industry has been materially injured.
Morocco accounts for 60% of total US imports of fertilizer and the
US market represents 23% of Morocco's fertilizer exports. Although
the USITC has previously overturned decisions by the DoC's
International Trade Administration, such as in 2018 in a trade
dispute over Canadian aerospace firm Bombardier, it is unlikely to
completely reverse the Department of Commerce's conclusion. (IHS
Markit Country Risk's Jihane Boudiaf)
Waymo has expanded testing of its driverless ride-hailing
service to San Francisco (California, US). The company has been
testing its commercial driverless taxi service, Waymo One, in the
Phoenix, Arizona area since December 2018. Waymo will initially
deploy autonomous vehicles (AVs) for limited rider testing with its
employees in San Francisco to gain feedback and improve its
autonomous technology, reports VentureBeat. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
Gatik has added a fully electric-powered autonomous vehicle to
its fleet. The company has announced its electrification strategy,
which includes the use of fully electric autonomous box trucks. The
first electric models are to be used by Walmart for a pilot program
in New Orleans, United States, this month. Gautam Narang, CEO and
co-founder of Gatik, said, "Helping our customers as they meet
their ambitious emissions targets is a key pillar of our long-term
strategy. Our electric autonomous box trucks are defining a new
frontier in sustainability while continuing to offer the cost
reductions and shorter delivery times our autonomous solution is
known for." Gatik is to integrate its autonomous system into the
Ford Transit 350 HD chassis platform to support the operations of
electric autonomous services. (IHS Markit Automotive Mobility's
Surabhi Rajpal)
Autonomous vehicle (AV) LiDAR sensor manufacturer AEye is
planning to go public through a merger agreement with CF Finance
Acquisition Corp. III, a special-purpose acquisition company
(SPAC). This will bring AEye's market value to USD2 billion,
reports TechCrunch. The deal includes USD230 million of cash from
the SPAC and USD225 million of financing from private investors
including GM Ventures, Subaru-SBI, Intel Capital, Hella Ventures
and Taiwania Capital. As part of the agreement, the combined
company will be called AEye Holdings Inc. and is expected to be
publicly listed on Nasdaq. The deal is expected to be closed in the
second quarter of 2021. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
BNP Paribas has announced a new policy to help tackle
deforestation in Brazil driven by soy and beef production. The
bank, France's largest lender, committed on 15 February to only
provide financial services to companies with "strategies to achieve
zero deforestation in their production and supply chains by 2025 at
the latest". BNP said it will stop funding firms that produce or
buy beef or soybeans grown on land in the Amazon where rainforests
were cleared or converted, and that it would "encourage" its
customers not to buy or produce these same commodities in the
Cerrado, a vast tropical savanna region covering 20% of Brazil. The
bank explained that Brazilian beef and soybean production has
accelerated deforestation in these areas, which "legal or illegal,
jeopardizes the ecological integrity and future of these two
biomes". BNP said this is the first deforestation policy of a major
international bank and its initiative reflects a growing
understanding of the challenges associated with forest loss within
the financial community. (IHS Markit Food and Agricultural Policy's
Pieter Devuyst)
Volta Trucks has selected Proterra as a battery supplier for
its Volta Zero electric truck, according to a statement from
Proterra. The truck-maker is due to begin customer trials of the
Volta Zero commercial truck later this year. Volta expects to see
"tens of thousands" of its trucks on the road soon after series
production starts. The company's target for beginning production is
about 12 months after the customer trials. Proterra says its
battery will give the Volta Zero a range of about 200 kilometers,
which the supplier says is "more than enough for most inner-city
logistics and distribution vehicles". The battery pack has a
customizable design that allows it to be located between the
chassis and rails on the Volta Zero. The selection of Proterra as
battery supplier gives the US-based commercial vehicle
electrification company a foothold in the European electrified
commercial vehicle market. (IHS Markit AutoIntelligence's Stephanie
Brinley)
Europe/Middle East/Africa
European equity markets closed lower; UK -1.4%, Italy -1.1%,
Spain -0.8%, France -0.7%, and Germany -0.2%.
10yr European govt bonds closed sharply lower; Italy +7bps,
France/Spain/UK +5bps, and Germany +3bps.
iTraxx-Europe closed flat and iTraxx-Xover +3bps/250bps.
Brent crude closed -0.6%/$63.93 per barrel.
According to our February update, UK consumer price inflation
is likely to drift up to 1.4% in 2021 and 1.6% in 2022 from 0.9% in
2020. This implies the 12-month rate will climb steadily during
2021, and be close to the Bank of England's inflation target of
2.0% by the latter stages of this year. (IHS Markit Economist Raj
Badiani)
The Office for National Statistics (ONS) reports that the UK's
12-month-rate consumer price index (CPI) edged up to 0.7% in
January 2021.
During 2020, inflation averaged 0.9%, well below the Bank of
England's (BOE) target of 2.0%.
A breakdown of the inflation rate in January reveals the
continued price normalization for several consumer facing services,
namely communications (+2.2% y/y), recreation and culture (+2.6%
y/y) and education (+2.1% y/y).
Clothing and footwear prices dropped by a sharp 3.4% y/y
because of heavier than normal price discounting during the January
sales. In addition, they have fallen in 10 of the last 12 months,
which suggests that high street retailers with their physical
outlets shut are resorting to heavier online price discounting to
clear stock and bolster their financials.
Restaurant and café prices rose for the fifth straight month in
January, by 0.8% y/y, despite only being able to serve takeaways.
This was also at odds with the value-added tax (VAT) rate cut from
20% to 5% in the hospitality, accommodation, and tourist attraction
sectors from mid-July 2020.
Energy-related prices continued to slide on an annual basis,
with transport fuel and lubricant prices 8.2% lower than a year
earlier. The main lever remained lower global crude oil prices,
which fell by 25.6% y/y to average USD50.0 per barrel (pb) in
December.
A new partnership is exploring the possibility of building a
large battery manufacturing facility in the UK. According to a
statement, Coventry City Council is entering a joint venture (JV)
with Coventry Airport to develop proposals for a site that will
manufacture batteries for electric vehicles (EVs). The pair will
"develop proposals and submit an outline planning application for a
Gigafactory in 2021" which will "take place alongside regional
discussions with battery suppliers and automotive manufacturers to
secure the long-term investment needed." The statement went on to
say that the JV is set to be approved by Coventry City Council's
Cabinet at a meeting on 23 February, which will be followed by a
planning application later in the year. It added that "subject to
successful discussions with car makers and battery suppliers, a
Gigafactory at Coventry Airport could be operational by 2025." (IHS
Markit AutoIntelligence's Ian Fletcher)
Subsequent upward surprises on January's inflation rates and
the fourth-quarter-2020 initial GDP estimate have shifted the focus
to the next European Central Bank (ECB) policy meeting and press
conference on 11 March. Highlights from the meeting account include
the following (IHS Markit Economist Ken Wattret):
Incoming data, surveys, and high-frequency indicators suggested
that the decline in activity in the fourth quarter of 2020 would be
less pronounced than envisaged in the December 2020 staff
macroeconomic projections. However, the recent intensification of
the pandemic would weigh more heavily on activity in the first
quarter of 2021 than had been foreseen.
Although headline inflation was likely to increase in the
coming months owing to energy price dynamics and the end of the
temporary VAT reduction in Germany, underlying price pressures were
expected to remain muted owing to weak demand, low wage pressures,
and euro appreciation.
Financial-market developments had had a broad-based positive
effect on financial conditions in the eurozone. Sovereign real
yields had dropped, spreads had remained resilient, equity prices
had risen, and the euro had reversed its appreciation trend against
the US dollar. This was a strong vote of confidence in the ECB's
decision to focus on the duration of its policy support and on the
preservation of favorable financing conditions.
IHS Markit retains its long-held view that the ECB's monetary
policy stance is going to remain highly accommodative for a very
long time. This reflects a range of factors, including the
exceptionally large output gap following the COVID-19 virus shock,
persistent low inflation expectations, the fiscal vulnerabilities
of some eurozone member states given surging public-sector budget
deficits and precariously high debt-to-GDP ratios, and historical
ECB policy missteps.
Federal Statistics Office (FSO) data show that total German
employment in the fourth quarter of 2020 was at 44.791 million, up
mainly for seasonal reasons from the previous quarter's 44.646
million. The y/y change remained broadly steady at -1.6%; 747,000
people in absolute terms. This compares to a 1.0% average annual
gain during 2010-18, and the magnitude of the employment setback
remains much larger than the -200,000 (-0.5%) observed in
March-July 2009 due to the global financial market crisis. (IHS
Markit Economist Timo Klein)
Ford of Europe has announced a road map for moving its products
to all-electric propulsion, as well as a USD1-billion investment
into its Cologne assembly plant. Cologne will also become a center
of excellence for EV manufacturing and be renamed the Ford Cologne
Electrification Centre. The announcement follows similar all-EV
statements from other automakers recently, although Ford's
statement is focused on Europe. The target for shifting to all
battery-electric passenger cars in Europe in 2030 is
attention-getting and a stretch goal. The announcement moves beyond
regionally proposed bans on various levels of ICE vehicles to a
broader corporate shift. Presuming the shift to EV takes hold with
consumers, Ford will need to make product investment decisions with
global as well as regional needs and regulations in mind. In
addition, in January 2021, Ford announced that it was planning to
double its investment into electrified vehicles. The Cologne
announcement can be expected to be one of many in the next several
years for Ford globally. (IHS Markit AutoIntelligence's Stephanie
Brinley)
Saipem has bagged a major offshore wind construction contract
for the Courseulles-sur-Mer Offshore Wind Farm in Normandy, France.
The total value of the contract awarded by Eoliennes Offshore du
Calvados SAS (EODC) is reported at EUR 460 million (USD 554
million) and entails the design, construction, and installation
works for 64 monopile foundations and transition pieces.
Fabrication will be in Europe and installation will be with
Saipem's crane vessel Saipem 3000. The execution of the contract is
contingent on EODC making a positive final investment decision. The
wind farm is located up to 16 kilometers off the coast of the
Calvados region, in water depths ranging from 22 to 31 meters. (IHS
Markit Upstream Costs and Technology's Melvin Leong)
According to all measures, on an annual basis Sweden's headline
consumer price inflation accelerated in January 2021. The consumer
price index (CPI), which is the national definition, came in at
1.6% year on year (y/y), up from 0.5% in December 2020. According
to the EU-harmonised measure (HICP), inflation was up 1.9% y/y, up
from 0.6% y/y in December. Higher prices for food and non-alcoholic
beverages, electricity (due to much colder weather) and housing
costs all contributed to the annual upswing in inflation. (IHS
Markit Economist Daniel Kral)
Técnicas Reunidas has been awarded an EPC contract by Sasa
Polyester—a manufacturer of polymers and chemicals—for the
construction of a new petrochemical plant for the production of
purified terephtalic acid (PTA) in Adana, Turkey. The plant will
have a capacity of 1.5 million tons per year. This will be the
first PTA plant in Turkey and is part of a larger investment
program that Sasa Polyester is carrying out in the petrochemical
sector in Turkey. The value of the contract is USD935 million and
forms part of Técnicas Reunidas' goal of expanding into the PTA
market as well as increasing its presence in Turkey. (IHS Markit
Upstream Costs and Technology's William Cunningham)
Asia-Pacific
APAC equity markets closed mixed; Mainland China +0.6%,
Australia flat, Japan -0.2%, India -0.7%, South Korea -1.5%, and
Jong Kong -1.6%.
The combined sales of retail and catering enterprises rose
28.7% year on year (y/y) to CNY821 billion (USD127.27 billion)
during the Lunar New Year "Golden Week" holiday (11- 17 February
2021), according to releases from the Ministry of Commerce (MOF).
Compared with the pre-pandemic level, 2021 Lunar New Year sales
were 4.9% higher. (IHS Markit Economist Yating Xu)
New changes and trends emerged; China's online sales exceeded
CNY122 billion, with online catering sales surging 135% y/y as more
people ordered ready-to-eat meals through e-commerce or online food
delivery platforms.
A fast return to positive GDP growth, a sustained recovery
trajectory, and the government's foreign investment-facilitation
program will continue to underpin China's foreign direct investment
(FDI) inflows in 2021.
China reported real GDP growth of 2.3% for 2020 and is expected
to be the only major economy to realize economic growth during the
year; this helped China become a safe haven for multinational
investment amid the pandemic-ravaged year.
The South Korean government aims to have 7.85 million
alternative-powertrain vehicles on the country's road by 2030, in
line with its vision to go fully carbon-neutral by 2050, reports
the Yonhap News Agency. (IHS Markit AutoIntelligence's Jamal Amir)
The target will mark a sharp rise from 820,000 units tallied in
the previous year, according to the South Korean Ministry of Trade,
Industry, and Energy. The emission of greenhouse gases from
vehicles will also fall by 24% over the period.
In a bid to achieve the target, the government has made
compulsory for public organizations to purchase only alternative
powertrain vehicles starting this year, while more incentives will
be provided to the private sector.
It also plans to install at least 120 fast-charging stations
for electric vehicles (EVs) this year. Parking lots will be
obligated to have at least 10 charging booths for every 200
vehicles starting in 2022.
It also plans to expand fuel-cell electric vehicle (FCEV)
charging infrastructure in the country.
The government plans to reduce the price of alternative
powertrain vehicles by KRW10 million (USD9,025) through tax
incentives and by developing home-grown parts, in a bid to make
such vehicles more affordable.
South Korea's top financial regulator, the Financial Services
Commission (FSC), has said that it would be better to keep
SsangYong afloat as its bankruptcy would result in massive job
losses, reports the Yonhap News Agency. "It will be a demanding
task to financially support SsangYong Motor's subcontractors. It
appears to be better [for creditors] to focus on extending a
financial helping hand to SsangYong if it costs less than
expected," said FSC chairman Eun Sung-soo. SsangYong is struggling
and recorded a net loss for the 16th consecutive quarter in the
fourth quarter of 2020. The automaker filed for court receivership
on 21 December 2020 after struggling with increasing debts owing to
the COVID-19 virus pandemic. It had asked its creditors to roll
over their loans but failed to obtain their approval. (IHS Markit
AutoIntelligence's Jamal Amir)
Samsung Engineering has been awarded an EPC contract by PTT
Global Chemical Public for the Olefins 2 Modification Project (OMP)
in Thailand. Under the terms of the contract—valued at USD125
million—Samsung Engineering will construct new facilities which
will change the main composition of existing feedstock from ethane
to propane to increase propylene production. The project is
expected to be completed in 2023. (IHS Markit Upstream Costs and
Technology's William Cunningham)
Posted 18 February 2021 by Chris Fenske, Head of Fixed Income Research, Americas
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