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European equity markets closed higher across the region, while
US and APAC markets closed mixed. US and European benchmark
government bonds reversed course from the recent sell-off and were
higher across both regions today, but yields were still higher
week-over-week. European iTraxx and CDX-NA indices were modestly
tighter on the day across both IG and high yield, but all were
close to flat on the week. The US dollar, oil, and silver were
lower on the day and gold was close to unchanged.
Americas
US equity markets closed mixed; Russell 2000 +0.6%, Nasdaq
+0.4%, S&P 500 +0.3%, and DJIA -0.1%.
CDX-NAIG closed -1bp/57bps and CDX-NAHY -3bps/373bps, which is
flat and +1bp week-over-week, respectively.
DXY US dollar index was -0.2%/92.75 as of 5:30pm EST.
Gold closed flat/$1,905 per ounce and silver -0.1%/$24.68 per
ounce.
Crude oil closed -1.9%/$39.85 per barrel.
Adjusted for seasonal factors, the IHS Markit Flash U.S.
Composite PMI Output Index posted 55.5 at the start of the final
quarter of 2020, up from 54.3 in September and signaling the
fastest increase in private sector business activity since February
2019. (IHS Markit Economist Chris Williamson)
Service sector firms recorded a marked and accelerated rate of
expansion in output. Although the upturn in activity quickened, the
pace of new business growth eased slightly in October.
Slower expansions in new orders were seen among manufacturers
and service providers, with some firms stating that the ongoing
impact of the COVID-19 pandemic had weighed on demand.
Other companies noted that a number of clients were holding
back on placing orders until after the upcoming presidential
election.
The rise in new business remained solid overall and was the
second-fastest since March 2019.
The increase in foreign client demand slowed notably, as
manufacturers registered a renewed contraction in new export
orders.
Goods producers noted the increased use of discounting to
attract clients during October, with selling prices rising only
moderately.
Cost burdens rose the steepest rate since January 2019 amid
supplier shortages.
The contest for a slice of the State of New York's offshore
wind capacity saw proposal submissions from heavyweights Equinor,
Ørsted and Eversource, and Iberdrola. The request for proposal
(RFP) was released in July 2020, and closed recently on 20 October
2020. The RFP, the second raised by the New York State Energy
Research and Development Authority (NYSERDA), will add up to 2.5 GW
of offshore wind to the United State's offshore wind capacity and
will include the requirement for USD400 million in private and
public funding to develop New York's port infrastructure. Equinor
has submitted bids for its Empire Phase 2 and Beacon Wind projects
and plans to use the South Brooklyn Marine Terminal for
construction and services. The port is one of 11 qualifying ports
identified by the state. Ørsted and Eversource, through its Sunrise
Wind joint-venture company, has submitted plans for variations of
its Sunrise Wind 2 project. Iberdrola has not released any details
on its bid. Equinor was successful in the first round of bids,
landing the 816 MW Empire Wind Phase 1 project. Ørsted and
Eversource was also a beneficiary of the first round, with its
Sunrise Wind project generating 880 MW. (IHS Markit Upstream Costs
and Technology's Melvin Leong)
Revenue per available room at US hotels last week was 50.3%
below the year-ago level, according to STR. Improvement in this
measure ceased in mid-August, highlighting recent weakness in the
travel sector. (IHS Markit Economists Ben Herzon and Joel
Prakken)
Total US nonfarm payroll employment increased in 41 states and
the District of Columbia in September 2020, gaining a net 721,000
jobs from the previous month on a seasonally adjusted basis,
according to the most recent report from the US Bureau of Labor
Statistics (BLS). (IHS Markit Economist Steven Frable)
This was lower than the gain of 1.4 million jobs in August 2020
and July's increase of 1.6 million, indicating that the recovery
spurred by state reopenings is continuing to slow.
A large portion of the jobs added were in the leisure and
hospitality sector, specifically in food and accommodation
services, as restaurants and hotels around the country cautiously
reopen for business.
A look at the percentage change of total jobs from February to
September 2020 shows which state economies have fared the best or
worst since the beginning of the pandemic.
States that were hardest hit include those that were the
epicenter of the coronavirus outbreak in the Northeast,
specifically New York, New Jersey, Massachusetts, and Vermont.
Meanwhile, tourism and travel-reliant states like Hawaii and
Nevada, and heavily goods-producing Midwestern states such as
Michigan, have also sustained heavy blows.
In all of these states, September payrolls are at least 9%
below the February level.
As we expected, the states that fared the best are smaller
ones, with less dense metro areas and rural geographies that
naturally allow for social distancing, such as Utah, Idaho, and
Arizona.
Other states hit by rising caseloads in June and August, as in
the Southeast, are seeing small improvements in total employment;
many of those states experienced a more rapid rebound in May and
June, and so also are closer to returning to pre-pandemic
levels.
September is the third consecutive month of payroll growth
deceleration since reopenings began. While employment and
unemployment rates are still improving, we remain cautious as to
the strength of the rebound and do not think that conditions will
return to "normal" until there is a reliable vaccine or treatment
to control the virus.
The latest Florida Citrus Outlook Report, prepared by the
Florida Department of Citrus (FDOC), says: "The impacts of a
decades-long decline in Florida production has contributed to loss
of market access at retail, where most of Florida's processed
oranges are consumed, and a decline in total NFC distribution."
(IHS Markit Food and Agricultural Commodities' Neil Murray)
This year, the Covid-19 pandemic has changed things. "Among the
rapid changes was renewed awareness among consumers of the health
benefits associated with orange juice," says the report.
"With consumers engaging in pandemic pantry preparation, the
demand for orange juice, beginning in mid-March, surged
significantly. By the end of the season, total orange juice sales
increased by nearly 13%, compared to the previous season."
The increase in orange juice volume for the 2019-20 season
(October 2019 through September 2020) was nearly 50 million
equivalent gallons, of orange juice or roughly 8.0 million grower
boxes.
Total movement of orange juice from Florida-based processors in
2019-20 was estimated to increase by 38.8 million single strength
equivalent (SSE) gallons from last season to 685.4 million
gallons.
By the end of the 2019-20 season, Florida's ending orange
inventory was estimated to decline to 351 million gallons (or 26.6
weeks' supply) associated with a projected 6% increase in total
juice movement (FCOJ and NFC juice combined).
"As consumers indicate a renewed awareness of the health and
wellness benefits of citrus in recent months, the recovery of the
industry is crucial to meet both short-term and long-term demand,"
observes the report.
The USDA's latest forecast, released on October 9, 2020 for the
2020-21 citrus season, projects that total Florida citrus
production will decrease by 14.4% over the previous season from
73.17 million boxes to 62.6 million boxes of oranges, grapefruit,
and tangerine production. This is likely to result in more
imports.
Grower prices are projected to improve compared with the
2019-20 season, but overall returns to growers should decline with
the reduced crop and higher production costs.
The lower forecast implies Florida's juice production will
decrease from preliminary 2019-20 estimates of 365 million gallons
to an estimated 322 million SSE gallons in the 2020-21 season, for
a 12% decline in Florida pack from fruit.
At the same time, Brazil's juice production is projected to
decrease by 404 million gallons from 1.8 billion gallons in 2019-20
to 1.4 billion gallons in 2020-21.
Following the announcement of the deal with Fisker to build its
electric vehicle (EV) under contract in Austria, Magna says it is
in talks with others and would consider a North American plant to
address demand, according to media reports citing Magna president
Frank Klein. The Detroit Bureau reports that Klein confirmed Magna
is in talks with others, although he did not disclose names.
However, Klein is quoted as saying that Magna will decide within
"the next few months" whether to set up a new plant somewhere in
North America. The executive also said, however, that Magna will
not produce vehicles to sell itself. He said, "You will not see
'Magna' vehicles on the road. We have no strategy to do our own
production… Magna does have "a clear strategy to offer our services
in North America," although it would prefer to lock down firm
contracts before building a site. With apparent growth in EV
demand, "it would probably be a facility where we would build
electric vehicles," Klein is quoted as saying. Magna has not
determined if the Fisker will be produced at its Graz (Austria)
plant or a new plant being built in Slovakia. (IHS Markit
AutoIntelligence's Stephanie Brinley)
Autonomous truck startup Plus.ai has selected Amazon Web
Services (AWS) as its cloud provider. This comes as the startup
prepares for mass production of its automated vehicle system in
2021, and has received thousands of pre-orders for it. Shawn
Kerrigan, COO and co-founder at Plus.ai, said, "We are excited to
be the first autonomous trucking company to start mass production
of an automated driving system. This milestone requires close
collaboration with a number of top tier suppliers that offer the
best-in-class components and services. Specifically for compute and
storage capacity, the AWS team rose to the challenge with a
solution that matches the scale we need for our driving system that
will power thousands of automated trucks." (IHS Markit Automotive
Mobility's Surabhi Rajpal)
According to data from Argentina's National Institute of
Statistics and Census (Instituto Nacional de Estadística y Censos:
INDEC), the economic activity index decreased by 11.6% year on year
(y/y) in August. The seasonally adjusted data show a 1.1% m/m
increase during the month. The steep declines since April drove
down the average for the first eight months of 2020; the activity
index posted a 12.5% y/y decline. (IHS Markit Economist Paula
Diosquez-Rice)
By sector, the economic activity index data show mostly
declines in August. For example, there were steep declines in the
hospitality sector, which was down by 56% y/y; the construction
sector, which decreased by 32% y/y; the manufacturing sector, which
fell by 8.7% y/y; the transport and communication sector, which
dropped by 21.6% y/y; and the wholesale and retail sector, which
shrank by 3.5% y/y.
Meanwhile, Argentina's balance of trade showed a surplus of
USD584 million in September, in contrast to the USD1.7-billion
surplus registered one year earlier. Results for the first nine
months of 2020 show a trade surplus of USD11.6 billion, higher than
the USD9.5-billion surplus recorded in January-September 2019.
Customs trade imports increased in September 2020 compared with
September 2019 - the first month to post an annual rise in 2020. On
the export side, a total decrease in value by 18% y/y in September
2020 was due to a 16.3% y/y decrease in volume and a decrease of
2.0% y/y in prices; the decline was driven by the decline in
agricultural products, manufactured goods of agricultural origin,
and fuels and energy.
Europe/Middle East/Africa
European equity markets closed higher across the region; Spain
+1.4%, UK +1.3%, France +1.2%, Italy +1.1%, and Germany +0.8%.
10yr European govt bonds closed higher across the region; Italy
-4bps, Spain -2bps, and France/UK/Germany -1bp.
iTraxx-Europe closed -1bp/55bps and iTraxx-Xover -5bps/328bps,
which is +1bp week-over-week for both indices.
Brent crude closed -1.6%/$41.77 per barrel.
The flash IHS Markit Eurozone Composite PMI fell for a third
consecutive month in October, dropping from to 50.4 in September to
49.4 to register the first contraction of business activity since
June. (IHS Markit Economist Chris Williamson)
Although the index remains well above the all-time lows seen
during the height of the pandemic in the second quarter, the
renewed decline raises the possibility that the region could see
the economy contract again in the fourth quarter.
The survey revealed a tale of two economies. Manufacturing
output growth accelerated to the fastest since February 2018,
supported by inflows of new orders surging at the quickest rate
since January 2018, but service sector output fell for a second
successive month, deteriorating at the sharpest rate since
May.
If the March to May period at the height of COVID-19 lockdowns
is excluded, the latest drop in service sector output was the
steepest for eight years.
Employment was meanwhile cut across the eurozone as a whole for
an eighth successive month, though the rate of job losses moderated
further from April's record peak to the weakest since jobs began to
be cut in March. The pace of job cuts nonetheless remained higher
than at any time since June 2013 prior to the pandemic.
Looking at price trends, deflationary pressures moderated
during October. Average prices charged for goods and services fell
for an eighth month running, but the rate of decline eased to the
slowest seen over this period. Average prices charged in
manufacturing edged higher, up for the first time since June 2019,
though service sector charges continued to fall. Germany saw the
largest upturn in price pressures, with average selling prices up
for the first time since February.
Looking ahead, business expectations about the coming 12 months
slumped to the lowest since May, deteriorating in both
manufacturing and services, with the latter seeing a particularly
steep drop in sentiment. Optimism was also especially subdued in
France.
The UK government's plan to have autonomous vehicles on British
motorways has come under criticism from a group of insurers and a
research body, according to a report in the Guardian newspaper. The
UK government was planning allow vehicles with the ability to keep
in lane, accelerate and brake automatically to use their capability
up to 70 mph on M roads. However, the Association of British
Insurers and the independent Thatcham Research institute have
warned that the use of automated lane keeping systems (ALKS) should
not be classed as "automated", meaning drivers could take their
hands off the steering wheel. The automated system would
potentially need to return control to a human driver within three
seconds to avert high-speed collisions - but insurers' research
found it takes 15 seconds for the driver to be sufficiently engaged
to react to avoid a hazard, roughly 500 meters distance on a
motorway. Thatcham and the ABI are planning to lobby their safety
concerns to the government. A consultation on proposals closes next
week, ahead of potential changes to motoring legislation next year.
Matthew Avery, Thatcham's director of research said, "They haven't
thought it through and they've got it hugely wrong. From the
technology point of view, it's a small step, but from a
philosophical point of view it's a major step. What we're missing
is how consumers will react and use it." There is no doubt that
Thatcham and the ALKS raise valid points about how levels of
autonomous vehicle technology can be introduced in real world
environments. There have been a number of accidents already around
the world involving the misuse of driver assistance systems.
However, it is also a fact that a successful deployment of full
Level 5 autonomous technology will have far-reaching and grave
implications for the automotive insurance industry. (IHS Markit
AutoIntelligence's Tim Urquhart)
UK retail spending continued to recover in September after the
reopening of non-essential shops from mid-June. (IHS Markit
Economist Raj Badiani)
Some households are releasing savings accumulated during the
lockdown and working at home to fund home improvements and goods to
make their increased time at home more comfortable. In addition,
retail sales are benefiting from households spending less on
services and foreign travel.
Specifically, retail sales (including fuel sales) in volume
terms increased for the fifth straight month, rising by 1.5% month
on month (m/m) in September to stand 5.5% above their February
pre-COVID-19 virus level.
In annual terms, they were 4.7% higher than in September
2019.
The monthly gain in September 2020 was due to increased
spending for home improvements, highlighted by spending in
household goods and other goods stores increasing by 0.9% m/m and
7.3% m/m, respectively. In addition, textile, clothing, and
footwear stores reported reviving sales for the fifth straight
month, rising by 3.7% m/m. However, they remained 12.7% below their
February pre-COVID-19 virus levels.
Fuel sales volumes were still 8.6% below February because of
reduced travel as many continued to work from home in
September.
Non-store retailing fell back in volume terms during for the
third straight month in September, contracting by 1.9% m/m, but was
still 36.7% higher than the February pre-COVID-19 virus levels and
accounts for about one-third of all retail spending.
Sales on the high street, or in physical shops, rose above its
pre-lockdown levels for the first time, with spending in non-food
stores in September being 1.7% higher than the February level.
The strengthening recovery in retail sales in September was
surprising, but IHS Markit continues to assess that the immediate
outlook for retail spending remains challenging.
Sales of all German fruit juices were worth EUR3.3 billion
(USD3.8 billion) in 2019, according to recent data. This compares
with EUR3.5 billion worth of sales in 2018. German sales peaked at
EUR4.1 billion in 2008 and since then have been in slow but steady
decline, according to figures from Statistica. When inflation is
factored in, the fall is worse than the basic figures show. German
juice consumers are still not all well-informed about fruit juice,
according to a new survey from the German Fruit Juice Industry
Association (VdF). Its findings, published yesterday (22 October
2020) are that more than half think that sugar can be added to
reconstituted juice and that it does not contain 100% fruit. They
also think that colorings, preservatives and water may be added.
For these reasons they take it as the "worse" juice and 60% of
those surveyed said that they prefer NFC juice. (IHS Markit Food
and Agricultural Commodities' Neil Murray)
Plastic Omnium has announced its sales revenues during the
third quarter of 2020 have dipped. During the three months ending
30 September, the company said that its economic revenues - which
include a percentage of sales by its various joint ventures (JVs) -
slipped by 6.4% year on year (y/y) to EUR2,097 million. Revenues at
its Plastic Omnium Industries business dropped by 11.9% y/y to
EUR1,497 million while Plastic Omnium Modules improved 10.8% y/y to
EUR600 million. However, after the EUR177 million from its JVs was
taken out, an increase of 15.9% y/y, its consolidated revenues
retreated by 8.1% y/y to EUR1,920 million. Nevertheless, as a
result of the falls suffered due to the COVID-19 virus pandemic,
its year-to-date (YTD) sales revenues are significantly down. For
the nine months, economic revenues dropped by 22.2% y/y to EUR5,330
million, with a tumble suffered by both Plastic Omnium Industries
and Plastic Omnium Modules, while consolidated revenues stood at
EUR4,881 million, a decline of 23.2% y/y. Global automotive
production improved significantly during the third quarter after
the disruption during the first half of the year. However, Plastic
Omnium has made progress in some areas at an even greater rate.
According to its statement, in Europe it was helped by the
robustness of its modules business in Germany, as well as the
success in the selective catalytic reduction (SCR) systems which
led to an improvement compared to the third quarter of 2019. It was
also helped by outperforming the market in Asia. (IHS Markit
AutoIntelligence's Ian Fletcher)
Continental has said that its preliminary third quarter results
are better than expected, although impairments and restructuring
expenses have had a negative impact on EBIT for the period.
According to a company statement, revenue for the third quarter
stood at EUR10,295 billion (USD12.200 billion) which equated to an
adjusted EBIT margin of 8.1% as opposed to 5.6% at the equivalent
point last year. Actual revenue fell 2.7% year on year (y/y) after
consolidation and exchange rate effects. Automotive Technologies
revenue was EUR4.101 billion (third-quarter 2019: EUR4.673 billion)
and the adjusted EBIT margin was 2.4% down from 5.0%. Sales in the
tyre business in the quarter were down to EUR4,101 billion in
comparison to EUR4.673 billion last year. The Powertrain business
was almost identical to last year's third-quarter revenue at
EUR1,909 billion. As part of its preliminary third-quarter
financial results, Continental will book impairments of EUR649
million in the third quarter of 2020 in the Vehicle Networking and
Information business These impairments predominantly result from an
assumption by Continental that there will not be a material
increase in global light-vehicle production during the upcoming
five-year period. Additionally, restructuring expenses and asset
impairments that are part of the expanded "Transformation
2019-2029" restructuring will cost EUR687 million in the third
quarter of 2020. Continental will release definitive third-quarter
results on 11 November. (IHS Markit AutoIntelligence's Tim
Urquhart)
Banks in Czechia, Hungary, Poland, and Slovakia tightened
credit standards for corporate and household loans in the second
quarter of 2020 because of worsening economic prospects and
deteriorating creditworthiness of borrowers, according to most
recent bank lending surveys that reveal changes in lending policy
as well as changes in demand for loans. As a result of the negative
economic impact of the coronavirus disease 2019 (COVID-19)-virus
spread, private-sector credit growth slowed in all four countries
in the second quarter, despite various central bank and government
stimulus measures implemented in response to the pandemic.
Tightening of credit standards manifested in stricter collateral
requirements, smaller loan sizes, and for housing loans, a lower
loan-to-value (LTV) ratio. As financial conditions worsen, credit
risk associated with corporate and household loans has increased,
while tighter lending standards have driven the fall in demand for
credit. (IHS Markit Banking Risk's Greta Butaviciute)
Czechia - Banks have tightened credit standards for all
corporate loans, including small and medium-sized enterprises
(SMEs) and large corporations, as well as for short-and long-term
loans. In addition, banks appear to have tightened standards for
housing loans despite the Czech National Bank's measures aimed at
relaxing credit standards for mortgages, which included increasing
the recommended LTV from 80% to 90% and removing the debt-to-income
ratio from its recommendations as of April.
Hungary - Credit conditions have significantly tightened and
demand for long-term loans has decreased. The amount of outstanding
loans to the corporate sector contracted in the second quarter of
2020 compared with the previous quarter.
Poland - The majority of banks significantly tightened their
credit standards in the second quarter, while demand for loans
decreased, in particular among SMEs and individual consumers.
Lenders have experienced a fall in demand for corporate and
household loans, the former driven by subdued need for fixed
investment financing.
Slovakia - Similar to lending trends in other countries, banks
in Slovakia have tightened credit standards for both corporate and
household loans because of negative economic prospects and
deteriorating creditworthiness of borrowers. Worsening outlook for
industries most affected by the COVID-19 virus also contributed to
the tightening.
In IHS Markit's view, ongoing economic uncertainty and
deteriorating creditworthiness of borrowers are likely to lead to
banks further tightening credit conditions in the second half of
2020.
The Turkish central bank defied consensus expectations and held
its main policy interest rate unchanged at its October rate-setting
meeting. While the central bank did increase the interest rate
corridor, the lira nonetheless reflected markets' displeasure,
falling to nearly TRY1/USD8.00. The lack of a further tightening of
monetary policy will exacerbate lira instability heading into
November and further burden hard currency reserves. (IHS Markit
Economist Andrew Birch)
The Central Bank of the Republic of Turkey (TCMB) held its main
policy rate - the one-week repo rate - unchanged at 10.25% at its
22 October meeting of the Monetary Policy Committee. The Bank did,
however, lift the late liquidity rate by 100 basis points, to
14.75%.
In the press release alongside the move, the TCMB stated that
monetary policy had tightened since the last meeting, when the Bank
had raised the policy rate by 200 basis points. Tighter credit and
the higher interest rate since September, the Bank argues, have
contained inflationary expectations and will reduce inflation
risk.
Expectations of a rate rise were strong because the TCMB had
already pushed its average rate of market funding to around 12.5%.
Since late July - when the current lira depreciation began - the
TCMB began financing an increasing share of the market through the
overnight and the late-liquidity windows rather than dispensing
money at the main policy rate. This practice had pushed the average
rate of funding sharply up since late July.
The increase to the late liquidity rate suggests that the TCMB
will intensify this process, likely pushing up the rate at which it
funds the markets to 13% and higher. So, though the main policy
rate was unchanged, we do expect that monetary policy will
generally tighten over the next month. However, because it is
tightening through this "back-door" method, this tightening will
not provide stability to the lira.
Immediately after the Monetary Policy Committee meeting, the
lira tumbled, dropping by approximately 2% from the previous day,
nearly touching TRY1/USD8.00. In the days and weeks leading up to
the October meeting, the lira had actually been appreciating
against the dollar, as expectations were nearly unanimous that the
Bank would raise its main policy rate by at least 100 basis points
and, more likely by 200 basis points.
Asia-Pacific
APAC equity markets closed mixed; Mainland China -1.0%,
Australia -0.1%, Japan/South Korea +0.2%, India +0.3%, and Hong
Kong +0.5%.
The au Jibun Bank flash Composite PMI,compiled by IHS Markit
and based on 85-90% of responses received from the monthly surveys,
came in at 46.7 in October, broadly unchanged on 46.6 in September.
The index signalled a further marked decline in private sector
output across both manufacturing and services but with the rate of
decline easing marginally and the slowest since February, prior to
the escalation of the global pandemic outbreak. (IHS Markit
Economist Bernard Aw)
The latest survey data suggest that the pace of recovery is not
only slow but failing to gain momentum. The average PMI rose 14.1
points from 31.5 in the second quarter to 45.6 in the third
quarter, but stubbornly weak demand may limit the extent to which
activity rebounds in the fourth quarter.
Intakes of new business fell further in October, reflecting
subdued domestic and foreign demand due to cautious consumer
behavior, weakened firms' balance sheets and a global resurgence of
infection cases. Operating capacity also remained in surplus, as
reflected by a further rise in backlogs of work, although the
increase was the slowest for eight months.
The survey revealed some positive signs, however. First,
employment was broadly stable in October, with workforce numbers in
both manufacturing and services largely unchanged from September.
Second, business sentiment improved to the strongest for over two
years, rising especially among services firms. In fact, the level
of optimism in the service sector rose to the highest since
February 2019.
Subdued inflationary pressures persisted at the start of the
fourth quarter. Having been relatively unchanged in the past two
months, input costs rose marginally during October, but the rate of
increase, particularly in import-related expenses, was restrained
by a stronger yen.
With the recovery gradual, and facing substantial downside
risks, there would be increasing expectations of the government to
provide additional fiscal support, with the aim to provide aid to
firms and workers, as well as stimulating demand. Anecdotal
evidence from PMI survey data indicated that the government's 'Go
to Travel Campaign' had encouraged domestic travel and provided a
much-needed boost to the tourism sector which has been greatly
affected by international travel restrictions and border
controls.
Japan's CPI fell by 0.1% month on month (m/m) on a seasonally
adjusted basis in September while holding at the year-earlier
level. The CPI, excluding fresh food (core CPI), and the CPI,
excluding fresh food and energy (core-core CPI), both rose by 0.1%
m/m. However, the core CPI continued to fall, moving down 0.3% year
on year (y/y), while the core-core CPI held at the year-earlier
level. (IHS Markit Economist Harumi Taguchi)
The weaker CPI largely reflected softer fresh food prices
because of improved harvests. However, marginal softening in
deflation of the core and core-core CPIs largely reflects
improvements in accommodation fees and increases in prices of
clothes and footwear.
Japan's CPI is likely to decline as the effect of the
consumption tax increase in October 2019 drops out. Although the
resumption of economic activity will probably gradually lift
prices, deflationary pressure could continue over the near term, as
declines in wages and social distancing practices will keep
consumers cautious about spending.
Deflationary pressures could increase because of the
government's introduction of subsidy plans, which will lower
restaurant charges and event fees to some extent, and its intention
to lower mobile phone prices. Greater usage of new technology and
labor-saving automation for adopting new lifestyles could also
lower prices. Whether deflationary pressure persists or not depends
on whether these stimulus moves and technologies can boost consumer
spending and create new jobs.
Chinese electric vehicle (EV) startup NIO is planning to
develop its own computing chips for autonomous vehicle (AV)
operations, reports Gasgoo. The plan is still in a nascent stage
and is mainly driven by NIO's chairperson and CEO William Li Bin.
To support this plan, NIO has also set up an independent hardware
team internally named "Smart HW". William Bin Li had earlier
unveiled the possibility of NIO developing its own AV chips during
the Chengdu Motor Show 2020. NIO has received an AV test license
from the California Department of Motor Vehicles (DMV). The company
has developed its advanced driver assistance system (ADAS), Nio
Pilot, which is integrated with Mobileye's chip EyeQ4. The company
recently rolled out a new function to its NIO Pilot system, called
the Navigate on Pilot (NOP), which will enable vehicles to perform
certain functions, such as auto-land changing, automatically on
designated routes covered by high-resolution mapping. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
The IHS Markit Flash Australia Composite PMI, covering both
manufacturing and service sectors, rose 2.5 points from 51.1 in
September to 53.6 in October. The improvement signalled the fastest
increase in private sector output for nearly a year. This built on
the gains registered in the third quarter (which saw an average
index reading of 52.8). (IHS Markit Economist Bernard Aw)
The stronger upturn in the Australian private sector economy
coincided with a further easing of social distancing restrictions,
particularly in Victoria, which benefited the service sector in
particular.
Services business activity rose sharply in October amid greater
consumer confidence and more events permitted to be held.
Overall activity was also supported by further growth in
manufacturing production, though the rate of factory output
expansion moderated from September, in part related to delivery
delays of input materials due to logistical issues.
Worryingly, the recent increase in demand for Australian goods
and services has not been commensurate with the stronger
performance in private sector output, casting doubts on the
sustainability of the recovery.
Orders for goods and services rose for a second straight month
in October, but at a rate similar to September and one that was
only marginal overall, suggesting that consumption and investment
continued to struggle despite loosening COVID-19 curbs.
Part of the reason for subdued overall demand was linked to
weakness in the external market. Foreign sales of Australian goods
and services remained in decline for the ninth month running in
October amid border restrictions and weak demand at overseas
clients.
The absence of a robust pickup in new business saw firms'
operating capacities rarely tested.
Backlogs of work declined further in October, though at the
slowest pace for three months, hinting at excess capacity. With
capacity in surplus, firms continued to reduce their headcounts as
part of efforts to control costs and remain viable. Overall
employment fell for a ninth straight month, with lower workforce
numbers seen across both manufacturing and services, with the
former cutting jobs again after a modest rise in September.
Suppliers continued to struggle to make timely deliveries at
the start of the fourth quarter, with workers' strikes at ports
contributing to logistical delays. Average lead times lengthened to
the greatest extent seen since the record rates of April and May at
the height of the pandemic.
The delay in receiving manufacturing inputs has had an impact
on production, with some respondents highlighting that output was
reduced due to insufficient materials. A lack of improvement in
supply chains in the coming months could further dampen factory
production.
Australian private sector firms meanwhile faced a further
increase in input costs during October, with services reporting a
sharper rate of input price inflation. A larger wage bill due to
reduced government subsidies, alongside greater costs of raw
materials and increased freight fees, all pushed expenses
higher.
Goods producers were able to pass some of the rise in costs on
to their customers, with factory gate prices rising at the fastest
rate for seven months. In contrast, services providers had to
absorb higher expenses and, in some cases, even provide discounts
to stimulate sales amid subdued demand.
We expect the recovery in the Australian economy to continue in
the fourth quarter, though the extent of economic growth relies
heavily on demand reviving. Much will in turn depend on whether
social distancing measures can be loosened further, and border
restrictions relaxed. The October survey indicated the strongest
business sentiment for just over two years, underpinned by
expectations of the economy opening up further in coming
months.
Tesla has increased the cost of using a supercharger in
Australia by almost 25% in October, according to Car Advice.
According to the report, the cost of supercharging a Model 3 long
range vehicle from 0 to 100% has increased from around AUD35 last
month to AUD43.3 this month. Tesla had recently cut the price of
its Model 3 in Australia by as much as AUD7,000. The increase in
cost of supercharging the vehicles by almost 25% is likely to
negate the positive impact of the price reduction to some extent.
The increase in running cost due to more expensive charging is
still cheaper than the running cost of most comparable internal
combustion engine cars. Tesla sold 1,948 vehicles in Australia in
2019 and is expected to sell 2,300 units this year, according to
IHS Markit's light-vehicle sales data. (IHS Markit
AutoIntelligence's Nitin Budhiraja)
All new cars sold in Australia may soon be required to include
an autonomous emergency braking (AEB) system as standard, according
to a recent federal government proposal to reduce road trauma
caused by light vehicles, reports Car Advice. Until now, AEB
systems were voluntary for automakers complying with Australian
Design Rule (ADR) guidelines. In a Regulation Impact Statement
issued in October 2020, the government proposed introducing a new
ADR) mandating car-to-car and pedestrian-detecting AEB systems on
all new-generation models from July 2022, and on all new cars from
July 2024. Automakers and authorities globally are focusing on
increasing active safety technologies and devices in vehicles to
reduce accidents and help protect occupants. AEB systems
automatically apply the brakes on a car if they detect a potential
collision with another vehicle, pedestrian or cyclist. Tony Weber,
the chief executive of the Federal Chamber of Automotive Industries
(FCAI), said, "Australian Government figures indicate that around
66 % of all new passenger, SUV and light commercial vehicles sold
in Australia have AEB fitted." (IHS Markit AutoIntelligence's Nitin
Budhiraja)
Ride-hailing firm Grab said its third-quarter group revenue has
reached more than 95% of pre-COVID-19 pandemic levels, reports
Reuters. Ming Maa, president of Grab, said, "Our business recovery
continues steadily, with Q3 group revenues climbing to over 95% of
pre-COVID-19 levels. Having laid this foundation, we will focus on
expanding our financial services and merchant services business
through the rest of the year and beyond". Maa also said demand for
its food delivery service has increased, and this business now
generates more than 50% of Grab's revenue. Since the start of the
pandemic, Grab added food delivery and insurance services to its
platform. This year, Grab laid off 360 employees, representing 5%
of its total workforce, owing to the pandemic. Grab is focusing on
expanding its range of services, from transport to food delivery
and payments, and making aggressive efforts to expand. The company
recently raised USD200 million in funding from South Korean private
equity firm STIC Investments. Grab's app has been downloaded on 166
million devices and it processes more than 6 million ride orders
per day. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Indian biopharmaceutical company Biocon has posted a 22%
year-on-year (y/y) drop in consolidated net profit to USD1.69
billion (USD22.946 million) for the second quarter ended September
2020, due to higher costs. According to India's Business Standard,
the net profit fall was recorded despite a 10% y/y rise in revenue
to INR17.6 billion. The profit decline is attributed to higher
research & development (R&D) expenditure, staff costs,
foreign exchange losses, and other expenses. The company
particularly highlighted investment in COVID-19 pandemic-related
product development. Kiran Mazumdar-Shaw, the company's executive
chairperson, said "As part of our commitment to address the novel
coronavirus pandemic in India, the Biocon group is working on a
comprehensive portfolio of products for treating mild to severely
ill COVID-19 patients." The company has launched Araflu, a branded
generic version of favipiravir (Avigan; Fujifilm Toyama Chemical,
Japan), as an emergency treatment for mild-to-moderate cases of
COVID-19. It has also increased production of its CytoSorb
extracorporeal blood purification (EBP) product after it received
regulatory approval in India for emergency use to reduce
pro-inflammatory cytokines levels in confirmed COVID-19 patients,
as well as production of its novel monoclonal antibody Alzumab
(itolizumab), which has received emergency approval in India as a
treatment for cytokine release syndrome (CRS) in patients with
moderate-to-severe acute respiratory distress syndrome (ARDS) due
to COVID-19. Biocon's contract research arm Syngene has also
started manufacturing remdesivir under a voluntary licensing
agreement with Gilead (US), for the emergency treatment of COVID-19
patients. The second quarter profit fall highlights increased costs
and expenditure, including outlays for ramping up production of
re-purposed medicines in the emergency treatment of COVID-19. The
longer-term viability of these investments remains to be seen, with
global demand for remdesivir likely to be dampened by a World
Health Organization (WHO) study that concluded the drug did not
have a substantial effect on survival and hospitalization rates.
(IHS Markit Life Sciences' Sacha Baggili)
Posted 23 October 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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