Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
European equity markets closed higher across the region, while
US and APAC markets were mixed. Most credit indices closed tighter
on the day, except for CDX IG which closed modestly wider. The
market will be closely following both Fed Chairman Powell's virtual
Jackson Hole speech tomorrow for potentially some details ahead of
the Fed's anticipated changes in monetary policy expected to be
announced next month and the US initial claims for unemployment
insurance report at 8:30am EST for signs that last week's increase
in jobless claims was only an anomaly and not a trend.
Americas
We had mistakenly stated in yesterday's Daily that Fed Chairman
Powell's speech at the virtual Jackson Hole Economic Policy
Symposium was today, but it is in fact tomorrow (Thursday).
Most US equity markets closed higher except for the Russell
2000 -0.7% and the S&P 500 reported a new record high close;
Nasdaq +1.7%, S&P 500 +1.0%, and DJIA +0.3%.
10yr US govt bonds closed +1bp/0.70% yield and 30yr bonds
closed +2bp/1.42% yield.
CDX-NAIG closed +1bp/67bps and CDX-NAHY -5bps/371bps.
Gold futures closed +1.5%/$1,952 per ounce.
Crude oil closed +0.1%/$43.39 per barrel.
The chart below shows the average bond prices as of 25 August
for the E&P, IOC, and oil services constituents maturing in
2030 or earlier (color coded by rating) in the IHS Markit iBoxx USD
High Yield Index. The data indicates that tiering by rating has
become much defined now versus March's low's and it's important to
point out that there are no longer bonds in this subindex priced
under 10-00.
8. The below chart shows the
monthly ETF in/out flows for US/Canadian oil & gas equity ETFs
in $millions. The data indicates that August is reporting $1.1
billion in outflows so far, which is the first monthly outflow for
the sector's ETFs in 2020. There have been outflows every week in
August, but the week of 3 Aug accounts for $982 million of the
month's outflows.
9. Hurricane Laura has grown into a powerful Category 4 storm
that's poised to be one of the worst ever to hit the western U.S.
Gulf, threatening to pummel the Texas-Louisiana border with deadly
storm surges, flash floods and destructive gusts that could inflict
more than $15 billion in insured losses. With peak winds forecast
to reach 145 miles (233 kilometers) per hour, the storm could be
the strongest to hit Louisiana in more than 160 years.
(Bloomberg)
10. US manufacturers' orders for durable goods rose 11.2% in
July, while shipments rose 7.3%. Orders and shipments of core
capital goods were stronger than we had assumed through July. In
response to this and other developments, we left our estimate of
second-quarter GDP growth unrevised at -31.3% and we raised our
tracking forecast of third-quarter GDP growth 0.3 percentage point
to 27.4%. (IHS Markit Economists Ben Herzon and Lawrence
Nelson)
a. The increases in orders and shipments (for total durable
goods) were the third consecutive monthly increases following sharp
declines over March and April. Over the three months since April,
orders have reversed 80% of their two-month drop and shipments have
reversed 94% of their two-month drop; i.e., both orders and
shipments of durable goods are near their pre-pandemic (February)
levels.
b. The outlook for August looks favorable as well, according to
August readings on the IHS Markit flash purchasing managers'
indexes (PMIs) for new orders and output in the manufacturing
sector. Both rose from their July levels, are within expansion
territory (above 50), and at their highest levels since early
2019.
c. We should caution, though, that several high-frequency
indicators point to a slowing in the broad recovery within July,
with some indicators improving into August and others deteriorating
into August.
d. In this vein, inventories of durable goods declined 0.5% in
July. We expect an inventory dynamic (downward pressure on
production to keep inventories in line with final sales) to weigh
on manufacturing output into the fall.
11. The Federal Reserve looks likely to keep short-term interest
rates near zero for five years or possibly more after it adopts a
new strategy for carrying out monetary policy. The new approach,
which could be unveiled as soon as next month, is likely to result
in policy makers taking a more relaxed view toward inflation, even
to the point of welcoming a modest, temporary rise above their 2%
target to make up for past shortfalls. (Bloomberg)
12. Tesla CEO Elon Musk has posted information about the
potential power capacity and life cycle of the company's batteries
in a Twitter comment. The comment increases speculation ahead of
Tesla's scheduled 22 September Battery Day event. The event had
been scheduled for 15 September, but a company announcement on 21
August moved the date to 22 September. Automotive News quotes the
Twitter post as saying, "400 Wh/kg *with* high cycle life, produced
in volume (not just a lab) is not far. Probably 3 to 4 years."
According to reports, Musk was responding to a query about why the
company continues to hint about a potential Tesla plane. According
to reports, Musk also said in 2019 that for electric flight to
work, the energy density of batteries needed to reach more than 400
Wh/kg and that that threshold could be achieved in five years. (IHS
Markit AutoIntelligence's Stephanie Brinley)
13. Waymo has started testing heavy-duty autonomous trucks in
Texas, United States, reports Forbes. The company will deploy a
fleet of 13 Peterbilt trucks on the I-10, I-20, and I-45 interstate
highways and other commercial routes between Texas and New Mexico.
Waymo said, "In addition to further advancing our trucking
capabilities, we're excited to explore how our tech might be able
to create new transportation solutions in Texas, which has a high
freight volume and is a favorable environment for deploying
autonomous vehicles." Autonomous trucks are part of Waymo's broader
business strategy, which includes testing a variety of applications
of its autonomous vehicle (AV) technology, including ride-hailing,
trucking logistics, public transportation, and licensing. The
company announced earlier this year that it will focus on AV
testing in Texas and New Mexico. (IHS Markit Automotive Mobility's
Surabhi Rajpal).
14. Evonik Industries says it is acquiring catalyst rejuvenation
firm Porocel Group (Houston, Texas) for $210 million. The purchase
price is 9.1 times adjusted EBITDA in 2019, which Evonik says "is
an attractive valuation for a high-quality asset in the catalyst
sector." The transaction will be financed by Evonik's "strong cash
position" and is expected to close by the end of 2020 subject to
approval by the relevant authorities, the company says.
a. The acquisition of Porocel significantly expands Evonik's
catalyst portfolio and especially its catalyst production
capabilities, the company says.
b. Sales of the combined catalyst business are expected to grow
to more than €500 million ($590 million) by the end of 2025 without
the need for investment in new capacities, Evonik says.
c. Porocel generated sales of approximately $100 million with an
EBITDA of about $23 million and EBITDA margin at about 23% in 2019,
which is above Evonik's target range of 18-20%, the company
says.
d. Porocel has significantly increased its EBITDA in the last
three years, driven by new product development through an expansion
of R&D capabilities, Evonik says. It has more than 300
employees worldwide and production facilities in the US, Canada,
Luxembourg, and Singapore.
e. Porocel offers a technology for rejuvenation of
desulfurization catalysts, which are in increasing demand for
producing low-sulfur fuel, Evonik says. Rejuvenation reduces CO2
emissions by more than 50% compared with the production of new
desulfurization catalysts, it says.
15. Canned tuna consumption has increased worldwide for the
first half of the year. Major global industries managed to honor
contracts while production and supply chain continuity were secured
by government policies in most of the cases. However, the second
half of the year remains uncertain given the global economic
decline in the pandemic. (IHS Markit Food and Agricultural
Commodities' Estela Cuesta)
a. Among global canned tuna markets, the US is likely to have
experienced the strongest impact because of the Covid-19 outbreak.
Customs data shows canned tuna imports rose 17% year-on-year to
nearly 130,000 tons for the January to June period, while overall
retail sales increased 30% year to date.
b. Panic buying also influenced canned tuna retail sales in the
EU, which jumped by 80% in week 11 compared with the same week of
the previous year. Demand has since stabilized at above 20%, on
average, compared with the first half of last year. In the
meantime, the foodservice channel and gourmet continue to
experience dismal sales amid the virus outbreak sanitary
restrictions.
c. As opposed to the global canned tuna trade, the fresh and
frozen tuna market has weakened in 2020, all speakers at the
Infofish webinar agreed. Independent consultant on international
fishery trade, Fatima Ferdouse highlighted demand and supply of
fresh tuna meant for sushi and sashimi consumption across the
foodservice chain has been "derailed" from the market growth seen
in recent years. Imports significantly declined in the two largest
markets, Japan and the US, because of the pandemic.
Europe/Middle East/Africa
European equity markets closed higher across the region;
Germany +1.0%, France +0.8%, Italy +0.5%, Spain +0.2%, and UK
+0.1%.
10yr European govt bonds closed mixed; Spain -2bps, Italy -1bp,
France flat, Germany +2bps, and UK +4bps.
iTraxx-Europe closed -1bp/54bps and iTraxx-Xover
-5bps/323bps.
Brent crude closed +0.7%/$46.16 per barrel.
French consumer confidence index remained unchanged between
July and August at 94, according to seasonally adjusted figures
released by the National Institute of Statistics and Economic
Studies (Institut national de la statistique et des études
économiques: INSEE). Households' fears of unemployment have eased
somewhat in August, but remain extremely high. (IHS Markit
Economist Daniel Kral)
a. This comes after a fall from 104 in February to 92 in May, an
improvement to 96 in June, and a small deterioration in July.
b. Although households' perception of future unemployment eased
somewhat compared with the June peak of 77, at 70 in August it
remains highly elevated by historical standards. Moreover, it is
significantly weaker than would be historically consistent with the
current level of the overall consumer confidence index.
c. Among the main subcomponents, between July and August the
largest change was in respondents' assessment of past consumer
prices (from -28 to -17), and expectations of unemployment (from 76
to 70). Major savings capacity and major purchases intentions both
declined by 4 points, to 5 and -19, respectively.
d. Several sub-components in August continue to significantly
deviate compared with the historical average. In particular,
expectations of unemployment are 37 points higher (70 versus 33),
expectations of standard of living are 28 points lower (-53 versus
-25), and expected savings capacity is 14 points higher (5 versus
-14).
e. The large discrepancy between the headline index and the
expectations of unemployment points to the success of the
government's current income-support measures. However, it also
highlights that households appreciate their temporary nature and
expect a rise in unemployment, which is also translating into a
higher propensity to save.
6. Chinese ride-hailing giant Didi Chuxing (DiDi) is making its
debut in Russia, its first Eurasian market, reports Caixin Global.
The company is launching the DiDi Express service in the
southwestern city Kazan, the capital and largest city of the
Russian Republic of Tatarstan. DiDi began recruiting drivers in
Russia in late July. In Russia, DiDi will compete against Yandex
Taxi, a joint venture between Russian internet giant Yandex and
Uber. DiDi is strengthening its presence in markets beyond China
and operates in Japan, Australia, Latin America, and now Russia. In
Latin America, DiDi's service is available in Brazil, Chile,
Colombia, Costa Rica, Mexico, and Panama. DiDi has over 31 million
drivers globally registered on its platform and has attracted 550
million customers who use the company's range of app-based
transportation options. This year, DiDi announced plans to achieve
800 million monthly active users globally over the next three
years. (IHS Markit Automotive Mobility's Surabhi Rajpal)
7. Engineering and technology firm ABB has launched a new
facility to produce electric vehicle (EV) charging infrastructure
in Italy, reports Daily News Egypt. A total sum of USD30 million
has been invested in the facility, which is expected to be
operational by the end of 2021. The facility spans 16,000 square
meters. ABB will produce a complete range of chargers for direct
current (DC) EV batteries including chargers for passenger cars and
public transport vehicles. Frank Mühlon, head of ABB's global
e-mobility infrastructure solutions, said, "As global demand for
sustainable transport continues to increase, this new facility will
ensure that ABB meets this demand, positioning it as the preferred
supplier of e-mobility infrastructure solutions." ABB intends to
sell EV chargers in the Egyptian market after obtaining the
government's approval. In January, Egypt announced that it is
planning to set up 3,000 fast-charging stations for EVs over the
next three years. (IHS Markit AutoIntelligence's Tarun Thakur)
8. The Tunisian economy contracted 21.6% year on year (y/y) in
the second quarter, its worst contraction ever recorded by the
Tunisian National Institute of Statistics (INS), with market
services and manufacturing leading the contraction. The INS revised
down its first-quarter contraction to -2.2% y/y from -0.5% y/y.
Please note that the numbers reported by the INS are using prices
of the previous year, and not prices from 2010 as we currently have
in our economic model; consequently, the numbers are slightly
different, but still it is a good approximation to Tunisia's
economic performance. (IHS Markit Economist Francisco Tang
Bustillos)
a. GDP significant contraction during the first and second
quarters were mainly caused by the containment measures applied in
Tunisia and abroad to tackle the COVID-19 virus outbreak. However,
constant protest in the oil and phosphate industry has also taken a
toll on the economy.
b. According to the INS's first estimate, hotels and restaurants
and transport suffered the worst contraction within all the
sectors, 77.5% y/y and 51.4% y/y, respectively. These figures show
how international borders being closed down has affected the
Tunisian tourism sector. On a related note, the Central Bank of
Tunisia (BCT) stated that tourism revenues dropped nearly 59% on an
annual basis during the first seven months of 2020.
9. The Bank of Botswana's MPC maintained the key policy rate at
4.25% during its latest meeting on 20 August. A favorable domestic
and foreign short- to medium-term inflation outlook and weak GDP
underpin the interest-rate decision. (IHS Markit Economist Archbold
Macheka)
a. Depressed domestic demand pressures, accentuated by the
COVID-19 virus containment measures, are likely to keep inflation
below the lower bound of the Bank of Botswana's objective range of
3-6% through 2021.
b. The latest consumer price index data from Statistics Botswana
show inflation was unchanged at 0.9% year on year (y/y) in July,
largely reflecting price stability in most major categories of
goods and services, as well as compensating movements in the annual
price changes of other commodity groups.
c. Upside risks to the inflation outlook noted by the central
bank come from higher-than-anticipated increases in global
commodity prices and supply-side interruptions due to
COVID-19-related travel restrictions and lockdowns. Weak global
growth, softer global oil prices, and subdued domestic demand might
see an inflation outturn lower than anticipated.
d. Domestic output is expected to contract sharply in 2020,
largely driven by COVID-19-induced containment measures, which are
curtailing economic activity and weakening global demand.
e. Revised estimates from the International Monetary Fund (IMF)
show Botswana's economy shrinking by 9.6% in 2020, before
rebounding to 8.6% growth in 2021.
f. Revised estimates by the Ministry of Finance and Economic
Development (MFED) show a GDP contraction of 8.6% in 2020, and a
recovery of 7.7% in 2021.
g. IHS Markit expects Botswana's inflation to average 2.2% in
2020 and 2.7% in 2021. We expect food prices to continue to soften,
largely reflecting favorable inflation trends in neighbor South
Africa.
Asia-Pacific
APAC equity markets closed mixed; Mainland China -1.3%,
Australia -0.7%, Japan flat, Hong Kong flat, South Korea +0.1%, and
India +0.6%.
Caixin reported on 25 August that the Chinese central
government is looking to relax the types of debt instruments that
local authorities can purchase to support smaller banks. According
to Regulation Asia, the central government is looking to allow
local authorities to purchase tier-2 capital bonds, as well as
devising a new deposit product called "bank investment contract" to
boost local authorities' deposits into smaller local banks. (IHS
Markit Banking Risk's Angus Lam)
a. The Chinese central government has previously allowed local
governments to use up to CNY200 billion (USD28.9 billion) of the
CNY3.75-trillion worth special bonds to be issued in 2020 to
purchase convertible bonds from smaller banks.
b. Recently, there has been signs of Chinese authorities
supporting local banks, such as Huishang Bank's large stake
purchase by the People's Bank of China's Deposit Insurance
Company
c. The potential expansion of the types of bonds that local
governments can purchase suggests that more supports are likely for
smaller banks, which stand to be most affected by more lending
micro, small, and medium-sized enterprises (MSMEs).
3. The China Association of Automobile Manufacturers (CAAM) has
released its first set of sales and production data for new vehicle
sales in the first half of August. (IHS Markit AutoIntelligence's
Abby Chun Tu)
a. New vehicle sales of 11 major auto manufacturers in China
fell by 4.2% year on year (y/y) during the first half of August to
939,000 units, according to CAAM.
b. New vehicle production volumes of the same group of
automakers, however, increased by 46.4% y/y during the same period.
CAAM did not release the list of auto manufacturers that had
submitted their sales and production data during the reporting
period; however, the list should contain some of the key players in
the auto market including the SAIC Motor Group, the GAC Motor
Group, and Geely Auto. The data released by CAAM comprises sales
and production results of China's major automotive groups,
accounting for more than 90% of vehicle productions and sales in
the market.
c. Given the strong results of the 11 major automakers,
production in August is likely to trend higher, supported by a
continued recovery in vehicle demand.
d. On the wholesale front, sales slowed down during the first
half of August, which will likely drag demand growth in the
passenger vehicle market during the rest of 2020.
e. IHS Markit during our August forecast round updated our
outlook for mainland China's light-vehicle market to reflect the
impact of recent government stimulus and improved consumer
sentiment. For full-year 2020, we expect light-vehicle production
volumes in mainland China to decline by 11.2% y/y to around 21.69
million units, up from a forecast decline of 12.8% y/y, given in
July.
4. Beijing's municipal authorities have announced new incentives
to accelerate the adoption of electric light commercial vehicles
(LCVs) in the city. According to a statement by the Beijing
Transportation Bureau, companies are encouraged to scrap their
gasoline (petrol) or diesel engine vans and replace these
high-emission vehicles with fully electrified light vans. As
incentives to business owners, Beijing will provide a subsidy of
CNY70,000 (USD10,130) for each electric LCV that meets certain
technical criteria under the scheme. The program will come into
effect on 1 September and run through to 31 August 2021. The
stimulus measure announced by Beijing sets an example for other
cities to facilitate the adoption of LCVs in the private sector.
The program will also benefit leading automakers in the electric
LCV market, including SAIC Motor, Great Wall Motor, BAIC Motor, and
Chery Auto. Electric LCVs, primarily consisting of electric vans
and pick-ups, only account for a small share of China's battery
electric vehicle (BEV) market. (IHS Markit AutoIntelligence's Abby
Chun Tu)
5. Chinese automotive news website iyiou.com has reported that
Tesla will open a new delivery center in Shanghai's Pudong district
in September. The facility will be located 70 km from the Tesla
Shanghai Gigafactory and will become Tesla's first vehicle delivery
facility in Shanghai. The report also indicates that Tesla is
planning to set up another delivery center in the inner city to
serve consumers in Shanghai and surrounding areas. Tesla is
expanding its service network with new showrooms and delivery
centers to keep up with the growth of new orders. The new delivery
center in Pudong will be set up as a multi-functional facility for
vehicle display, test-drive reservations, vehicle delivery, and
after-sales service, as well as a Tesla theme park. With a delivery
capacity of 200 to 300 vehicles per day, the new delivery center
will play an important role in supporting Tesla's expansion in
China's east coast cities. (IHS Markit AutoIntelligence's Abby Chun
Tu)
6. Ola Electric Mobility (Ola Electric) is planning to soon
launch its first product, an electric two-wheeler, to scale up its
operations and expand globally, reports Livemint. To achieve this,
the company intends to hire 2,000 people across various roles
including software, vehicle design, and engineering and battery
technology. Bhavish Aggarwal, co-founder and CEO of Ola, said in an
email statement, "Our aim is to build electric vehicle [EV]
products and BaaS systems for a global market and across all the
segments. We will soon be launching many new programs towards this.
To achieve this, we will be launching a large hiring initiative to
hire over 1000 engineers globally over the next quarter and another
1000 people across other functions." Ola established Ola Electric
Mobility in 2018, and the company was led by Ola executives Anand
Shah and Ankit Jain. Ola already operates its two-wheeler service,
Ola Bike, which is available in 150 Indian cities and towns. The
company announced last year that it intended to grow this business
threefold in the next year. Recently, Ola Electric acquired
Dutch-based electric two-wheeler manufacturer Etergo for an
undisclosed amount. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
7. Tata Motors Group aims to significantly reduce its
consolidated automotive net debt, excluding the company's vehicle
finance business, in the next three years, reports Business
Standard. At its 75th annual general meeting yesterday (25 August),
the company's chairman N Chandrasekaran told shareholders,
"Currently the group has a net automotive debt of INR480 billion
[USD6.4 billion] and we are deleveraging this business
substantially. The target is to bring it to near zero debt levels
in the next three years." The company seeks to focus on sharpening
the brand portfolio and enhancing sales and service experience and
sustainable mobility. The automaker also aims to "have reduced
overall investments by 50% during this fiscal year [FY], and we
will continue to manage this tightly going forward", added
Chandrasekaran. The latest measures to reduce debt and generate
free cash flow come as Tata Motors' earnings have taken a severe
hit as both its Indian business and Jaguar Land Rover (JLR), its UK
subsidiary, faced headwinds. (IHS Markit AutoIntelligence's Isha
Sharma)
8. Thailand aims to have 1.2 million electric vehicles (EVs) on
the country's roads by 2030, according to a report by Xinhua Net,
citing the country's Ministry of Energy. "We have set a goal to
have 1.2 million EV cars by 2030, and we are already building
facilities such as charging stations, electric system, and EV car
technology," said Wattanapong Kurovat, chief of the Ministry's
Energy Policy and Planning Office. The ministry is already laying
the groundwork for infrastructure and battery development for EVs.
In addition, it is studying the option of EV users selling extra
energy from their batteries to the national power grid, which will
help strengthen the country's electricity security. Thailand is
also looking at installing about 2,000 charging stations 50 km
apart nationwide. The government plans to pilot EVs first in public
transport, taxis, and government cars fleet. (IHS Markit
AutoIntelligence's Jamal Amir)
Posted 26 August 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.