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Most APAC and all US equity markets closing higher today, with
US equities reporting the best quarterly performance since 1998.
Most European equity markets and oil closed modestly lower, while
iTraxx and CDX IG/HY all ended the day tighter. Also noteworthy, is
gold breaching $1,800 per ounce for the first time since 2011 and
5yr US government bonds coming close to breaching a new record low
yield. As we enter the new quarter, all eyes are now focused on
Thursday's US June non-farm payroll and weekly jobless claims
reports.
Americas
US equity markets closed higher, with another small surge
(similar to yesterday) occurring shortly before the end of the
trading session; Nasdaq +1.9%, S&P +1.5%, Russell 2000 +1.4%,
and DJIA +0.9%. The Nasdaq ended the quarter at +31%, S&P 500
+20%, and DJIA +18%, which is the US equity market's best quarterly
performance since Q4 1998.
10yr US govt bonds closed +3bps/0.65% yield. 5yr US govt bonds
closed +2bps/0.29% yield, but earlier in the day came close to
breaching the all-time intraday low yield of 0.26%.
Gold futures closed at +1.1%/$1800 per ounce and were as high
as $1,804 per ounce at 11:27am EST, breaching $1,800 for the first
time since September 2011.
CDX-NAIG closed -3bps/76bps and CDX-NAHY -20bps/516bps.
Crude oil closed -1.1%/$39.27 per barrel.
The US Conference Board Consumer Confidence Index jumped 12.2
points (14.2%) to 98.1 in June, remaining well beneath its
pre-pandemic level. With a survey cutoff date of 18 June, the
reading likely does not fully reflect renewed concerns around the
resurgence of the COVID-19 pandemic, which we expect to weigh on
economic growth and breed considerable uncertainty about the
outlook for some time. (IHS Markit Economists David Deull and James
Bohnaker)
The present situation index advanced 17.8 points to 86.2,
nearly twice the increase seen in the expectations index, which
gained 8.4 points to 106.0.
The expectations index has been stable during the pandemic and
as of June was well above its 2019 average—a marked contrast
from the Great Recession, when the index of expectations plunged by
more than half and remained beneath its prior peak for years. This
stability is a function of the speed of the current downturn and
indicates that consumers expect a recovery to take hold more
quickly than in the prior episode.
The labor index (the percentage of respondents viewing jobs as
plentiful minus the percentage viewing jobs as hard to get)
improved, increasing 9.7 points to ‑3.0. It had registered 32.6 in
February.
The net percent of respondents expecting business conditions to
improve in six months rose 5.3 percentage points to 27.3%, the
highest since 1984. A net 24.2% expected employment conditions to
improve, the most on record in data beginning in 1967. However, the
net share of respondents expecting higher incomes inched up only
1.5 points to 0.7%.
Purchasing plans were mixed in June. The share of respondents
planning to buy autos in the next six months increased 0.4
percentage point to 11.7%, and the share planning to buy homes
increased 0.5 point to 6.5%. The share planning to buy major
appliances fell 1.0 point to 45.5%.
Vacation plans within six months were still deeply depressed at
33.0% in June, having increased only 1.2 percentage points since
April. The share planning to travel by airplane fell even further,
to 15.7%.
S&P CoreLogic Case-Shiller composites reported little
impact to price appreciation from COVID-19. Data in April were
again limited to only 19 cities as opposed to 20 under normal
circumstances. Data for Wayne County, Michigan, were unavailable
and as a result, there are no data for Detroit in this release.
(IHS Markit Economist Troy Walters)
Both the 10-city and 20-city composite indices were up 0.3%
month over month (m/m).
Home prices were up month on month in 16 of the 19 cities
reported. Increases ranged from 0.1% in Dallas and Washington DC to
1.3% in Cleveland. Prices fell in Seattle (down 0.1% m/m) and
Portland (down 0.2% m/m) while San Francisco was flat.
On an annual basis, home price growth was up slightly or steady
in April. The 10-city index was up 3.4% year on year (y/y),
unchanged from the previous month. The 20-city index was up 4.0%
y/y, slightly faster than March.
Prices in April were higher than one year earlier in all of the
cities covered. Phoenix, accelerating to 8.8% y/y, remained the
growth leader. Seattle remained in second place at 7.3% y/y.
Minneapolis followed at 6.4%. Chicago remained the slowest-growing
market at 1.4% y/y.
Growth in the national index accelerated again in April, this
time to 4.7% y/y.
The level of corn and wheat on hand as of June 1 came in above
expectations, reflecting downturns in usage in the March-May
period, according to USDA's Grain Stocks report. (IHS Markit Food
and Agricultural Commodities' Roger Bernard)
USDA said that 3.03 billion bushels were stored on farms, up 3%
from year-ago, while off-farm stocks were at 2.20 billion bushels,
down 2% from June 1, 2019. The figures reflected higher stocks
compared with June 2019 in Iowa, Minnesota and Nebraska which more
than offset the reductions in stocks in Illinois and Indiana. The
implied disappearance for March-May was 2.73 billion bushels,
marked a sharp reduction from 3.41 billion bushels used during the
same quarter in 2019. That likely reflects in large part the sharp
reduction in US ethanol production during that period.
USDA said that 1.386 billion bushels of soybeans were present
on June 1, down 22.3% from year ago, and just under expectations
there would be 1.392 billion bushels on hand. On-farm stocks were
at 633 million bushels, down 13.3% from year ago, while off-farm
supplies were at 753 million bushels, down 28.5% from year ago. The
implied disappearance for the March-May quarter was 869 million
bushels, an 8% reduction from the year-ago quarter.
The level of wheat stocks on June 1 totaled 1.044 billion
bushels, down from 1.08 billion in 2019, but above expectations
there would be 980 million bushels on hand. Farmers are holding
more supplies than year ago, with on farm stocks of 232 million
bushels, up 12.3% from June 1, 2019, while off-farm holdings were
812 million bushels, down 7% from year ago. Of the top five states,
only Oklahoma reported smaller stocks on had compared with year
ago. Implied disappearance for March-May was 372 million bushels,
down a sharp 28% from the same period in 2019.
Nikola opened the order books for its upcoming Badger electric
pick-up truck on 29 June, taking USD5,000 refundable deposits.
Nikola announced the Badger earlier this year (see United States:
12 February 2020: Nikola announces plans for electric pick-up
truck). Nikola says it is accepting pre-orders for either the
battery electric vehicle (BEV) version or the fuel-cell hydrogen
electric vehicle (FCEV) version. The BEV version is expected to
have a range of 300 miles and the FCEV version a range of 600
miles. In a statement, company founder and executive chairman
Trevor Milton said, "The technology on the Badger is next to none;
it has one of the most advanced powertrains and infotainment
systems on the market. The features include over-the-air updates,
keyless entry, independent torque control of every wheel, 906 HP,
980 ft. lbs. of torque, 15 kilowatt power export with 220V and
110V, tie-down tracks inside the truck for cargo, hidden
refrigerator, up to 600 miles of range, and waterproof displays.
You couldn't dream of building a better pickup truck than the
Badger and we offer it in both fuel cell and battery-electric
options." Nikola has previously announced that the Badger electric
truck will be produced in partnership with another OEM. On 29 June,
the company confirmed that it would announce the OEM deal prior to
the Nikola World event to be held on 3-5 December 2020. (IHS Markit
AutoIntelligence's Stephanie Brinley)
Gilead Sciences (US) has announced the Wholesale Acquisition
Cost (WAC) price of remdesivir, set at around USD3,200 for a
five-day course of treatment (6.25 vials on average). Factoring in
government discounts, US federal programs as well as other
"developed countries" where remdesivir is authorized for use would
be expected to pay USD2,340 for a five-day course of treatment
(USD390 per vial). Gilead noted that this price ensures
affordability for those developed countries "with the lowest
purchasing power" and eliminates the need for country-by-country
pricing negotiations. This price lies in-between the Institute for
Clinical and Economic Review (ICER)'s two benchmarks: the
traditional cost-effectiveness benchmark (USD4,580-5,080), and the
cost-recovery price taking into account research and development
(R&D) costs (USD1,010-1,600). (IHS Markit Life Science's
Margaret Labban)
Autonomous vehicle (AV) sensor maker Velodyne Lidar is
reportedly in talks to go public through a reverse merger. Velodyne
plans to merge with Graf Industrial, a blank-check company, helping
the AV sensor maker to conduct an initial public offering (IPO),
reports Bloomberg. Merging with a blank-check company has become a
common way for companies to go public during the COVID-19 pandemic,
which has battered automotive businesses. Graf Industrial raised
USD225 million in an IPO in 2018. Velodyne is one of the pioneers
of LiDAR solutions for advanced driver assistance systems (ADAS)
and autonomous driving applications. LIDAR sensors are necessary
for autonomous driving as they measure distance via pulses of laser
light and generate 3D maps of the world around them. The company's
technology is used by automakers including Mercedes-Benz AG and
Ford Motor Company. Last year, there were reports that Velodyne had
hired bankers for a potential IPO, seeking to surpass its last
private valuation of USD1.8 billion. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
Ford has announced the 'Ford Promise' program allowing
customers to return a vehicle in the event of job loss within one
year of purchase. Ford says that, under the Ford Promise program,
customers who lose their job within one year of the purchase or
lease of a vehicle and choose to return it to Ford will be covered
for up to USD15,000 of the balance outstanding. Ford intends this
amount to cover any value loss and encourage consumers to purchase
a vehicle despite economic uncertainty. Ford says the enrolment
period for the program runs through 30 September 2020. Ford is to
run an advertising campaign to raise awareness of the program. In a
statement, Ford US marketing, sales and service head Mark LaNeve
said, "We feel like right now, the economy is at the stage of
recovery where people want things to be back to normal, they want
to buy, but they're still a little nervous about what the future
holds. We want them to know we understand that, and we're here to
support them in their buying decisions." To qualify for the
program, a customer must lease or purchase a vehicle through Ford
Credit, which will reduce the customer's outstanding balance based
on the average trade-in value set by the National Automobile
Dealers' Association, and waive an additional USD15,000. (IHS
Markit AutoIntelligence's Stephanie Brinley)
Canada's real GDP by industry output decreased 11.6% month on
month (m/m) in April, an all-time low pace as output across all
industries was lower and near the 11.0% Statistics Canada flash
estimate. (IHS Markit Economist Arlene Kish)
This time, output in the goods-producing industries (down 17.0%
m/m) declined at a much faster pace than that in the
services-producing industry (down 9.7% m/m).
Industrial production output plunged 16.1% m/m, as
manufacturing retreated 22.5% m/m.
The real GDP by industry output decline in March was revised
down 0.3 percentage point to -7.5% m/m.
April was the first full month measuring the negative impact of
the coronavirus disease 2019 (COVID-19) virus and likely marks the
bottom as reopening plans began in May. The expected second-quarter
real GDP decline will be significant, falling over 30% quarter on
quarter, annualized.
Paraguay's GDP growth of 3.5% year on year (y/y) in the first
quarter of 2020 was on a low base of comparison, as the economy
contracted by 2.7% y/y in the corresponding quarter of 2019. The
key supporters of growth in the first quarter of 2020 were
agriculture, thanks to a solid rebound in soybean production, and
construction due to the completion of public-works projects and
good weather. (IHS Markit Economist Ellie Vorhaben)
Private consumption, investment, and government spending
supported the economy. Net exports were a drag on growth - despite
solid soybean production, weak prices and demand undermined export
revenue.
On 29 June, the government updated its Economic Reactivation
Plan by increasing planned spending to USD2.5 billion, or 7% of GDP
(previous fiscal stimulus measures amounted to 4% of GDP). Of this
spending, USD2.15 billion will be raised through reallocations from
different parts of the budget, while USD350 million in new debt
will be issued.
The plan includes up to four payments of PYG500,000 (about
USD74) for those who are unemployed between August and December
2020.
The soybean crop is expected to grow to 10.5 million tons in
2020, compared with 8.5 million tons in 2019. Countering this
positive growth forecast are lower prices, which are set to fall by
4.3% on average in 2020; additionally, demand from key trading
partners will be weaker as the region falls into recession.
Europe/Middle East/ Africa
European equity markets closed lower except for Germany +0.6%;
UK -0.9%, Spain -0.6%, Italy -0.4%, and France -0.2%.
Most 10yr European government bonds closed lower except for
Italy -4bps; Germany +2bps and Spain/France/UK +1bp.
iTraxx-Europe closed -4bps/67bps and iTraxx-Xover
-14bps/383bps.
Brent crude closed -1.4%/$41.27 per barrel.
Authorities in Denmark recently ordered a cull of mink after
outbreaks of the COVID-19 virus on two farms. The Ministry of
Environment and Food of Denmark first alerted the OIE to a
SARS-CoV-2 outbreak on a mink farm in Northern Jutland on June 17.
This marked the country's first confirmed case of virus infection
in animals. Animals on the farm had no symptoms and there was no
report of increased mortality. Samples were taken from the animals
because the Danish Veterinary and Food Administration had been
informed about a person with contact to the farm who had tested
positive for COVID-19. Mink at another farm in the same region also
later tested positive. These outbreaks have led to precautionary
culls of the animals and the launch of a new screening program. The
screening program will apply to 120 mink herds across the country.
It will aim to determine whether initial findings were isolated
cases or whether there has been widespread infection among mink
herds. (IHS Markit Animal Health's Sian Lazell)
The headline rate of HICP inflation in the eurozone edged up
from 0.1% to 0.3% in June according to Eurostat's flash estimate,
the first acceleration in five months. This is in line with the
signals from member states' data that have been released in the
past few days. (IHS Markit Economist Ken Wattret)
The first rise in the inflation rate for energy since January
was the main reason for the pick-up (see table and first chart
below), primarily reflecting the rise in oil prices since late
April. Energy inflation remained deeply negative nonetheless
(-9.4%), keeping the overall inflation rate well below the ECB's
below but close to 2% objective.
While the inflation rate for unprocessed food moderated for the
second straight month in June, it remained relatively elevated at
5.9%.
The inflation rate excluding food, energy, alcohol and tobacco
prices weakened again in June, slipping from 0.9% to 0.8%, its
lowest level since May 2019 and uncomfortably close to its record
low of 0.6% recorded in early 2015 when the ECB was compelled to
launch its Asset Purchase Programme.
Notably, services inflation decelerated again, to 1.2%, well
down on the recent peak of 1.9% in November 2019, while non-energy
goods inflation was flat at just 0.2%.
According to the United Kingdom's Office for National
Statistic's (ONS) second estimate, the UK economy shrunk by 2.2%
quarter on quarter (q/q) in the first quarter, the sharpest decline
since the third quarter of 1979. This was a downward revision of
0.2 percentage point from the first estimate. (IHS Markit Economist
Raj Badiani)
In addition, real GDP contracted by 1.7% year on year (y/y) in
the first quarter, the biggest fall since the end of 2009.
Consumer spending bore the brunt of squeezed activity during
the first quarter, falling by 2.9% q/q, revised down from the
initially reported 1.7% q/q drop.
The drop in consumer spending was catastrophic since the
fully-enforced lockdown was in place for only seven working days
during the first quarter.
The ONS reported large falls in spending on transport,
restaurants and hotels, and clothing and footwear.
However, there were pockets of improved demand, namely for food
and drink, alcohol and tobacco, and televisions and audio-visual
equipment.
Households' saving ratio increased to 8.6% in the first quarter
of 2020, a significant step-up from 6.6% at end-2019.
Fixed capital formation fell for a second successive quarter,
declining by 1.1% q/q in the first quarter because of weaker
investment in dwellings as well as government investment.
Business investment fell by 0.3% q/q in the first quarter,
gaining some initial traction from the decisive general election
outcome in December 2019 before being pushed back by the
COVID-19-virus crisis "halting investment plans and retaining cash
buffers, in particular in retail, leisure, travel and
hospitality".
Service-sector output in the first quarter posted its sharpest
quarterly fall on record (see table below). Meanwhile, production
output also tumbled, in line with shrinking manufacturing activity.
Construction output was badly affected by the imposition of the
anti-contagion measures, resulting in a very sharp drop in
March.
More worryingly, the ONS reports deeper GDP losses in April
(published on 12 June) after the emergency quarantine and
social-distancing measures were in place for the whole month to
tackle the COVID-19-virus outbreak. The ONS reports that real GDP
fell by 20.4% month on month (m/m) in April, the largest drop since
the monthly series began in 1997 after falls of 5.8% m/m in March
and 0.2% m/m in February. In annual terms, the economy in April was
24.4% smaller compared with a year earlier.
Consumption of goods in France jumped by 36.6% month on month
(m/m) in May, according to figures published by the National
Institute of Statistics and Economic Studies (Institut national de
la statistique et des études économiques: INSEE). May's rebound
follows declines of 16.0% m/m in March and 19.1% m/m in April. (IHS
Markit Economist Diego Iscaro)
Households' consumption of goods remains 7.2% below its
pre-coronavirus disease 2019 (COVID-19) virus level in February. On
a year-on-year (y/y) basis, it still declined by 8.3% in May.
The m/m rebound in May was boosted by consumption of items that
had been particularly hit during March and April, when a strict
lockdown was in place (the restrictions started to be relaxed on 11
May).
Consumption of durables rose by 162.1% (following falls of
43.8% in March and 44.9% in April), driven by higher sales of
transport equipment (+219.1% m/m; after declines of 52.1% m/m and
51.0% m/m) and household durables (+138.8% m/m; following falls of
-31.7% m/m and -38.7% m/m).
Energy production, which fell by 11.3% in March and by 24.3%
m/m in April, also rebounded by 27.6% m/m. Consumption of food
products rose by 0.6% m/m in May, which was boosted during the
lockdown as restaurants remained closed for dine-in customers until
early June.
With the exception of food and household durables, consumptions
of all other goods remained well below their February levels
French global automotive supplier Faurecia has warned that its
sales in the second quarter will fall by around half as a result of
the impact of the COVID-19 virus. According to a statement, its
chief executive Patrick Koller made the announcement at the
supplier's annual shareholders meeting held yesterday (29 June). He
noted that the low point was April, stating that it was "a month
severely affected by the lockdowns in Europe and North America, at
a time when China was only just beginning its recovery." Along with
the 19.7% year-on-year (y/y) decline in sales suffered in the first
quarter at constant scope and currency, it now forecasts that sales
in the six-month period could fall by around 35% y/y. (IHS Markit
AutoIntelligence's Ian Fletcher)
In South Africa's supplementary budget delivered on 24 June,
Finance Minister Tito Mboweni announced plans to cut public
spending in fiscal year 2020/21 by more than USD13.2 billion. This
is in addition to a USD14.9 billion cut announced in February, of
which USD9.1 billion is to come from reduced public-sector wages in
2020-22. Although no strikes are currently ongoing due to the
country's COVID-19 lockdown restrictions, the easing of
restrictions on social gatherings, together with existing wage
grievances between government and unions, will raise the likelihood
of strikes. (IHS Markit Country Risk's Langelihle Malimela)
IHS Markit expects South Africa's GDP to decline by 8% in 2020,
significantly lowering government revenues and likely resulting in
increased borrowing. This places further pressure on government to
lower the public-sector wage bill, which makes up a third of the
state's expenditure.
The spending cuts increase the likelihood of widespread
protests across the public sector from July 2020. The current
three-year public-sector wage agreement expires at the end of March
2021 and unions are likely to call for protests to pressure
government to agree to an above-inflation increase commencing in
April 2021.
Although strikes are likely to be peaceful, some members of
communities with reduced food supply due to the impact of the
COVID-19-pandemic restrictions are likely to seek to take advantage
of the strikes and engage in isolated looting of local
supermarkets.
The government's planned borrowing of USD7 billion is likely to
be channeled towards its COVID-19 response, further raising concern
among public-sector workers and unions that funds will not be
available for salaries.
BMW has announced it has opened the Additive Manufacturing
Campus on the outskirts of Munich, according to a company
statement. The new center brings together production of prototypes
and series parts in one location, along with research into new 3D
printing technologies, and associate training for the global
rollout of toolless production. Investment in the campus, which
will specialize in manufacturing components with the latest
technologies as well as researching new manufacturing techniques,
has come in at EUR15 million. A major focus of the Additive
Manufacturing Campus will be research into scaling 3D printing
production techniques. BMW is looking to use the technology to
streamline component production for series development while also
benefiting from improvements in R&D lead times. (IHS Markit
AutoIntelligence's Tim Urquhart)
The Austrian government will join the French and German
administrations in Europe in offering incentive programs to promote
the purchase of electric vehicles (EVs) as a stimulus package to
help with economic recovery in the wake of the COVID-19 virus
outbreak. According to a Reuters report, Economy Minister Leonore
Gewessler said in a news conference that the government would offer
EUR5,000 towards the purchase of an EV. (IHS Markit
AutoIntelligence's Tim Urquhart)
Asia-Pacific
Most APAC equity markets closed higher except for India -0.1%;
Australia +1.4%, Japan +1.3%, China +0.8%, South Korea +0.7%, and
Hong Kong +0.5%.
Japan's Index of Industrial Production (IIP) fell by 8.4% month
on month (m/m) in May following a 9.8% m/m decline in April. (IHS
Markit Economist Harumi Taguchi)
While manufacturers' shipments also fell by 8.4% m/m, continued
sizeable drops in production contributed to a second straight month
of decrease in inventory (down 2.5% m/m); however, the historical
low level of shipments boosted the index of inventory ratio (up
6.9% m/m), breaking the highest level recorded in May.
Although a major factor behind the fourth consecutive monthly
contraction in production remained a sizeable decline in the
production of autos (down 23.1% m/m), the negative effects of
containment measures in Japan and the country's trade partners
suppressed production deeply in a broader range of industry
groupings, particularly for auto-related production (iron and
steel, rubber products, and general-purpose machinery) and
information technology-related production (semiconductor production
machinery, electronic parts and devices, and information and
communication electronic equipment).
The fall in inventory largely reflected destocking in autos,
iron and steel, and production machinery, but the inventory ratio
increased in a broad range of industry groupings because demand
remained weak.
The May results were weaker than what IHS Markit had expected,
suggesting a steeper contraction of real GDP growth in the second
quarter of 2020 than current forecasts.
Japan's unemployment rate increased to 2.9% in May 2020 from
2.6% in April 2020, reaching the highest level since May 2017. (IHS
Markit Economist Harumi Taguchi)
The rising unemployment rate reflected continued severe
business conditions, particularly for workers in accommodations and
drinking and eating services, wholesale and retail stores, and
life-related services and amusement, despite reopenings following
the lifting of a state of emergency in late May. While lower
employment figures for non-regular workers were the major factor
behind a rise in the unemployment rate, the number of regular
workers employed declined by 10,000 from a year earlier for the
first fall in eight months.
The severe business conditions also lowered the ratio of active
job openings to active job applications to 1.20 in May from 1.32 in
April, reflecting a continued decrease in effective job openings
(down 8.6% month on month [m/m]), while effective job applications
rose by 0.7% m/m.
Although the ratio of new openings to new applications improved
to 1.88 in May 2020 from 1.85 in April 2020, new openings fell by
32.1% year on year (y/y), which is the sharpest decline since May
2009, largely driven by decreases in accommodation and drinking and
eating services, life-related services and amusement,
manufacturing, wholesale and retail, and other services.
Although the slight improvement in the ratio of new openings to
new applications could be an early sign of a bottom for the
contraction of labor demand, labor conditions are likely to remain
sluggish, reflecting the gradual easing of containment measures and
social distancing guidelines.
According to figures released by the Japan Automobile
Manufacturers Association (JAMA) today (30 June), Japanese vehicle
production experienced a sharp decline of 46.2% year on year (y/y)
to 438,770 units during April mainly because the COVID-19 virus
outbreak affected automakers' production operations. (IHS Markit
AutoIntelligence's Isha Sharma)
Output in the passenger car category reached 359,403 units
during the month, down by 48.6% y/y.
Within the passenger car category, production of standard cars
with an engine displacement of more than 2.0-litres was down by
54.7% y/y to 203,374 units during the month, while output of small
vehicles was down by 24% y/y to 94,760 units.
Production of mini-vehicles, categorized as vehicles equipped
with engines smaller than 660cc, was down by 51.3% y/y to 61,269
units.
Similar declines were witnessed in the truck and bus segments,
falling by 32.4% y/y to 70,985 units and by 16.8% y/y to 8,382
units, respectively.
In January-April, Japanese vehicle production declined by 17%
y/y to nearly 2.8 million units.
Output in the passenger car category reached 2.4 million units
during this period, down by 17.2% y/y, while truck production
declined by 16.4% y/y to 359,726 units and bus output by 7.3% y/y
to 34,857 units.
According to IHS Markit's forecasts, Japanese light-vehicle
output is expected to decline by 22.3% y/y to 7.159 million units
in 2020. However, we expect production volumes in 2021 to recover
by 9.3% y/y to 7.828 million units.
Toyota began construction of a manufacturing plant in Tianjin,
northeast China, with joint-venture (JV) partner FAW Group on 29
June. The new plant will be dedicated to the production of new
energy vehicles (NEVs) and related components, such as
electric-vehicle batteries. The plant project, which involves an
investment of CNY8.5 billion (USD1.20 billion), is due to be
completed by June 2022. In addition, under its partnership with GAC
Motor, Toyota is building a new vehicle assembly line in Guangdong
province, southeast China. Construction is due to be completed
during the fourth quarter of 2020, with vehicle production
scheduled to start in March 2021. Local media reports indicate that
the new expansion project will allow Toyota to speed up its
introduction of electric vehicles (EVs) in the Chinese market. The
first models due to be produced by the GAC Toyota JV include a
mid-size electric sport utility vehicle (SUV) and an electric
multipurpose vehicle (MPV). The two new expansion projects will
boost the Japanese automaker's production capacity in China by
400,000 units per annum. Much of the added capacity will be used to
ramp up production of the automaker's upcoming battery EVs in
China. (IHS Markit AutoIntelligence's Abby Chun Tu)
China's official manufacturing purchasing managers' index (PMI)
came in at 50.9 in May, up 0.3 point from April and the fourth
consecutive month above the 50 expansionary threshold since the
pandemic outbreak. (IHS Markit Economist Yating Xu)
Production sub-index rose by 0.7 point to 53.9, significantly
above the three-year average figure in June.
New orders increased for the second consecutive month to 51.4
in June.
Prices rose significantly in June due to the price rise in the
upstream petroleum, steel and non-ferrous metals manufacturing,
input prices expanded further and output prices improved to
expansion for the first time since May 2019.
Sub-index of new export orders and imports continued to improve
with weak recovery in global economy over the past month, while
they remained in deep contraction and far below the three-year
average in June.
Employment sentiment worsened further.
PMI expanded in 14 out of the 21 surveyed manufacturing
sectors. Medical, non-ferrous metals, communication equipment and
electric equipment machinery reported strong recovery in new orders
and production.
Improvement in exports was concentrated in petroleum,
communication equipment and electric equipment while auto, chemical
and petroleum processing drove the recovery in imports. However,
PMI for low-end trade-related manufacturing, such as textile,
clothing and timber remained in contraction.
Manufacturing PMI showed continuous recovery in different scale
of enterprises, except deterioration in small firms with its PMI
declined by 1.9 points from May to 48.9 in June.
China's non-manufacturing PMI rose by 0.8 point to 54.4 in
June, with acceleration in services and slowdown in
construction.
Construction PMI declined by 1 point to 59.8, but it remained
above the figure a year ago and expectation sub-index rose by 0.3
point from May.
Service PMI picked up by 1.1 points to 53.4. Among the 21
surveyed service sectors, 15 sectors reported PMI above 50 with
faster expansion in transportation, information and software and
finance. Particularly, production services PMI rose by 4.5 points.
However, household services and culture and entertainment remained
in contraction.
The composite output PMI, covering both manufacturing and
non-manufacturing sectors, came in at 54.2, up 0.8 point from the
previous reading.
Mainland China's National Development and Reform Commission
(NDRC) and the Ministry of Commerce (MOC) jointly published the
2020 negative list for foreign investment on 24 June, continuing
the efforts of further opening up domestic market and improving
business environment to stabilize foreign investment. (IHS Markit
Economist Lei Yi)
The newly updated list, effective 23 July, reduces number of
restricted areas for foreign investment to 33, from 40 in the 2019
version. This is the third revision since the nation adopted the
practice; 63 areas were listed as off-limits for foreign investors
in the initial 2017 version.
All three financial sector related items in the 2019 list were
removed, lifting existing caps on foreign ownership of securities,
securities investment fund management, futures, and life insurance
companies. Note that such a move was originally scheduled in 2021
according to the 2019 list, but was accelerated in accordance with
the "phase one" US-China trade deal.
Other sectors that have eased entry restrictions include
agriculture, manufacturing, infrastructure, and transportation.
Foreign investors are now allowed to control up to 66% ownership in
wheat breeding and seed production, to participate in construction
and operation of water supply and drainage networks of large
cities, and to invest in air traffic control system, radioactive
mineral processing, and nuclear fuel production. Foreign ownership
limits in commercial vehicle enterprises will also be removed as
scheduled.
Continuing the regular updates of negative list despite the
ongoing pandemic demonstrates the nation's determination in pushing
for more market-friendly reforms, which helps maintain its
long-term attractiveness for foreign investment.
Further opening-up measures in the services sector are
expected, especially for "high-end services" featuring high-tech,
skilled labor, and high value-add.
Mainland China's tourism sector continued its gradual recovery
during the three-day Dragon Boat Festival, which lasted from 25 to
27 June. According to the Ministry of Culture and Tourism, number
of tourists reached 48.8 million, and tourism revenue totaled
CNY12.3 billion, which represented contraction of 49% y/y and 69%
y/y, respectively. (IHS Markit Economist Lei Yi)
Still, this has shown notable improvement from the three-day
Tomb Sweeping Day holiday in early April, during which tourist
numbers nationwide were down 61% y/y with tourism revenue 81% lower
than in 2019. The situation during the Labor Day holiday was
better, with tourists and revenues only down 41% y/y and 60% y/y,
respectively; yet this could partially attribute to the fact that
the holiday got extended by one day to five days in 2020.
Data from China Tourism Academy showed that, over 30% of
tourists shortened their travel distance and more than 50% intended
to reduce travel budget during the Dragon Boat Festival. Only 5.6%
of tourists chose to travel by train or by air.
Electric vehicle (EV) startup Byton is suspending operations
globally on 1 July for six months, according to media reports,
citing a company spokesperson. Byton has built a factory in China
and has produced a handful of vehicles to obtain necessary approval
for production, but no definite start date for sales has been set
amid the COVID-19 pandemic. US news outlet The Detroit Bureau
reports the Byton spokesperson as saying, "Without a revenue
stream, we just hit the wall." In addition, China Tech News
recently reported that Byton sent an email to its US employees
notifying them that the company would implement lay-offs in the
United States before 30 June. The report added that the company's
US office would retain research-and-development (R&D)-related
intellectual property and operational positions. Byton has not
issued a formal statement. Although Byton has been moving forward
with launch plans, it furloughed 450 workers in the US in April.
(IHS Markit AutoIntelligence's Stephanie Brinley)
Posted 30 June 2020 by Chris Fenske, Head of Capital Markets Research, Global Markets Group, S&P Global Market Intelligence
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