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A new record high US unemployment rate did little to stop the
week's positive momentum in the global markets, as equities closed
higher across the globe along with oil and IG/HY credit. Hopefully,
the consumers who are still employed, and living in locations that
are in the process of reopening, will help bring the global economy
to that V-shaped recovery everyone is hoping for by increasing
their spending with the same degree of unabated optimism as the
equity markets.
Americas
US equity markets closed higher on the day; Russell 2000 +3.6%,
DJIA +1.9%, S&P +1.7%, and Nasdaq +1.6%.
10yr US govt bonds closed lower at +5bps/0.69% yield.
IHS Markit's CDX North America investment grade index closed
-1bp/92bps and high yield -10bps/634bps.
US nonfarm payroll employment declined by 20.5 million in
April, and the unemployment rate rose 10.3 percentage points to
14.7%. Both readings were unprecedented in their respective
histories. (IHS Markit Economists Ben Herzon and Michael Konidaris)
Just as occurred in the March report, there was a large number
of unemployed persons who were incorrectly counted as employed but
absent from work. Had they been classified correctly, the April
unemployment rate would have been roughly 20%.
There was a historic drop in labor-force participation, as the
participation rate plunged 2.5 percentage points to 60.2%. Prior to
April, there had never been a decline larger than 0.7 percentage
point. Had those who dropped out of the labor force been counted as
in the labor force and unemployed, this would have boosted the
unemployment rate by roughly 3 percentage points.
Were it not for (a) and (b), then, the April unemployment rate
would have been roughly 23%. As a point of reference, the peak
unemployment rate during the Great Depression (of the 1930s) was
about 25%.
Initial claims for unemployment insurance nationally measured
3,495,703 in the week ended 25 April, remaining near historically
high levels while steadily declining from the record high in the
week ended 28 March. During the initial spike in claims in
mid-March through the first half of April, states that instituted
early shutdown orders such as California, Pennsylvania, and New
York accounted for the largest shares of claims. In recent weeks,
however, Florida's claims have spiked considerably—the state
accounted for 3.3% of US initial claims between mid-March and early
April, which then swelled to 12.2% over the last two weeks of
April. (IHS Markit Economists Alex Minelli and Fran Hagarty)
Outstanding nonmortgage consumer credit fell by $12 billion in
March as the effects of COVID-19 ramped up over the course of the
month. Revolving (mostly credit card) consumer credit plunged $28
billion (seasonally adjusted), the most on record and nearly double
the runner-up, a decrease of $16 billion in November 2009. The
ratio of nonmortgage consumer credit to disposable personal income
was 25.5% in March, a 0.4-percentage-point step up from the prior
month, as incomes fell but nonrevolving debt obligations remained
stubbornly present as the crisis unfolded. (IHS Markit Economist
David Deull)
Crude oil closed +5.1%/$24.74 per barrel, which is +25% on the
week.
Noble Energy reported first quarter 2020 net loss of $3,963
million, compared with a net loss of $313 million a year ago. First
quarter results included a $4.2 billion of impairments associated
with Texas proved and unproved properties resulting from a decline
in commodity prices and a $110 million of goodwill impairment
related to Noble Midstream Partners Saddle Butte Pipeline system in
the DJ Basin. Net loss including noncontrolling interest was $4,007
million. The company further slashed its 2020 capital budget to
around $750 - 850 million in response the current macroeconomic and
commodity environment, down about 53% from its original capital
budget of $1.6 - 1.8 billion, announced in February 2020. The
company cuts an additional $50 million in capex from its revised
number announced on 15 March 2020. (IHS Markit's Upstream Companies
and Transaction's Karan Bhagani)
Nissan has issued a brief statement indicating that it will
further suspend production in the United States, without providing
any indication as to when it could resume. The statement simply
reads, "Nissan is extending production downtime for most of its
manufacturing facilities in the U.S. The company will continue to
evaluate the status of the COVID-19 pandemic, current market demand
and supplier readiness before setting a restart date." (IHS Markit
AutoIntelligence's Stephanie Brinley)
Canada's job market was devastated once again with a 1,993,800
decline in net employment, which was weaker than IHS Markit
expectations. The monthly decrease in full-time (down 1,472,000)
positions was far greater than that in part-time (down 521,900)
positions. The labor force participation rate declined 3.7
percentage points to 59.8% and the jobless rate climbed 5.2
percentage points to an eye-popping 13.0%. Most of the job cuts
were in the private sector, with a sizable 1,874,000 decrease.
Public-sector payrolls were down 76,800 and there were 43,100 fewer
self-employed workers. The job losses over the past two months have
been horrific and sharp. The recovery process will be long given
the necessary multi-phased approach to reopen the economy while
maintaining physical distancing. (IHS Markit Economist Arlene
Kish)
Canada's total housing starts declined 12.4% month on month
(m/m) to 171,260 units in April, which was the lowest level since
February 2019. Urban single-family starts plummeted 34.9% m/m while
multifamily starts inched down 1.8% m/m. The decrease was mainly
due to the halt in residential construction activity in Quebec
(down 89.3% m/m) owing to the COVID-19 virus. Except Quebec,
housing starts jumped 10.8% m/m to 166,415 units from 150,224 units
in March. (IHS Markit Economist Chul-Woo Hong)
Canadian automotive supplier Magna has released its
first-quarter 2020 results, showing a sales decline of 18% year on
year (y/y) to USD8.65 billion, compared with USD10.59 billion in
the first quarter of 2019 (both ended 31 March). Adjusted EBIT
declined 44% y/y in the first quarter to USD403 million on lower
sales, reducing its margin to 4.7% from 6.8% in the first quarter
of 2019 and 7.2% in the fourth quarter of 2019. Excluding the
impact of foreign currency translation effects and divestitures net
of acquisitions, Magna's consolidated sales declined 14% y/y, its
power and vision sales dropped 5%, its seating sales fell 13%, its
body exteriors and structures sales decreased 14%, and sales of
complete vehicles shrank 29%. (IHS Markit AutoIntelligence's
Stephanie Brinley)
Commodity prices, as measured by the IHS Markit Materials Price
Index (MPI), kept just above water last week, rising 0.2% as oil
prices rallied. he energy subindex led the MPI higher, rising 4.2%,
mainly due to a 35.2% jump in crude oil, which largely cancelled
out the previous week's 37.3% fall. West Texas Intermediate (WTI)
rallied from $3.30/barrel to $14.90/bbl on slowing inventory builds
in the US and falls in the US rig count. Thermal coal continued its
fall, due to weak global electricity generation. Having held up
through February, coal prices are now down 25% since late March.
Chemicals also rallied, increasing 3.9% on stronger ethylene and
propylene prices due to stabilizing feedstock costs. Ferrous prices
fell 1.3% on stronger iron ore deliveries into China. Even so,
ferrous prices are remaining stubbornly high due to weak
first-quarter shipments. Fiber, lumber, freight, pulp, DRAMs and
rubber all recorded small drops because of continuing concerns
about demand. (IHS Markit Pricing and Purchasing's Thomas
McCartin)
Argentina's industrial production posted a 16.8% year-on-year
(y/y) decrease in March, according to the country's National
Institute of Statistics and Censuses (Instituto Nacional de
Estadística y Censos: INDEC). The seasonally adjusted data show a
17.0% month-on-month (m/m) drop in March, a stark change in
direction from the February figure; although the seasonally
adjusted data provided by INDEC continue to be highly volatile, the
March figure is unique. Construction activity collapsed in March,
down by 32.3% m/m in seasonally adjusted terms and down by 46.8%
y/y; construction permit data for March was not released because of
the closure of public-sector offices during that time period as a
result of the strict lockdown. The outlook for industrial
production remains bleak. The country is working on a roadmap for a
staggered quarantine exit, beginning on 10 May. (IHS Markit
Economist Paula Diosquez-Rice)
The central bank of Argentina (Banco Central de Argentina:
BCRA) announced on 7 May the establishment of a credit guarantee
line for micro, small, and medium-sized enterprises (MSMEs). These
corporations will be able to access low-interest loans if they do
not currently have bank loans in progress. Banks cannot deny access
to these loans, which will be provided at a subsidized interest
rate of 24% for companies with an 'MSME Certificate' from the
Ministry of Productive Development. The program will provide funds
of ARG22 billion (USD328 million). (IHS Markit Banking Risk's
Gabrielle Ventura)
Europe/Middle East/ Africa
Germany's Federal Statistical Office (FSO)'s external trade
data for March (customs methodology, seasonally adjusted, nominal)
are the first to reflect a significant impact of the COVID-19
pandemic. Exports suffered their largest monthly decline since the
pan-German series started in August 1990, while imports slipped by
less than half as much (for details, see table and charts below).
Year-on-year rates (unadjusted) deteriorated from 0.3% to -7.9% for
exports and from -2.8% to -4.5% for imports. These annual rates
paint a misleadingly favorable picture as calendar effects were
supportive in March; in seasonally and calendar adjusted terms,
exports were 11.7% and imports 6.9% lower than a year ago. (IHS
Markit Economist Timo Klein)
Following a 17-year low of 2.3% in 2019, the Swiss unemployment
rate has leapt higher to 3.3% within four months and is now
increasingly likely to temporarily exceed the 4% level owing to the
recession triggered by the COVID-19 virus pandemic. State
Secretariat for Economic Affair's (SECO)'s data reveal that
Switzerland's seasonally adjusted unemployment rate increased
markedly in April, rising by 18,830 people or 13.5% month on month
(m/m) to 153,818 people. This compares with just 105,000 in
December 2019, the end-point of a downward trend that started in
mid-2016 at roughly 150,000. In the forthcoming May forecast round,
IHS Markit will predict that Switzerland's GDP will plunge by 6.5%
in 2020 and that the average unemployment rate, which stood at 2.3%
in 2019, will exceed 3.5% and stand above 4.0% at the end of the
year. (IHS Markit Economist Timo Klein)
During its session yesterday (7 May), the Czech National Bank
(CNB) reduced the policy interest rate by a larger-than-expected 75
basis points, to 0.25%. That is down from 2.25% in February. Price
pressures are projected to ease in the coming months as weaker
domestic demand and falling fuel costs outweigh the inflationary
impact of the depreciating koruna and rising food costs. As a
result, inflation is projected to return to the upper limit of the
1-3% tolerance band over the next few months, hitting the 2% target
by the end of 2021. GDP is projected to fall 8.0% in 2020 before
recovering to +4.2% in 2021. The pre-pandemic level of GDP is not
likely to be achieved by the end of next year, mainly due to a drop
in fixed investment. (IHS Markit Economist Sharon Fisher)
Brent crude closed +5.1%/$30.97 per barrel.
10yr European govt bonds closed mixed; Italy -9bps, Spain
-3bps, France/UK flat, and Germany +1bp.
European equity markets closed higher across region; Germany
+1.4%, France/Italy +1.1%, and Spain +0.8%.
Asia-Pacific
Japan's nominal monthly cash earnings continued to rise, but
softened to 0.1% year on year (y/y) in March, while real monthly
cash earnings fell by 0.3% y/y. The softer increase for nominal
wages reflected a 0.3% y/y drop in special earnings and a 4.1% y/y
decline in non-scheduled cash earnings. Restriction measures for
COVID-19 also led to the sharp decline in monthly household
expenditures by 4.0% in March (see chart below for details):
Japan has approved Gilead Sciences (US)' remdesivir as a
treatment for coronavirus disease 2019 (COVID-19), according to
Nikkei Asian Review, citing a press briefing by Japan's Ministry of
Health, Labour and Welfare (MHLW). The MHLW has approved remdesivir
for patients with severe COVID-19 symptoms. The approval comes
three days after the US company filed for fast-track approval in
Japan. (IHS Markit Life Science's Sophie Cairns)
Teijin reports a 44% fall in net profit to ¥25.25 billion
($237.4 million) for the full fiscal year ended 31 March, on sales
down 3.9% to ¥853.7 billion. Profit was impacted mainly by one-time
expenses associated with the transfer of subsidiaries in films and
an impairment related to a subsidiary in the polyester fibers and
trading and retail business. Operating income declined by 6.3% to
¥56.2 billion. Operating income for the materials business unit
stood at ¥17.2 billion, down by 9.3%, with sales falling 5.6% to
¥633.8 billion. In aramid, sales dropped for para-aramid fibers for
automotive applications, such as friction materials and rubber
reinforcements, due to the impact of a decrease in demand in
automotive. However, product mix and pricing efforts contributed
positively to profits. In carbon fibers, sales of carbon fibers
"were soft for use in aircraft, mainly reflecting inventory
adjustments in the supply chain." Sales volume of compound
applications for automotive and electronics decreased because of a
persistent decline in demand since the final stretch of the
previous fiscal year.
Preliminary data show that Hong Kong SAR's real GDP slumped
8.9% year on year (y/y) in the first quarter, worsening sharply
from an already steep drop of 2.9% y/y in the second half of 2019.
This marks the largest contraction in history, outpacing the steep
declines of 8.3% y/y and 7.8% y/y seen at the bottom of the 1998
Asian financial crisis and the 2008-09 global financial crisis,
respectively. In seasonally adjusted terms, the economy also
plunged at a record speed of 5.3% from the preceding quarter,
representing the fourth consecutive quarter of contraction in
economic activity. The result for the first quarter was worse than
IHS Markit's projection of a 7.8% y/y decline as the contraction in
private consumption and exports turned out to be bigger than
expected. (IHS Markit Economist Ling-Wei Chung)
According to a notice posted on the China Banking and Insurance
Regulatory Commission (CBIRC) website on 6 May, asset investment
companies (AICs) attached to banks will be given asset management
companies (AMCs)' ability to manage securities obtained through
debt-to-equity (DTE) schemes. The AICs can obtain funding from
individuals (with annual income of at least CNY600,000
[USD84,600]), family trusts (with at least CNY5 million of assets),
and insurance and pension funds to invest in the securities. In the
past few years, banks have conducted DTE swaps to absorb bad loans
and artificially lower the non-performing loan (NPL) ratio in the
banking sector. We assess this to be a risk-positive development as
banks have more channels to offload the securities obtained through
DTE. (IHS Markit Banking Risk's Angus Lam)
The China Association of Automobile Manufacturers (CAAM) on 7
May released the estimates of its April sales prior to its monthly
briefing. According to a statement posted by the association on its
WeChat social media account, it expects new vehicle sales to reach
2 million units in April, up by 39.8% from March and up by 0.9%
from April 2019. In the first four months of 2020, new vehicle
sales in China are expected to reach around 5.67 million units,
down by 32.1% year on year (y/y). The estimates are based on
April's sales reports released by major automotive groups in the
country. IHS Markit expects more details to be released by the CAAM
in the coming week. (IHS Markit AutoIntelligence's Abby Chun
Tu)
The municipal government of Shanghai unveiled its "new
infrastructure" investment plan on 7 May. A total of CNY270 billion
(USD38 billion) will be invested in 48 projects to upgrade
networks, innovative infrastructure, integrated platforms, and
smart terminals in three years (2020-22), aiming to lay solid
foundations for modern industry development and the city's digital
transformation. Different from traditional infrastructure
investment projects, private investment will play the leading role
in the new investment plan, accounting for over 75% of the overall
investment package, according to an official from the local
development and reform commission. The expansion of 5G network and
construction of data centers will be the key focus of this
investment plan. Planned investment in these two fields are set to
go beyond CNY50 billion in 2020. (IHS Markit Economist Lei Yi)
South Korean automakers posted a 48.4% year-on-year (y/y)
plunge in combined global sales to 341,944 units in April,
according to data released by the five major domestic manufacturers
and reported by the Yonhap News Agency, as compiled by IHS Markit.
The five automakers reported a 6.5% y/y increase in combined
domestic market sales last month to 145,141 units, while their
combined overseas sales nosedived 62.6% y/y to 196,803 units. (IHS
Markit AutoIntelligence's Jamal Amir)
Mobile carrier LG Uplus will launch a 5G-based autonomous
shuttle service in the South Korean city of Siheung in the second
half of this year, reports Aju Business Daily. The service will
enable commuters to travel from a subway station to their homes in
a suburban new town in the city. The demonstration is part of a
government-led pilot project launched by the Ministry of Land,
Infrastructure and Transport in partnership with Seoul National
University and AUTOMOS, a domestic autonomous vehicle technology
provider. (IHS Markit Automotive Mobility's Surabhi Rajpal)Vietnam
on 7 May allowed non-essential businesses such as cinemas and
fitness facilities to resume operations, taking further steps to
ease lockdown restrictions following the reopening of schools and
public transport on 23 April. As of 7 May, Vietnam, a country with
95 million people, had 288 confirmed cases of COVID-19, with no
fatalities. (IHS Markit Economist Anton Alifandi)
The number of imported cases is likely to increase in the
coming weeks as the government is arranging chartered flights to
repatriate Vietnamese nationals from overseas, including from
high-risk regions such as North America and Europe.
The government has earmarked VND700 trillion (USD30 billion) in
public investment this year, more than twice it spent in 2019. Most
notably, the eight projects of the 654km-long eastern section of
the North-South Expressway, running from Nam Dinh to Vinh Long
province, was swiftly converted last month into state investment
projects from public-private partnership schemes that have been
progressing slowly because of a poor legal framework.
The reopening of high-traffic secondary border crossings with
China in northern provinces such as Lang Son and Quang Ninh on 7
May is likely to accelerate the recovery of Vietnam's agriculture
and manufacturing sectors.
The recovery of Vietnam's tourism industry is likely to be slow
and led initially by domestic tourism.
10. The Philippines' real GDP fell by 0.2% year on year (y/y),
marking the first contraction since the fourth quarter of 1998
during the Asian financial crisis. In seasonally adjusted terms,
the economy contracted at a record speed of 5.1%, compared with a
1.8% gain in the fourth quarter of 2019. Gross investment spending
plunged by 18.3% y/y in the first quarter as the pandemic and
virus-controlling measures dragged down business confidence and
severely impacted economic activities. Fixed investment contracted
by 4.3% y/y in the first quarter, driven by a 7.7% y/y drop in
business spending on durable equipment, which marked the fourth
straight quarter of contraction. (IHS Markit Economist Ling-Wei
Chung)
11. APAC equity markets closed higher across the region; Nikkei
+2.6%, Hong Kong +1.0%, South Korea +0.9%, Shanghai Composite
+0.8%, India +0.65, and Australia +0.5%.
Complimentary Access to Price Viewer
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access for qualified market participants to our historical cross
asset coverage of global fixed income pricing and liquidity data,
as well as OTC Derivatives data via the Price Viewer web-based data
portal.
We use screenshots from the Price Viewer very frequently in this
report and corporations use the credit default swap and bond
price/yield data to identify potential risks to their supply
chains. Request complimentary access
here or contact sales@ihsmarkit.com.
Posted 08 May 2020 by Chris Fenske, Head of Capital Markets Research, Global Markets Group, S&P Global Market Intelligence
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