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Today's torrent of economic data releases out of Europe and APAC
was received with mixed results across regions. US equity markets
closed higher, with the S&P 500 and Nasdaq both breaking
through to new record closes (again). APAC equity markets were
mixed, while Germany was the only major European market to end the
day higher. Benchmark government bonds closed higher across
Europe/US and the iTraxx and CDX high yield credit indices closing
noticeably tighter.
Americas
US equity markets closed higher across the region; Nasdaq
+1.4%, Russell 2000 +1.1%, and S&P 500/DJIA +0.8%.
10yr US govt bonds closed -3bps/0.68% yield and 30yr bonds
-5bps/1.43% yield.
CDX-NAIG closed -3bps/62bps and CDX-NAHY -14bps/352bps.
Gold closed flat/$1,978 per ounce.
California reported 3,712 new virus cases, the lowest daily
tally since mid-June. The increase was less than the 14-day average
of 5,366 and reflects ongoing improvement in the state, where
average daily infections exceeded 9,000 a month ago. The average
rate of positive tests over the past 14 days was stable at 5.3%,
according to state health data. Hospitalizations from the virus
decreased 0.7% to 3,849 patients, also the lowest since June.
(Bloomberg)
Crude oil closed +0.4%/$42.76 per barrel.
In a press release, Obsidian Energy Ltd. announced a formal
non-binding business combination proposal to Bonterra Energy Corp.
in a stock offer valued at C$482.4 million ($368.2 million). Under
the proposal, Obsidian is prepared to offer 2 common shares for
each Bonterra share. Based on 33.8 million shares outstanding and
Obsidian's closing price on 28 August 2020, the total equity offer
value is C$35.4 million ($27.9 million) or C$1.06 per share. The
total transaction value includes the assumption of Bonterra's 30
June 2020 working capital deficit of C$299.5 million ($228.6
million) and C$147.5 million ($112.6 million) of long-term
liabilities. Obsidian expects a response to its proposal as soon as
possible, but on or before 4 September 2020. Bonterra shareholders
will own approximately 48% of the combined company. The parties had
been engaged in periodic discussions on a potential friendly
business combination transaction since January 2019. Obsidian
expects the merger to generate significant cost synergies that
would drive very substantial accretion across all financial
metrics. Bonterra's net proved reserves were 73.53 MMboe (66%
liquids, 47% developed) and 2P reserves were 90.33 MMboe (66%
liquids) at year-end 2019, and its net (after an applied 20%
royalty) production averaged 8,145 boe/d (65% liquids) during the
second quarter of 2020. Bonterra Energy is a TSX-listed
conventional oil and gas company focused on the Alberta Pembina and
Willesden Green Cardium light oil areas, with Shaunavon properties
in the Saskatchewan Chambery field and other producing assets in
British Columbia. The company is based in Calgary, Alberta. (IHS
Markit Upstream Companies and Transactions' Karan Bhagani)
Monthly GDP rose 1.9% in July following materially larger
increases in May (4.6%) and June (5.7%). Nearly two-thirds of the
increase in July was accounted for by nonfarm inventories; a slight
accumulation in July followed a sharp paring in June. Other
contributors included personal consumption expenditures and
nonresidential fixed investment. The level of GDP in July was 32.6%
above the second-quarter average at an annual rate. Implicit in our
latest tracking forecast of 28.7% annualized GDP growth in the
third quarter are moderate declines in monthly GDP in August and
September. High-frequency indicators consistent with declining
activity include small-business revenues (Opportunity Insight),
which have been trending lower since early July and the Weekly
Economic Index (New York Fed), which, as of last week, suggests
less third-quarter growth than we forecast. (IHS Markit's US
Macroeconomics Team)
The seasonally adjusted IHS Markit final U.S. Manufacturing
Purchasing Managers' Index (PMI) posted 53.1 in August, down
slightly from the previously released 'flash' estimate of 53.6, but
up from 50.9 at the start of the third quarter. (IHS Markit
Economist Chris Williamson)
The upturn in operating conditions was only the second in as
many months, following the easing of COVID-19 restrictions and the
reopening of large sections of the manufacturing sector.
Overall growth was solid and the sharpest since January
2019.
Contributing to the overall expansion was a faster increase in
new order inflows in August. The rate of growth was solid and the
steepest since the start of 2019.
Firms often linked the rise in new sales to stronger client
demand and increased marketing.
New export orders also picked up, as companies registered the
first upturn in foreign client demand in 2020 so far. Moreover, the
pace of increase was the quickest in four years.
Reflecting strengthened demand conditions, manufacturers
recorded a steeper pace of output growth. The upturn was the
quickest since November 2019.
At the same time, goods producers expanded their workforce
numbers for the first time since February.
ISM's Business Manufacturing PMI came in better than expected
at 56.0 versus 55.0 consensus.
Total US construction spending rose 0.1% in July, splitting the
difference between our assumption of a decline and the consensus
expectation for an increase. (IHS Markit Economists Ben Herzon and
Lawrence Nelson)
Core construction spending, which directly enters our GDP
tracking, rose 0.2% in July following declines over May and June
that were revised to be smaller declines.
The upward revisions to core (and total) construction spending
along with unexpected strength in July alter the recent monthly
profile enough to suggest that construction activity may be at a
trough that is both higher and earlier than we previously
anticipated.
Private residential construction spending rose 2.1% in July
following declines over the prior four months. Going forward, we
expect recent strength (through July) in single-family housing
permits and indications of continued strength in residential
housing markets into August (including robust homebuilder sentiment
and elevated mortgage applications for home purchases) to pull
private residential construction spending higher.
Private nonresidential construction spending declined 1.0% in
July and has been trending lower since February. Credit standards
for approval of construction and land development loans have
tightened considerably over the last six months, suggesting that
private nonresidential construction could continue to languish in
coming months.
State and local construction spending declined 1.5% in July.
Tightening state and local budgets will weigh on this sector in
coming months.
On balance, we expect construction spending to trend sideways
in the near term.
Hurricane Laura left most of the US Gulf Coast unscathed, but
Lake Charles, Louisiana, was hit hard, and petrochemical production
units in the area could be offline for weeks. Producers with assets
there include Sasol, Westlake Chemical, Lotte Chemical, and
LyondellBasell. Products affected include polyolefins, ethylene
glycol, vinyls, and chlor-alkali. The Lake Charles area is home to
9% of US linear low-density polyethylene (LLDPE) capacity (by way
of Sasol and Westlake Chemical), 10% of US low-density polyethylene
(LDPE) capacity (Westlake), and 8% of US polypropylene (PP)
capacity (LyondellBasell). All of this capacity is believed to be
offline. On 31 August, Sasol declared force majeure on LLDPE and
high-density polyethylene (HDPE) produced at its joint-venture site
with Ineos in La Porte, Texas. Ineos also has force majeures in
place for polyethylene, and Ineos, Formosa Plastics, and
LyondellBasell have force majeures for PP. Sasol says that
manufacturing at its Lake Charles Chemicals Complex (LCCC) remains
shut down. "The storm resulted in widespread electrical blackouts
and other damage, preventing Sasol from operating most utility
systems," says a statement from the company. "High voltage
transmission line corridors into the Lake Charles area are damaged,
and the full assessment is still in progress by a local power
company." The company says cooling towers at the facility suffered
wind damage, but process equipment at the facility does not appear
to have been affected, nor has flooding been an issue.
The world's number one soft drinks company Coca-Cola has
announced a reorganization of its global businesses. The nine new
operating units will replace the current 17 business units and
groups. These units will be highly interconnected, with more
consistency in structure and a focus on eliminating duplication of
resources and scaling new products more quickly. Coca-Cola is
undergoing a portfolio rationalization process which will lead to a
tailored collection of global, regional and local brands with the
potential for greater growth. The five global categories are: 1.
Coca-Cola; 2. Sparkling Flavors; 3. Hydration, Sports, Coffee and
Tea; 4. Nutrition, Juice, Milk and Plant; 5. Emerging Categories.
Coca-Cola has decided to create a new unit called Platform
Services, which will work in service of operating units, categories
and functions to create efficiencies and deliver capabilities at
scale across the globe. This will include data management, consumer
analytics, digital commerce and social/digital hubs. This will
eliminate duplication of efforts across the company and is built to
work in partnership with bottlers. The company's overall global
severance programs are expected to incur expenses ranging from
approximately USD350 million to USD550 million. (IHS Markit Food
and Agricultural Commodities' Hope Lee)
US regulator the National Highway Traffic Safety Administration
(NHTSA) has officially delayed the introduction of a rule requiring
a minimum level of sound to be made by electric vehicles (EVs)
during their operation. The regulation will now come into effect on
1 March 2021, instead of 1 September 2020 as previously planned.
According to a document published by the NHTSA, the delay is in
response to requests from automakers' lobby group the Alliance of
Automotive Innovation. The NHTSA states that the Alliance's
petition requested three changes to the phase-in period of the new
rule and the compliance requirements. The rule began to be phased
in on 1 September 2019 and this period was due to be completed by 1
September 2020. The alliance requested a 12-month extension of the
phase-in period, as a result of the conditions of the COVID-19
pandemic; however, the NHTSA has granted only a six-month
extension. The alliance also requested an alternative performance
option during the phase-in period, a request that was denied. As
with the agency's other rules and notices, the NHTSA will accept
comments for 15 days after the ruling is published in the US
Federal Register. The NHTSA's ruling acknowledges that the
production shutdown related to the COVID-19 pandemic "decimated"
automotive supply chains and "prevented automakers from acquiring
new parts, implementing vehicle redesigns, and manufacturing
automobiles". (IHS Markit AutoIntelligence's Stephanie
Brinley)
Waymo has selected a new facility in Dallas (Texas, United
States) as a hub to test its fleet of autonomous trucks, reports
FreightWaves. The company recently stated that it has started
deploying a fleet of 13 autonomous Peterbilt trucks on the I-10,
I-20, and I-45 interstate highways in Texas. Julianne McGoldrick,
Waymo's spokesperson, said, "Operating in a major freight hub
environment like Dallas, we can test our Waymo Driver on highly
dense highways and shipper lanes, further understand how other
truck and passenger car drivers behave on these routes, and
continue to refine the way our Waymo driver reacts and responds in
this busy driving region. It also enables us to further advance our
weather testing in a diverse set of environments." Waymo joins a
list of tech companies conducting autonomous vehicle (AV)
operations in Dallas including Aurora, Nuro, Kodiak Robotics, and
TuSimple. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Electric vehicle (EV) startup Bollinger continues to expand its
planned commercial vehicle fleet solutions, revealing the Deliver-E
electric van concept, designed for delivery and medium-duty truck
fleets. The company is aiming for production of the electric van to
begin in 2022. The Deliver-E van is designed specifically for the
delivery market, with Bollinger planning to engineer the van to fit
Classes 2B, 3, 4, and 5. The company says that the van's total cost
of ownership (TCO) in each class will be "significantly" lower than
that of gasoline (petrol) or diesel engine vehicles in the market
today. Bollinger says the van will have battery packs of 70, 105,
140, 175 and 210 kWh and various wheelbase lengths, so that "the
fleet customer will have a wide array of mileage range and price
options to fit their specific needs". Bollinger says the Deliver-E
will have the same major components as the company's other
vehicles, including motors, battery, inverters, and gearboxes.
However, Bollinger says that the van is based on a new platform
created to address the specific needs of delivery vans. The
Deliver-E will have fast charging capability of up to 100 kW DC,
and it is planned to be a front-wheel-drive vehicle with a low,
18-inch load floor. Bollinger says the van will have hydraulic
steering and brakes, and anti-lock brakes, traction control and
stability control, and independent front and rear suspension as
standard. Bollinger has made several announcements in 2020 as it
moves closer to beginning production, and reports in late August
suggested it is moving closer to announcing a third-party
manufacturer. (IHS Markit AutoIntelligence's Stephanie
Brinley)
The Central Bank of Colombia (Banco de la República: Banrep)
voted on 31 August to cut interest rates from 2.25% to 2.00%. The
bank has cut interest rates by 225 basis points since the beginning
of 2020; IHS Markit assesses that this will be the last rate cut
and that rates will remain at 2% through 2021 and much of 2022.
(IHS Markit Economist Ellie Vorhaben)
Among many variables, the central bank is most concerned about
inflation, labor market conditions, and financial conditions. In
terms of price pressure, Colombia's inflation is very low, falling
below 2% in July for the first time since 2013, by reaching 1.97%.
Expectations are below the central bank's target of 3% for year-end
2021, at 2.87%.
In July, employment numbers improved for the first time during
2020. Although IHS Markit agrees with the central bank that the
worst of the economic contraction and its impact on the labor
market passed in the second quarter, July's data mean that there
are still 4.95 million fewer employed individuals than there were
at the end of 2019. The national unemployment rate averaged 20.5%
in July and the bank writes that wages are falling, which means
that private consumption will remain weak.
As it did during the last monetary policy meeting, Banrep notes
that financial markets are improving and that high liquidity levels
are reducing sovereign risk premiums. Colombia is a member of the
OECD, has access to an USD11.4-billion flexible line of credit with
the International Monetary Fund (IMF), and has an investment grade
sovereign risk rating, all of which lower financing costs and
support the financial system.
IHS Markit assesses that inflation will not reach the central
bank's target until late 2021, while unemployment will decline in
2021; however, it will remain high at an average of 13.4%.
Foreign-exchange reserves will remain more than sufficient over the
short term, in the absence of any unexpected shocks.
Europe/Middle East/Africa
Most European equity markets closed lower except for Germany
+0.2%; UK -1.7% and France/Italy/Spain -0.2%.
10yr European govt bonds closed higher across the region; Italy
-5bps and Spain/UK/France/Germany -2bps.
iTraxx-Europe closed -2bps/52bps and iTraxx-Xover
-11bps/311bps.
Brent crude closed +0.7%/$45.58 per barrel.
The unemployment rate in the eurozone rose from 7.7% in June to
7.9% in July, in line with market consensus expectations (based on
Reuters' survey) once the marginal downward revision to June's rate
has been accounted for. (IHS Markit Economist Ken Wattret)
This leaves the eurozone's unemployment rate just 0.7
percentage point higher than its pre-COVID-19-virus cycle low of
7.2% in February, although we expect much larger increases going
forward.
The level of unemployment in the eurozone rose by 344,000 in
July, following a similar increase in June, with both increases
surpassing the biggest monthly gains during the eurozone crisis
from 2011-12. However, the magnitude of the recent increases
remains far below the peak month-on-month (m/m) rise of 637,000 at
the height of the global financial crisis (GFC).
Unemployment rates across the eurozone member states have been
rather volatile since the onset of the COVID-19 virus and have been
subject to large revisions. Some of the member states, including
France and Italy, experienced a sharp fall initially, reflecting
the exclusion of those not considered to be actively seeking
work.
Eurozone HICP inflation in the eurozone surprised massively to
the downside in August's flash estimate, dropping from 0.4% to
-0.2%, well below the market consensus expectation of 0.2% (taken
from the Reuters poll). (IHS Markit Economist Ken Wattret)
The headline inflation rate fell below zero for the first time
since May and unusually, this was not due to swings in energy
prices. Rather, the recent gradual upward pressure on the inflation
rate for energy continued (from -8.4% to -7.8% y/y), reflecting the
lagged impact of higher oil prices and base effects.
The key reason for the major surprise in August's HICP release
was the magnitude of the falls in underlying inflation rates. The
rate excluding food, energy, alcohol and tobacco prices, for
example, plunged from 1.2% in July to just 0.4% in August, a record
low.
We had expected that July's record acceleration in non-energy
industrial goods inflation would reverse in August, which indeed it
did. The y/y rate plunged from 1.6% to -0.1%, below the average
rate of 0.2% between April and June. The recent volatility reflects
delays to the timing of seasonal price reductions and what looks
like unusually aggressive discounting in some items.
At the same time, services inflation decelerated again in
August, from 0.9% to just 0.7%, also a record low. National details
already released suggest that weakness in the HICP items hit
hardest by the effects of COVID-19 virus such as recreation and
culture prices, continued to weigh.
Unprocessed food prices also contributed to the negative
headline inflation rate in August, with the y/y rate of 2.3% well
down on April's 7.6% peak.
The European Fund and Asset Management Association (EFAMA) was
reported by the Financial Times (FT) on 31 August to have written
to EU regulatory bodies requesting a delay to recent guidelines
regarding ESG disclosures by asset managers. The sensitivity
relates to EU requirements for fund managers to collect and
disclose to investors the environmental, social and governance
risks contained within their asset portfolios from March 2021. The
trade association reportedly describes this timetable as
"unrealistic [and] clearly not feasible for …an entirely new and
complex legal framework", arguing that companies "seem unaware of
the new regulatory requirements": as a result they "do not possess
the necessary data". EFAMA also expressed concern that asset
managers will face a bottleneck when rushing to obtain pre-deadline
regulatory approval for updated disclosures. It has called for a
delay until at least January 2022. EFAMA represents the European
asset management community, covering 28 member associations. It
flags that European entities managed EUR17.8 billion in assets at
end-2019, through 34,200 UCITS (undertakings for collective
investments in transferrable securities) and 29,000 AIF
(alternative investment funds). Its request represents a test of EU
policy flexibility. While some modest leeway may be granted since
many firms are facing severe operational difficulties due to the
coronavirus disease 2019 (COVID-19) virus pandemic, we expect only
limited regulatory flexibility. (IHS Markit Economist Brian
Lawson)
Seasonally adjusted German unemployment declined by 9,000 in
August, its second consecutive dip after -17,000 in July. The
August decline could have been larger if it were not for an
unusually high number of school leavers that registered for
unemployment quite late because of a delayed end of their school
year owing to the fallout from the pandemic. (IHS Markit Economist
Timo Klein)
The unemployment level at the end of August was 2.915 million,
compared with a cyclical low of 2.264 million in March.
Separately, the Labor Agency reported that there was virtually
no additional COVID-19-virus effect on unemployment during July and
August (-3,000 and +2,000, respectively), in contrast with 60,000
in June, 197,000 in May, and 381,000 in April.
The German unemployment situation has now stabilized at levels
last observed in mid-2015, as the unemployment rate increased from
5.0% in March (close to 40-year lows) to 6.4% during
June-August.
Seasonally adjusted underemployment (as opposed to
unemployment) - which alternated between outperforming and
underperforming changes in unemployment during 2019 depending on
fluctuations in the number of people receiving some form of
(non-insurance related) government support, which affect the
underemployment data but not official unemployment - increased by
11,000 month on month (m/m) in August. These data are worse than
headline unemployment numbers owing to a declining number of people
benefitting from public support measures (-15.6% year on year [y/y]
in August, down from July's -12.3% and contrasting sharply with
+1.9% y/y back in March). This is technically induced, as the
COVID-19 virus-related restrictions and the surge in short-time
work applications have left little room to process support measures
such as trainings.
The setback to the multi-year upward trend for employment has
halted for now. In July (employment data lag unemployment numbers
by one month), seasonally adjusted employment rebounded by 53,000,
following June's decline of 34,000 and a cumulative plunge by
700,000 during March-May. This contrasts with an average monthly
increase of 21,000 during 2019 and even of 40,000 during the
cyclical upward trend between March 2010 and the end of 2018.
German automotive light specialist Hella is looking to spin off
its driver assistance software unit, according to a Bloomberg
report. The company is working with financial advisers on the sale
which it hopes will net a figure in the region of several hundred
million euros. However, no final decision has been made on the sale
and no interested parties have been linked with the acquisition.
The Hella Aglaia Mobile Vision GmbH unit makes embedded software
systems used for assisted driving functions as well as autonomous
cars. The company's automated vehicle technology offering is
interesting, as unlike rival offerings from Mobileye, which sells
integrated solutions with hardware and software packaged together,
Aglaia's software is designed to be paired with chips, cameras and
sensors made by other companies. The unit may attract interest from
automotive suppliers, carmakers investing in autonomous vehicle
operation and technology companies, according to those close to
discussions regarding the potential sale. (IHS Markit
AutoIntelligence's Tim Urquhart)
Nestlé Health Science (NHSc), part of consumer goods company
Nestlé (Switzerland), has entered into a definitive agreement to
acquire Aimmune Therapeutics (US) for USD34.50 per share, a 174%
premium to Aimmune's closing price on 28 August 2020. The all-cash
transaction values the company at USD2.6 billion. The acquisition
was unanimously approved by the Board of Directors of Aimmune,
although Greg Behar, CEO of NHSc and an Aimmune director, abstained
from voting because of his involvement with both companies. The
transaction will be completed in the fourth quarter of 2020,
pending customary closing conditions including the tender of a
majority of outstanding Aimmune shares. With this acquisition,
Nestlé will gain access to Palforzia (Peanut [Arachis hypogaea]
Allergen Powder-dnfp), the first food allergy treatment with
transformative potential for the lives of millions of people with
peanut allergies. Palforiza is an oral immunotherapy that was
recently approved by the US FDA for the mitigation of allergic
reactions because of peanut allergies in patients aged four and
older. (IHS Markit Life Science's Margaret Labban)
ISTAT estimates that the Italian economy shrunk by 12.8%
quarter on quarter (q/q) in the second quarter, revised downwards
from the initially reported 12.4% q/q drop in the 'flash' release.
(IHS Markit Economist Raj Badiani)
In annual terms, the economy shrunk by 17.7% year on year (y/y)
and 5.6% y/y in the second and first quarters, respectively.
This is broadly in line with our second-quarter assessment in
our July update, when we estimated that real GDP shrank by 13.0%
q/q and 17.8% year on year (y/y).
In addition, it implies that Italy remains in a technical
recession (defined as two successive quarters of q/q decline) after
it contracted by 5.5% q/q in early 2020 and 0.2% q/q in the fourth
quarter of 2019.
Saipem has signed into a Memorandum of Understanding (MOU) with
AGNES and QINT'X for the development of a wind farm off the coast
of Ravenna, Italy, in the Adriatic Sea. The project will involve
the installation of around 56 turbines on fixed offshore
foundations at two different sites. One of the locations will be
more than 8 nautical miles (14.8 km) from shore while the other
will be more than 12 miles (22 km) from shore. The project's total
power capacity is estimated to be around 450 MW. Innovative
technologies, like a floating solar technology, based on Moss
Maritime's technology, which is a part of Saipem's XSIGHT division
will be utilized in the project as an integrated solutions
development. AGNES is a company that develops renewable energy
projects in the Adriatic Sea, in particular offshore and nearshore
wind farms, floating solar panels, energy storage systems and
hydrogen production from renewable sources. QINT'X is an Italian
company specializing in renewable energy: solar, wind and
hydroelectric energy; and electric vehicles. (IHS Markit Upstream
Costs and Technology's Genevieve Wheeler Melvin)
Cavonix has selected LeddarTech's Leddar Pixell Cocoon LiDAR
sensor for its autonomous shuttles and off-road trucks, according
to a company statement. Cavonix said LeddarTech's technology will
enable it to deliver enhanced safety for its customers. LeddarTech
claims that its Cocoon LiDAR is designed to create a 360-degree
cocoon to provide enhanced collision prevention in autonomous
vehicles (AVs). Frantz Saintellemy, president and COO of
LeddarTech, said, "We are honored that our LiDAR solutions were
selected and trusted by Cavonix to support its autonomous shuttle
and off-road trucking customers. What Cavonix has been able to
achieve in a relatively short period is impressive, and we look
forward to their future developments using LeddarTech technologies.
Making mobility applications safer is at the core of our strategy.
Our technology offers the right balance of performance and
cost-effectiveness and is ready for deployment today." Cavonix is a
UK-based startup that focuses on developing autonomous control
systems for vehicle manufacturers and technology companies. The
company specializes in mobile autonomy, navigation, and perception
for the development of AVs. To achieve this, Cavonix has developed
three business functions that includes real-time software for
control of connected AVs, CAVLab; sensor fusion system that enables
vehicles to navigate in controlled environments, CavSense; and
fleet management telemetry system, CavTrak. LeddarTech develops
high-performance, low-cost LiDAR solutions for advanced driver
assistance system (ADAS) and AV operation applications. LiDAR
sensors are necessary for AV operation as they measure distance via
pulses of laser light and generate 3D maps of the world around
them. Recently, LeddarTech opened a new research and development
facility in Toronto, Canada, for developing its solid-state LiDAR
platform. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Car finance applications in the United Kingdom grew strongly
during July and August, according to the latest data published by
credit-check firm Experian. According to a company statement,
applications for both personal contract purchase (PCP) and hire
purchase (HP) agreements grew by 27.7% year on year (y/y) during
July, plus a further increase of 18.6% y/y in the first three weeks
of August. The company also stated that the deficit of 390,000
applications seen up to 1 June in 2020 due to the lockdown measures
to control the COVID-19 virus outbreak has now been reduced to
234,000 applications. The data released by Experian reflects the
recent shift in passenger car demand seen after the market
collapsed in March, April, and May as a result of the decision to
close dealerships as part of the government's measures to prevent
the spread of the COVID-19 virus. During these months, Experian saw
the number of applications for checks drop by 18.4% y/y, 82.1% y/y,
and 57.4% y/y, respectively. The latest uplift in applications,
which began in June with a 13.4% y/y increase, seems to be borne
out in the registration data, with July seeing an uplift of around
11% y/y (see United Kingdom: 5 August 2020: UK passenger car
registrations grow 11% y/y in July as dealers reopen). With August
typically such a weak month for demand, it is highly possible that
there could be another month of growth. However, we will have to
wait until September for a true picture of the health of the UK
passenger car market, as this is one of the two biggest volume
months for the market thanks to the age-related number-plate
change. (IHS Markit AutoIntelligence's Ian Fletcher)
Declines have returned to the French passenger car market in
August as more changes were made to the government-backed
incentives available at the beginning of the month. According to
data published by the French Automobile Manufacturers' Committee
(Comité des Constructeurs Français d'Automobiles: CCFA),
registrations have dropped by 19.8% year on year (y/y) to 103,631
units this month. There was no benefit from working day factors.
(IHS Markit AutoIntelligence's Ian Fletcher)
The latest decline means that the market has fallen by 32% y/y
to 998,409 units during the first eight months of 2020.
From an OEM perspective, the situation has been very mixed.
Groupe PSA led the way in terms of volume with 34,268 units.
Despite recording a further fall, this rate of decline has been
slower than the market as a whole at 8.4% y/y.
Helping it to achieve these only modest declines has been its
leading Peugeot brand which slipped by 3.5% y/y to 18,997 units,
while Opel has also seen a relatively small 3.7% y/y retreat to
3,188 units.
Citroën has contracted by 13.3% y/y to 11,190 units while DS
Automobiles has tumbled by 40.5% y/y to 893 units.
Renault Group's falls have been in line with the market as a
whole, retreating by 20% y/y to 21,724 units. The main reason for
this has been a 24.4% y/y fall suffered by the Renault brand to
14,158 units, while Dacia slid by just 6.4% y/y to 7,538
units.
Alpine's registrations collapsed by 92.8% y/y to just 28
units.
It was also a very mixed performance for the non-domestic OEMs.
Volkswagen (VW) Group led the way in terms of registrations with
11,704 units, but fell 35% y/y. The biggest drag has stemmed from
the VW brand; its sales dropped by 50.2% y/y to 4,251 units. Its
other core brands suffered a decrease of around one-fifth, with
Audi down by 21.5% y/y to 2,990 units, SEAT declining by 22% y/y to
2,306 units, and Skoda retreating by 21.4% y/y to 1,900 units. Its
sports and luxury brands fared little better.
According to the detailed release, in the second quarter of
2020 the Danish economy contracted by 6.9% quarter on quarter (q/q)
or 8.2% year on year (y/y). This is slightly better than the flash
estimate of a drop of 7.4% q/q. First-quarter GDP remained
unchanged with a contraction of 2.0% q/q or 0.1% y/y. (IHS Markit
Economist Daniel Kral)
The detailed breakdown shows that household consumption was the
main drag, dropping by 7.2% q/q. This is the result of households
significantly changing their behavior and cutting back on spending
at a record pace as a result of the pandemic.
Net exports were also a drag, as exports of goods and services
declined by 14.1% q/q, while imports by 13.8% q/q. This is better
export performance than many other small West European economies,
due to Denmark's specialization in non-cyclical industries,
including pharmaceuticals.
Fixed investment and government consumption were a drag,
declining by 7.0% and 1.5% q/q, respectively. Inventories were the
only sub-category contributing positively to headline growth.
Denmark was among the first European countries to go into
lockdown and come out of it. According to high frequency indicators
and real-time activity trackers, the recovery has gained momentum
from May, remaining strong throughout June-August.
According to our August forecast, we expect a strong
bounce-back in the third quarter that will gradually fade in the
coming quarters. For the full year, we expect GDP to drop by just
over 5%, much better than the eurozone.
In the second quarter of 2020, Turkish GDP dropped by 9.9% y/y
according to data from the Turkish Statistical Institute
(TurkStat). In seasonally adjusted data, the economy shrank by
11.0% quarter on quarter (q/q). (IHS Markit Economist Andrew Birch)
With the seasonal, q/q loss in April-June 2020, Turkey
officially entered into a recession - two consecutive quarters of
loss - after GDP had slipped 0.1% q/q in the first quarter. The
economy in 2019 had just emerged from a recession over the final
two quarters of 2018, triggered by the lira collapse that year and
officials' efforts to stabilize the currency.
As mentioned, though economic losses were severe in domestic
demand, the evaporation of exports of goods and services was, by
far, the biggest headwind to overall economic activity in the
second quarter. Total exports in April-June 2020 were down by
around one-third in real terms both as compared to a year earlier
and to the previous quarter, in seasonally adjusted terms.
The spread of the COVID-19 virus devastated demand from
Turkey's primary export partner, the European Union. While the
spread of COVID-19 also had a direct negative impact on Turkish
domestic demand, lost export earnings hurt the economy more than
anything else in the second quarter.
Continued, expansionary economic policies throughout the second
quarter moderated the decline of domestic demand in the second
quarter. At the end of June, total bank lending had grown by 28.0%
y/y according to data from the Banking Regulation and Supervision
Agency (BDDK). Annual bank lending growth had accelerated sharply
over the course of the second quarter, from 14.2% y/y as of the end
of the first quarter and from 10.9% y/y as of the end of 2019.
Elsewhere, TurkStat's surveys of the services, retail trade,
and construction sectors all showed recovery from April, although
all remained in pessimistic territory as of August. Consumer
sentiment has been the least resilient, remaining only barely above
its April low point.
Asia-Pacific
APAC equity markets closed mixed; Australia -1.8%, Japan flat,
Hong Kong Flat, Mainland China +0.4%, and India +0.7%.
China's official manufacturing purchasing managers' index (PMI)
came in at 51.0 in August, down 0.1 point from July. But it was the
sixth consecutive month above the 50 expansionary threshold and
above the level a year ago. (IHS Markit Economist Yating Xu)
Demand continued to recover as sub-index of new orders rose to
the highest since October 2018 and new export orders rose to the
highest since the beginning of this year. Output sub-index edged
down but remained significantly above the level a year ago. With
improved demand, inventory continued to be digested and prices rose
further. Also, employment sentiment continued to improve.
By sector, high-tech manufacturing equipment manufacturing led
the headline growth. Improvement in exports was concentrated in
non-metal products, non-ferrous metals and metal products.
Manufacturing PMI showed continuous recovery in medium-sized
firms and stabilization in large firms, while sentiment further
deteriorated in small firms with its PMI declining by 0.9 points
from July to 47.7 in August.
China's non-manufacturing PMI rose by 1.0 point to 55.2 in
August, entirely due to acceleration in services, while
construction activities slowed.
Construction PMI declined by 0.3 point to 60.2, while
expectation sub-index rose by 0.3 point from July, reflecting
faster infrastructure investment growth after the flood under
stronger fiscal support.
Service PMI picked up by 1.2 points to 54.3, with continuous
improvement in catering, accommodation and culture and sports, as
well as sustained strength in rail transportation and air
transportation as well as internet and software.
The composite output PMI, covering both manufacturing and
non-manufacturing sectors, recorded at 54.5, up 0.4 point from the
previous reading.
LyondellBasell and Liaoning Bora Enterprise Group have
commenced operations at their 1.1-million metric tons/year ethylene
plant and associated polyolefins complex at Panjin in Liaoning
Province, northeastern China. The cost of the project is
approximately $2.6 billion. The two companies in September 2019
established a 50/50 joint venture (JV), Bora LyondellBasell
Petrochemical Co., for the project. The ethylene plant has the
flexibility to consume naphtha and liquefied petroleum gas. The
downstream complex includes units producing 800,000 metric
tons/year of polyethylene (PE) and 600,000 metric tons/year of
polypropylene (PP) using LyondellBasell's Hostalen ACP PE
technology and the company's Spheripol and Spherizone PP processes.
The complex will supply the packaging, transportation, building and
construction, and healthcare and hygiene industries. The materials
produced at the facility will be sold for use within China. The two
companies are planning medium-to-long-term collaboration on
additional petchem projects that could be deployed in multiple
phases over the next 10 years. According to IHS Markit, Asia is the
largest and fastest-growing polyolefins market in the world. China
accounts for more than 60% of the Asian polyolefins market and
represents 40% of worldwide polyolefins growth.
As per IHS Markit's Commodities at Sea, the discharge of major
bulk commodities namely iron ore, coal, and bauxite into China
(Mainland) slowed down significantly during August 2020. As per
Bulkers at Sea, there has been huge congestion at the Chinese ports
which reached a significantly high level during the mid of August.
Thereafter congestion started reducing but still is above the last
three-year levels. During August 2020, discharge of iron ore, coal,
and bauxite is calculated at 98.9mt (down 8pc m-o-m but up 2pc
y-o-y), 15.4mt (down 25pc m-o-m and down 39pc y-o-y), and 7.2mt
(down 34pc m-o-m and 16pc y-o-y). Overall, in the first eight
months of this year discharge of iron ore, coal and bauxite are
calculated at 774mt (up 9pc y-o-y), 173mt (up 1pc y-o-y), and 66mt
(up 5pc y-o-y). In the last two months, there has been a decline in
the imports of coal into China. Three factors are primarily
responsible for the decline, first is the tightness in the import
quota allocated by the Chinese authorities to the power plants,
second is a delay in customs clearance and third is the strong
hydro generation in the country. Imported thermal coal prices into
China have declined to levels last seen four years ago as almost
all power plants are reported to have run out of their import
quotas. As per IHS Coal, Metals and Mining, inventories at the 530
major power plants across China were 80.2mt or 18 days on 23
August, down from the recent high of 89.2mt or 23 days at end-July,
and also lower than 83.mt or 19 days a year earlier. This is
despite coal burn at the 530 major power plants has dropped to
3.99mt/d on 23 August, from 4.42mt/d between 1-18 August and
4.06mt/d a year earlier. Hydro generation is expected to be strong
this year until October with weather forecasts suggesting rainfall
before mid-September up 30-80% from normal levels in most regions.
There are reports that the Chinese Government has delayed import
licenses targeting Australian bulk commodities as the trade
relations between the two countries have gone sour. Earlier to
issue import licenses where it used to take just a couple of days
but now it is taking weeks, and this is specific to Australian bulk
commodities. (IHS Markit Maritime & Trades' Rahul Kapoor and
Pranay Shukla)
The Swiss food and beverage giant Nestle agreed to sell its
local brands to Tsingtao Brewery Group last week. The company will
focus on high-end water business, including brands like Perrier, S.
Pellegrino and Acqua Panna. This deal comprises the sale of several
Chinese brands including Dashan, Yunnan Shan Quan and three
factories located in Kunming, Shanghai and Tianjin. Tsingtao will
produce and market Nestle Pure Life in China under a licensing
agreement between the parties. Globally, Nestle has prioritized its
international brands. "This strategy offers the best opportunity
for long-term profitable growth in the category, while appealing to
environmentally and health-conscious consumers," said Mark
Schneder, Nestle chief executive. In China, Perrier water has
achieved good performance through online and the foodservice such
as bars and cafes in tier one and two cities since its launch
several years ago. Nestle is expanding the brand into new markets
such as Chengdu and Wuhan. Italy's bottled water company Ferrarelle
recently (June 2020) established a distribution agreement with
Danone, intending to expand its international business which
currently contributes 4% of total sales. It is believed that Danone
will eventually introduce Ferrarelle to China. The Chinese beer
market is stagnant and buying water business can help Tsingtao to
diversify its product portfolio. Tsingtao Beer's saw its H1 revenue
fall by 5.27% to reach CNY15.7 billion compared with the year
before. Its net profit was CNY1.86 billion, up by 13.8%. Tsingtao
is planning to expand into sparkling bottled water, whisky and
distilled bottled water. In January-July 2020, GTT data shows that
China imported 97 million liters of bottled water (HS code 220210)
for direct consumption from the world, up from 64.6 million a year
ago. Thailand accounted for half of the volume. France was the
second largest supplier. Its shipments to China reached 14.2
million liters, up by 16% in the same period. (IHS Markit Food and
Agricultural Commodities' Hope Lee)
Indian GDP contracted by 23.9% year on year (y/y) in the
April-June quarter of 2020, reflecting the effects of the
protracted lockdown measures that severely constrained industrial
production and consumption spending for a significant part of the
quarter. (IHS Markit Economist Rajiv Biswas)
Manufacturing output declined by 39.3% y/y in the April-June
quarter of 2020, as industrial production was severely curtailed
during most of April and only gradually restarted during May.
Construction output was also badly disrupted because of the
strict lockdown measures in force, with output declining by 50.3%
y/y in the April-June quarter.
Due to the strict restrictions on movement by households in the
first phase of the lockdown measures, output from the trade,
hotels, transport, and communication sector declined by 47% y/y in
the April-June quarter.
In contrast to the situation in manufacturing and services, the
agricultural sector recorded a small positive expansion of 3.4% y/y
in the April-June quarter.
Measured in terms of expenditure, private consumption
expenditure fell by 26.7% y/y in the April-June quarter because of
the lockdown effect, with overall consumption expenditure
contraction mitigated by the 16.4% y/y growth rate in public
consumption.
Meanwhile, fixed investment fell by 47.1% y/y in the April-June
quarter. Exports fell by 19.8% y/y in the April-June quarter, hit
by the effect of the domestic lockdown on industrial production as
well as the slump in world demand because of lockdown measures in
many of India's largest export markets.
Tata Motors and Hyundai won a tender floated by Energy
Efficiency Services Ltd (EESL), a joint venture (JV) between
public-sector undertakings under the Indian Ministry of Power, to
supply 250 electric vehicles (EVs) to the Indian government,
reports The Economic Times. Tata will supply 150 units of its
electric Nexon, while Hyundai will supply 100 units of its electric
Kona. The latest development is part of a tender opened by EESL in
February this year to procure 1,000 EVs with a range of at least
180 km per charge. However, 750 vehicles of the tender, which were
meant for e-taxis, have been put on hold, said Saurabh Kumar,
managing director of EESL. "The e-taxi operators were wary of any
fresh investments at this time, so we will let the tender lapse and
wait till demand revives for e-taxis," Kumar said. This is the
first such tender by EESL in nearly two years. In November 2019,
EESL announced plans to scale down its order for 10,000 EVs by 70%,
first placed in 2017 but later extended to March 2020 because of
subdued demand and some issues pertaining to the vehicles' range.
The agency could only procure 3,000 such vehicles. Tata and
Mahindra & Mahindra (M&M) secured part of the 2017 tender
to supply EVs, with the former expected to supply 60% of the total
order and M&M expected to supply the rest. Additionally, EESL
is accelerating efforts to install public EV charging stations and
aims to set up around 2,000 EV chargers in India during the current
fiscal year (FY) 2020/21. (IHS Markit AutoIntelligence's Isha
Sharma)
Japan's unemployment rate rose to 2.9% in June in July, as an
increase in labor participation offset a slight rise in the number
of employees from the previous month. Although easing containment
measures lifted the number of self-employed and lowered the number
of employees on furloughs, the number of non-regular employees
continued to decline, reflecting severe business conditions,
particularly for services. (IHS Markit Economist Harumi Taguchi)
Due to the reopening of businesses, the number of active job
openings rose from the previous month for the first time in 14
months. However, a continued rise in the number of active job
applications made for tighter employment conditions, as the ratio
of active job openings to active job applications continued to
decline (to 1.08). The number of new job openings declined by 28.6%
from a year earlier.
The July results signal an upswing of employment in line with
business reopenings. Although reopenings will gradually lift labor
demand, the unemployment rate could rise. Social distancing could
make it difficult to improve cash flows, while a resurgence of new
confirmed cases and continued border controls could continue to
weigh on labor demand.
A sharp decline in fixed investment suggests a downward
revision for Japan's real GDP in the second quarter of 2020. Eroded
cash flow could continue to suppress investment and wages. (IHS
Markit Economist Harumi Taguchi)
According to statistics from financial statements for the
second quarter of 2020, sales for all Japan's industrial sectors,
excluding finance and insurance, fell by 10.7% quarter on quarter
(q/q), and the year-on-year (y/y) contraction widened to
10.7%.
Sales of all industry groupings, except for information and
communication services, declined. Major contributors to the severe
contraction were transport equipment and chemical and related
products in the manufacturing sector and wholesale and retail sales
as well as services (including amusement, accommodation, and
life-related services) in the non-manufacturing sector.
Ordinary profits fell by 29.7% q/q, and the y/y contraction
widened sharply to 46.6%, the steepest y/y contraction since the
second quarter of 2009. Ordinary profits declined for all industry
groupings, particularly for transport equipment and food. The fall
in ordinary profits for non-manufacturing largely reflected drops
in services, transport and postal services, and wholesale and
retail sales.
While lower sales were the major reasons for a sharp decrease
in ordinary profits, the weakness was partially offset by lower
payroll costs, as the number of employees declined by 6.6%
y/y.
Investment in plant and equipment (including software) fell by
6.3% q/q and 11.3% y/y under the difficult business conditions.
Although information and communication equipment, real estate, and
some other industry groupings increased investment, eroded cash
flow led to declines in fixed investment for a broader range of
industry groupings, particularly for services, transport and postal
services, and wholesale and retail sales.
Japanese new vehicle sales, including mainstream and
mini-vehicles, were down by 16.0% year on year (y/y) in August to
326,436 units. In the year to date (YTD), sales declined by 18.63%
y/y to 2.930 million units. (IHS Markit AutoIntelligence's Nitin
Budhiraja)
Japanese sales of mainstream registered vehicles were 197,832
units, down by 18.5% y/y during August, according to data released
by the Japan Automobile Dealers Association (JADA). This figure
excludes mini-vehicles, thus covering all vehicles with engines
bigger than 660cc, including both passenger vehicles and commercial
vehicles (CVs), sold in Japan.
Of this total, sales of passenger and compact cars declined by
16.1% y/y to 169,341 units in August, while truck sales were down
by 29.3% y/y to 27,939 units and bus sales by 57.1% y/y to 552
units.
In the YTD, sales of mainstream registered vehicles declined by
19.4% y/y to 1.836 million units.
Sales of passenger cars were down by 19.5% y/y at 1.575 million
units, while truck sales fell by 18.6% y/y to 254,540 units and bus
sales shrank by 27.4% y/y to 7,103 units.
Thailand's industrial production rose by 4.2% from the previous
month in July, and year-on-year (y/y) contraction continued to
narrow, reaching -15.4%. The sustained improvement largely
reflected increases in production of beverages and electrical
equipment and a softer decline in production of motor vehicles.
(IHS Markit Economist Harumi Taguchi)
The improvement in industrial production is due to external and
internal demand. The contraction of exports softened to a 11.9% y/y
drop in July from a 24.6% y/y decrease in the previous month
largely because of a 17.5% y/y rise in exports to the US and softer
declines in exports to ASEAN regions, the European Union, and
Japan.
The Bank of Thailand's private consumption index rose by 2.7%
from the previous month, and the y/y contraction softened to a 0.1%
y/y drop in July. The improvement largely reflected continued
recovery in consumption of non-durables and durables (such as cars
and motorcycles).
The July results suggest that Thailand's economy is recovering
in line with easing containment measures and point to a rise in
real GDP for the third quarter from the previous quarter. The
economy is likely to continue to recover with the resurgence of
business activity over the near term.
The Thai government plans to offer tax incentives to
individuals and companies to exchange their old vehicles for new
vehicles or electric vehicles (EVs), reports the Bangkok Post,
citing Minister of Industry Suriya Jungrungreangkit. The scheme
will apply to vehicles powered by internal combustion engines that
have been in use for over 15 years. The government will offer
income tax deductions of up to THB100,000 (USD3,213) to companies
and individuals who join the scheme, which will be proposed for
cabinet approval in the next two or three months. The tax break
will be offered for five years. "The government may lose some tax
revenue [due to the scheme], but in return we will cut PM2.5 air
pollution and boost car sales that have been badly hit by COVID-19.
It will also boost the adoption of electric cars," said
Jungrungreangkit. The government also aims to recycle the used
vehicles. The government's plan is geared towards boosting new
vehicle demand in the country, which has been experiencing
declining sales for the past several months because of the impact
of the COVID-19 virus pandemic and the country's stringent
automotive loan approval process. (IHS Markit AutoIntelligence's
Jamal Amir)
Posted 01 September 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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