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Most major European equity markets closed higher, while major US
and APAC indices closed mixed. US government bonds closed higher
and benchmark European government bonds were mixed. European iTraxx
was slightly tighter across IG and high yield, while CDX-NA was
almost unchanged on the day. Natural gas, silver and WTI closed
higher, while the US dollar, Brent, gold, and copper were
lower.
Please note that we are now including a link to the profiles of
contributing authors who are available for one-on-one discussions
through our newly launched Experts
by IHS Markit platform.
Americas
Major US equity indices closed mixed; Russell 2000 +0.6%,
Nasdaq +0.3%, S&P 500 0%, and DJIA -0.1%.
10yr US govt bonds closed -1bp/1.30% yield and -1bp/1.92%
yield.
CDX-NAIG closed flat/46bps and CDX-NAHY -1bp/274bps.
DXY US dollar index closed -0.2%/92.45.
Gold closed -0.1%/$1,816 per troy oz, silver +0.9%/$24.22 per
troy oz, and copper -2.2%/$4.28 per pound.
Crude oil closed +0.1%/$68.59 per barrel.
Natural gas closed +5.4%/$4.62 per mmbtu, which is the highest
closing price since June 2014.
The notion of a "free electron world" is a step beyond that of
a "carbon-neutral world" and entails that all short-run marginal
costs (SRMCs), not just environmental costs, have been reduced to
zero via perfect reliability, deep automation, and the elimination
of fuel scarcity, leaving only long-run fixed costs and capital
expenditure. (IHS Markit Power Market Edge's Chad Singleton)
Running a thought experiment that processes the features and
mechanics of a free electron world is a highly fruitful exercise in
strategic planning, signpost anticipation, and dispelling common
biases and logical fallacies, even if we never fully arrive in that
world.
The energy transition will not require environmental activism
to sustain itself. While it's true that environmental concern was
the primary catalyst for the transition and remains a major
motivator to this day, the primary driver of the transition is far
more fundamental and encapsulating: the prospect of machines that
can reliably generate energy free of any variable operating
expenses.
It's highly unlikely that electric energy markets in today's
form would persist in a free electron world as existing auction
structures incentivize generators to minimize their offers to their
respective SRMC in order to profitably clear - a mechanism that
would simply lack utility in a post-SRMC world.
Forward reliability markets (or some derivative) would take
center-stage in power markets in a free electron world. Without
revenues from energy markets, forward reliability markets would
need to provide sufficient returns to cover generator fixed
operating expenses and capital costs. But dated capacity auction
constructs have already begun to buckle under the weight of their
critical role in the transition, while markets devoid of any such
auction are failing on a more routine basis. A conceptual reboot of
forward capacity might be necessary sooner rather than later.
The energy transition will evolve as one of many equally
transformative pillars of the 4th industrial revolution including
digitization, quantum sciences, genomics, brain-computer interface,
additive manufacturing, AI, and space exploration, all of which are
liable to intermingle with and alter the course of the energy
transition in ways that we can hardly imagine.
Two days after Hurricane Ida plowed across southeastern
Louisiana on 29 August, petrochemical producers in Baton Rouge,
Plaquemine, Geismar, and other localities in the region are still
assessing the storm's impact on their operations, but damage seems
to be limited. Communications remain a problem, and some facilities
are still inaccessible owing to downed power lines or trees. Power
outages are likely to constrain recovery efforts for several weeks
to come. (IHS Markit Chemical Advisory)
Six facilities producing ethylene were affected by the storm:
ExxonMobil Baton Rouge; Shell Norco; Dow Plaquemine; Dow Taft;
Shintech Plaquemine; and Nova Chemicals Geismar. Together, they
represent about 16% of US ethylene capacity, according to data from
IHS Markit.
As for propylene, nearly 18% US refinery-grade propylene (RGP)
and 17% of US chemical- and polymer-grade propylene (CGP/PGP)
capacities are offline. Propylene inventories were already
dangerously low before the storm, and spot prices had climbed to $1
per pound before the hurricane. Derivative units representing 12%
of US propylene demand shut down in advance of Ida: Cornerstone's
acrylonitrile unit at Fortier, Dow's oxo-alcohol facilities at
Plaquemine and propylene oxide unit at Taft, Pinnacle Polymer's
polypropylene (PP) units at Garyville, ExxonMobil's PP units at
Baton Rouge, and Lion copolymer's ethylene-propylene elastomer unit
at Geismar.
About 9% of US polyethylene (PE) capacity and 6% of US PP
capacity has been shut down by the storm. With power still out in
the Plaquemine and New Orleans areas and access to ancillary
services such as nitrogen uncertain, it may take several weeks for
some of the plants to resume production, says IHS Markit.
IHS Markit understands that the butadiene production units in
Baton Rouge and Norco are down, and it is likely that the
ExxonMobil extraction unit in Baton Rouge will move directly into a
planned outage. Only a small volume of demand capacity was
affected, however.
Approximately 31% of US chlor-alkali capacity and 41% of US
polyvinyl chloride (PVC) capacity are located in the region struck
by Hurricane Ida, and all has been shut down.
About 20% of US ethylene oxide (EO) capacity was shut in
preparation for the storm—BASF's unit at Geismar, Dow's units
at Hahnville and Plaquemine, and Shell's units at Geismar. These
outages will worsen an already tight supply/demand balance, says
IHS Markit. The same is true for derivative ethylene glycol, given
high demand for downstream polyethylene terephthalate (PET) and the
approaching winter season ramp-up in production of antifreeze.
About 14% of US benzene-toluene-xylenes (BTX) capacity is
offline owing to the shutdowns at Dow Plaquemine, ExxonMobil Baton
Rouge, and the Phillips 66 Alliance refinery, the last of which may
be particularly slow to restart owing to flooding.
Downstream, Hurricane Ida shut down 44% of US styrene capacity.
The market was long before the storm, but with planned turnarounds
in North America starting in September, it was set to tighten.
ADP's August employment report, which measures the change in
employees on private companies' payrolls, said that 374,000 jobs
were added last month, far short of the 600,000 expected by
economists. The July report showed 330,000 new jobs, which was
revised down by 4,000 to 326,000 in the latest release.
(Barron's)
The seasonally adjusted IHS Markit U.S. Manufacturing
Purchasing Managers' Index (PMI) posted 61.1 in August, down from
63.4 in July, and broadly in line with the earlier released 'flash'
estimate of 61.2. The latest improvement in operating conditions
was the softest for four months, but nonetheless among the
strongest seen in the over 14-year series history. (IHS Markit
Economist Chris
Williamson)
Manufacturers commonly reported that material shortages
hampered output growth, as supplier delivery times increased
markedly and to one of the greatest extents on record. Longer lead
times were attributed to greater global demand for inputs and
capacity issues at suppliers.
Subsequently, cost burdens rose substantially in August. The
rate of input price inflation was the fastest seen in more than 14
years of data collection amid supplier price hikes. In an effort to
partially pass on greater costs to their clients, goods producers
raised their selling prices at the steepest pace on record. In line
with greater new order inflows, manufacturers expanded their input
buying during August. Firms also noted that efforts to build safety
stocks drove the upturn in purchasing.
Total US construction spending rose 0.3% in July, in line with
the consensus estimate, but below IHS Markit's. Spending in prior
months was revised higher. (IHS Markit Economists Ben
Herzon and Lawrence Nelson)
Core construction spending rose 0.4% in July and was also
revised higher for May and June. The increase in July was smaller
than we had assumed. After rounding, though, the data on
construction spending through July left our estimates of second-
and third-quarter GDP growth unrevised at 6.6% and 4.7%,
respectively.
The trend in construction spending is slowing, mainly
reflecting a fading boost from the private residential sector.
Over the three months ending in July, total construction
spending rose at a 4.0% annual rate and core construction spending
rose at a 3.1% rate. Both are materially below their 12-month gains
(9.0% and 10.4%, respectively), reflecting a sharp slowing in
private residential construction.
Permits for the construction of new single-family units have
already peaked, and single-family housing starts are trending
lower. Given the normal relationship between housing starts and
value put-in-place, single-family construction spending will soon
turn lower.
Private nonresidential construction spending has been on a
flat-to-declining trend so far this year, but there are a couple of
bright spots. Spending on general commercial warehouses and on
manufacturing structures has been firming, likely reflecting
ongoing strength in the goods-producing sector.
The US Department of Treasury's insurance arm is seeking
comment on its role in collecting data and taking action on risks
that the insurance sector faces as losses from climate-related
disasters reach into the billions. (IHS Markit Net-Zero Business
Daily's Amena
Saiyid)
The move is based on Treasury's assessment that climate risks
have the potential to disrupt national financial stability.
Treasury's Federal Insurance Office (FIO) issued a 31 August
notice, responding to President Joe Biden's 20 May order on
climate-related financial risk, that seeks to better understand
which data are needed to assess the climate risks faced by the
insurance sector, what data remain unavailable, and how can it
collect this data to make it available to stakeholders.
The FIO also is seeking input on the specific types of data
that would be needed to assess climate-related financial risks to
the insurance sector, along with the challenges posed in the
collection of such information.
JD Power's 2021 Initial Quality Study (IQS) results continue
previous themes, including the significance of infotainment system
problems and that there are more problems per 100 vehicles (PP100)
with models from luxury brands than from mainstream brands. JD
Power's 2021 IQS shows an industry average score for PP100 of 162,
lower than in 2020. The Ram brand has taken top position in the
rankings, while the Chrysler brand has fallen to last place. The
rankings in the IQS remain subjective, and vehicle owners'
differentiation between "things broken" and "things gone wrong" is
somewhat blurred. One of the benefits of the study is that, as an
annual survey, it captures owners' responses over time and is
useful in assessing trends in scores. JD Power says that the most
problematic category remains infotainment systems and the top
problem is smartphone connectivity. (IHS Markit AutoIntelligence's
Stephanie
Brinley)
Nuro, a maker of low-speed autonomous delivery vehicles, has
announced investment plans in manufacturing facilities and a test
track in the US state of Nevada. In a blog post, the company said
the investment would create about 250 new jobs, saying it would
fill these posts through partnerships with local colleges and
career training programs. For these new jobs, Nuro said it would be
"specifically targeting individuals traditionally underrepresented
in current technology roles". For the test track, Nuro plans to
take over 74 acres of the current Las Vegas Motor Speedway to
create a closed-course testing facility, to perform development and
validation activities. Nuro is to break ground on the projects in
late 2021 and in 2022. Nuro intends to build a third-generation of
its robot vehicle at the location, although it has not yet provided
details on the updated vehicle. The new product is expected to have
a similar use to the existing R1 and R2 vehicles; specifically,
robotized delivery of goods, not people. (IHS Markit
AutoIntelligence's Stephanie
Brinley)
Autonomous truck startup Gatik has raised USD85 million in a
Series B funding round, according to a company statement. This will
bring the company's total raised capital to USD114.5 million. The
round was led by new investor Koch Disruptive Technologies in
participation with existing investors including Innovation
Endeavours, Wittington Ventures, FM Capital, Dynamo Ventures,
Trucks VC, and Intact Ventures, among others. Gatik plans to use
the capital to advance its commercial-grade autonomous technology,
add more vehicles to its fleet of Class 3-6 multi-temperature
autonomous box trucks, and increase its team size. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Europe/Middle East/Africa
Most major European equity indices closed higher except for
Germany -0.1%; Spain +1.6%, France +1.2%, Italy +0.7%, and UK
+0.4%.
10yr European govt bonds closed mixed; UK -2bps, Italy -1bp,
and Germany/France/Spain +1bp.
iTraxx-Europe closed -1bp/44bps and iTraxx-Xover
-2bp/226bps.
Brent crude closed -0.1%/$71.59 per barrel.
UK meat processors are calling for urgent measures to help them
recruit workers from overseas as a new report highlights how the
industry's capacity is being undermined by Covid-19 and post-Brexit
immigration policy. (IHS Markit Food and Agricultural Commodities'
Max Green)
The report, produced by Grant Thornton on behalf of various
organizations, was sent to government ministers last week. It
estimates there are more than 500,000 vacancies across food and
drink businesses, and sets out clear ways government can help the
industry overcome current workforce challenges.
These include the introduction of a 12-month Covid-19 Recovery
Visa, which would enable all involved throughout the supply chain
to recruit critical roles as a short-term response to labor
shortages.
The British Meat Processors' Association (BMPA) say this would
provide a short-term fix while allowing time to explore and
implement longer-term solutions. The BMPA says the second most
important change the Government can make is to revisit the Shortage
Occupation List and add to it skilled workers such as butchers and
HGV drivers. The association points out that the food sector also
has an aging workforce - with estimates suggesting that one in four
workers are due to retire within the next 10 years, which amounts
to over one million people leaving the industry.
National Pig Association chief executive Zoe Davies says 70,000
pigs are already backed up on farms, with this number rising by
15,000 a week due to processors reducing throughput as a result of
labor shortages. If Government fails to take action, she says
perfectly healthy pigs will end up being destroyed and wasted.
August's economic sentiment indicator (ESI) for the eurozone
showed the first decline in seven months, slipping by 1.5 points to
117.5, below the market consensus expectation (of 117.9, according
to Reuters' survey). (IHS Markit Economist Ken
Wattret)
Despite the decline, the ESI remains very elevated, with
August's index still 13 points above its pre-pandemic level in
February 2020, while the latest decline follows a record high in
July.
The breakdown of August's data by sub-sector was mixed, but the
most important elements of the survey lost ground. The three
highest weighted sub-indices, for industry, services, and consumer
sentiment (worth a combined 90% of the ESI), all declined, albeit
modestly. Retail and construction sentiment improved, again
modestly, although they account for just 10% of the index.
All the sub-indices remain well above their long-run averages,
indicative of continued robust growth as economies have reopened
from coronavirus disease 2019 (COVID-19) restrictions and activity
has rebounded, although some of the forward-looking aspects of the
survey are pointing to further weakness ahead.
Switching to inflation-related developments, August's ESI data
again showed elevated price pressures. Industrial firms' pricing
intentions rose to a new record high, more than reversing July's
decline.
According to German Federal Statistical Office (FSO) data, real
retail sales excluding cars declined sharply by 5.1% month on month
(m/m; seasonally and calendar-adjusted) in July, thus unwinding
about half of their major jump during May-June that had benefited
from the lifting of many COVID-19-related restrictions for shops
selling non-essential items. (IHS Markit Economist Timo
Klein)
The real adjusted year-on-year (y/y) rate dropped from 4.9% to
-0.3%. This overstates underlying developments, however, as June
had an additional shopping day compared with a year earlier whereas
July did not. The positive gap with February 2020 - the last month
before the pandemic erupted - is still 3.8%.
July's data have suffered from a combination of initial pent-up
demand having been satisfied in May-June already and by the
beginning summer holiday season, in which many people took
advantage of finally being able to go on holiday in foreign
countries again.
July's breakdown by goods category, based on price-adjusted y/y
data (total -0.3% y/y without shopping-day adjustment; see table
below), did not reveal any major difference between food and
non-food sales this time. This corroborates the impression that
much pent-up demand has been satisfied especially in June, when
non-food sales had outperformed by far.
Among non-food sales, pharmaceutical/cosmetic goods did best in
July (5.1% y/y), closely followed by the usual leader 'internet and
mail orders' (4.4%). Elsewhere, only clothing/shoes posted another
gain (1.5%), whereas specialized shops (-3.7%),
'furniture/household goods/DIY' (-5.4%), and general department
stores (-7.3%) all saw their sales decline in part
substantially.
DS Automobiles has announced that all its new launches will be
battery electric vehicles (BEVs) from 2024. In a statement, the
brand said, "From 2024, every new DS Automobiles model will be
available exclusively with a 100% electric powertrain." During that
year, it will not only launch a BEV-only variant of the DS4
compact, but also unveil "a new design" that is underpinned by the
new STLA Medium architecture. This will feature a 104kWh battery
that will offer a range of over 400 miles, with DS Automobiles
adding "this future model will offer remarkable technology and
refinement with technical features that are a perfect fit for DS
Automobiles customers." (IHS Markit AutoIntelligence's Ian
Fletcher)
In January-July 2021, Turkey posted a merchandise-trade deficit
of USD25.5 billion according to data from the Turkish Statistical
Institute. The gap was approximately USD1.2 billion smaller than it
had been in the same period of 2020. (IHS Markit Economist Andrew
Birch)
In the first seven months of the year, merchandise exports grew
vigorously, by nearly 35% y/y in nominal dollar terms. Shipments of
iron and steel, refined energy, gold, and plastics have paced
overall gains so far in 2021. The country's largest export
commodity - automobiles - have been growing more modestly, a victim
of the global supply chokepoints.
Imports, meanwhile, also grew vigorously, up nearly 26% y/y. As
with exports, purchases of iron and steel, refined energy and
plastics all paced overall imports. Turkey did reduce gold imports
by 58.1% y/y in January-July 2021, reflecting the easing of the
downward pressures on the lira that drove imports in 2020.
Chinese automaker Chery is looking at the prospect of
establishing production of battery electric vehicles (BEVs) in
Russia, according to an Itar-TASS news agency report. The company
already has a relatively strong presence in Russia and is looking
at adding BEVs to its line-up in the country by 2023. A company
spokesperson told the news agency, "Yes, Chery sees the need for
localization and is holding talks with Russian production sites."
The news that Chery is considering introducing a BEV to its Russian
line-up comes as the Russian government published a road map to
expand local production of BEVs. (IHS Markit AutoIntelligence's Tim
Urquhart)
US alternative protein company Eat Just has announced plans to
build the first-ever cultivated meat facility in the Middle East
and Northern Africa (MENA) region. The project involves the
creation of a regional hub in partnership with Doha Venture Capital
(DVC) and Qatar Free Zones Authority (QFZA). The hub will be
located in the Umm Alhoul Free Zone, one of two free zones overseen
and regulated by QFZA, with direct access to Hamad Port. The hub
will initially comprise a large-scale facility for Eat Just's GOOD
Meat division, which created the world's first-to-market meat made
from animal cells instead of slaughtered livestock. There are also
plans to add a protein processing facility for JUST Egg, the
company's plant-based egg division. This is DVC's first investment
in the protein innovation space and the forthcoming meat facility
will be a first for QFZA, which is focused on bringing together
leading global companies using innovative technologies to build a
more sustainable future. ABG, LLC and Alvarium Investments Ltd.
advised on the transaction. (IHS Markit Food and Agricultural
Commodities' Max Green)
Asia-Pacific
Major APAC equity markets closed mixed; Japan +1.3%, Mainland
China +0.7%, Hong Kong +0.6%, South Korea +0.2%, Australia -0.1%,
and India -0.4%.
Chinese tech giant Xiaomi has completed the official
registration of its electric vehicle (EV) business. According to
Reuters, the new unit, called Xiaomi EV Inc., has registered
capital of CNY10 billion (USD1.55 billion) and already has a staff
of around 300. The latest development is in line with the
announcement in March, when Xiaomi first revealed plans to set up a
smart EV business subsidiary. The company said that it plans to
invest CNY10 billion in the initial phase of the development and
plans a total investment of USD10 billion over the next 10 years to
support its EV business. The company hopes to launch its first EV
equipped with Level 3 autonomous technology in three years; its
upcoming models are likely to be built by a partner engaged in
contracting manufacturing and are likely to be positioned in the
entry and standard price segment to appeal to first-time EV buyers.
(IHS Markit AutoIntelligence's Nitin Budhiraja)
According to financial statements for the second quarter of
2021, sales for all of Japan's industrial sectors, excluding
finance and insurance, fell by 0.1% quarter on quarter (q/q),
marking the second consecutive quarter of decline. (IHS Markit
Economist Harumi
Taguchi)
The year-on-year (y/y) figure turned positive, increasing by
10.4%. The continued q/q decrease was due to a 0.9% q/q drop in
non-manufacturing sales following a 1.4% q/q decline in the first
quarter, reflecting continued negative impacts from
COVID-19-related containment measures.
Sales in manufacturing continued to rise, moving up 2.2% q/q,
or 20.1% y/y, thanks largely to solid external demand. While sales
in a broad range of industry groupings turned positive y/y, the y/y
improvement largely reflected increased sales in transport
equipment, chemical and related products, information and
communication electronics equipment, and wholesales.
Ordinary profits rose by 1.8% q/q and 93.9% y/y, thanks largely
to growth of 7.4% q/q and 159.4% y/y in manufacturing. The solid
y/y rise in ordinary profits for manufacturing was driven by
increases in transportation equipment, information and
communication electronics equipment, chemical and related products,
and electrical machinery/equipment/supplies, while all
manufacturing groupings recorded substantial y/y growth.
Ordinary profits in non-manufacturing dropped by 1.9% q/q, the
first decline in four quarters, but a 64.2% y/y increase reflected
improved profits for overall services, wholesales, and transport
and postal services, offsetting continued declines in accommodation
and eating/drinking places, as well as life-related services.
Although sales remained weak, lower payroll costs and declines in
the cost of sales helped lift ordinary profits.
Fixed investment, including software, rose by 3.2% q/q and the
y/y figure rose for the first time in six quarters with growth of
5.3%. Solid sales and profits encouraged manufacturers to increase
fixed investment, which rose 3.9% q/q and 4.0% y/y.
Non-manufacturing also increased fixed investment by 2.8% q/q and
5.9% y/y. The y/y rise in investment including software was thanks
largely to increases in investment of information and communication
electronics equipment, fabricated metal products, pulp/paper
products, construction, information services, and
production/transmission/distribution of electricity.
Japanese sales of new vehicles, including mainstream registered
vehicles and mini-vehicles, stood at 319,697 units during August,
down by 2.1% y/y. During the first eight months of this year, sales
of new vehicles in Japan were up by 7.9% y/y to over 3.16 million
units. IHS Markit currently forecasts that Japanese light-vehicle
sales will recover in 2021 to nearly 4.88 million units, up by
8.2%. In 2021, passenger car sales, which account for nearly 85% of
the overall market, are expected to grow by 7.8% to 4.14 million
units, while sales of LCVs are forecast to increase by 10.2% y/y to
738,294 units. (IHS Markit AutoIntelligence's Isha Sharma)
HHI, together with Korea Shipbuilding & Offshore
Engineering Co. (KSOE) and Korea National Oil Corporation (KNOC),
has developed an offshore platform to store CO2 under the ocean
floor. The platform has been granted the AIP from DNV and is
targeted to be launched by 2050 with the aim of storing 400,000
tons of CO2 annually for 30 years. HHI oversees the basic design of
the platform, KSOE will develop a CO2 injection system while KNOC
manages the gas injection and operations. On the other hand, HHI's
affiliates, Hyundai Mipo will be joining hands with POSCO, steel
making giant, to develop a 20,000 cubic meter liquid CO2 carrier by
2025. (IHS Markit Upstream Costs and Technology's Jessica Goh)
BW Offshore has completed the USD1.150 billion project
financing for the company's Barossa FPSO under construction. The
debt facility has been provided by nine banks and covers both the
construction and operations period. The loan will become
non-recourse once the FPSO has been completed . The loan has a
tenor of 14 years with a balloon at maturity and carries a base
interest rate plus 2.50% during construction and 2.25% during the
operational phase. The interest rate for the Barossa FPSO loan is
similar to the USD800 million BW Catcher FPSO loan secured in 2015.
The interest rate for the BW Catcher loan was LIBOR plus 2.25%
during construction and LIBOR plus 2.25% during the operational
phase. Santos has contracted BW Offshore for the construction,
connection and operation of the FPSO for deployment at Barossa
field offshore Australia. The lease and operate contract is for a
firm period of 15 years with a further 10 years of option. The FPSO
will be turret moored with a new hull based on BW Offshore's
RapidFramework® design. First gas is expected during the first half
of 2025. (IHS Markit Upstream Costs and Technology's Kelvin
Sam)
Posted 01 September 2021 by Ana Moreno, Director, Product Development, IHS Markit and
Chris Fenske, Head of Fixed Income Research, Americas, S&P Global Market Intelligence
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