Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Most APAC equity markets closed lower, while European and US
markets closed mixed. US government bonds closed higher and
benchmark European bonds were mixed across the region. European
iTraxx and CDX-HY credit indices closed modestly wider across IG
and high yield. Brent and WTI both closed higher, with the former
closing above $50 per barrel for the first time since early March.
The US dollar and gold closed lower, while silver and copper were
higher. Today's non-seasonally adjusted US initial claims for
unemployment insurance rose to the highest level since
early-August, further reinforcing the urgency for congress to pass
some form of a stimulus bill before the New Year.
Americas
US equity markets closed mixed; Russell 2000 +1.1%, Nasdaq
+0.5%, S&P 500 -0.1%, and DJIA -0.2%.
10yr US govt bonds closed -3bps/0.91% yield and 30yr bonds
-6bps/1.63% yield.
CDX-NAIG closed +1bp/53bps and CDX-NAHY +2bp/302bps.
DXY US dollar index closed -0.3%/90.82.
Copper closed +2.0%/$3.58 per pound, which is the highest close
since February 2013.
Gold closed -0.1%/$1,837 per ounce and silver +0.4%/$24.09 per
ounce.
Crude oil closed +2.8%/$46.78 per barrel, which is the highest
close since 4 March.
The IHS Markit Materials Price Index (MPI) rose 5% last week,
its fourth consecutive increase and its largest one-week gain since
June. More significant, last week's move lifted the MPI to its
highest level since November 2014. (IHS Markit Pricing and
Purchasing's Michael Dall)
Metal markets grabbed center stage for the week, with the
steel-making raw materials sub-index jumping 7.1% and the
nonferrous metals index rising 3.2%. Iron ore prices climbed to a
seven-year high as major producer Vale announced lower production
targets for 2021.
Nonferrous metals were supported by across-the-board strength,
with copper also hitting a seven-year high and aluminum breaching
$2,000 per metric ton for the first time since 2018.
Chemicals prices were another major contributor to last week's
MPI gain, increasing 5.4%. The chemicals sub-index was boosted by
strong price increases for US and European benzene.
US supply chains have been challenged, sending prices higher in
North America. In Europe, low levels of the Rhine River have
constrained cargo traffic and tightened supply across the
continent.
Energy markets also showed comparative strength, with the MPI's
energy sub-index rising 4.8%. Oil prices rose by almost 9% on news
of a supply agreement between OPEC and Russia. Both parties agreed
to increase supply by 500,000 barrels per day from January,
significantly lower than previously agreed. This eased fear of
oversupply and sent the price of Brent crude oil to a
nine-month-high figure of $49.87.
Markets have become energized by the continuing strength being
exhibited by mainland China's economy and by hopes that multiple
vaccines may be widely available in some regions during the first
half of 2021.
The likelihood of additional fiscal stimulus in the US also
seems to have improved sentiment. On the supply side, continuing
disruptions in supply chains are creating tight conditions and
raising costs.
This combination of demand and supply factors has created
bullish conditions in commodity markets. How quickly supply
bottlenecks are resolved and how badly a COVID-19 second wave
impacts Europe and North America will determine how long the
commodity price rally can be sustained.
A Food and Drug Administration advisory panel recommended
approval of the Covid-19 vaccine developed by Pfizer Inc. and
BioNTech SE, clearing the way for the FDA to grant emergency
authorization of the vaccine as early as Friday. In its vote to
approve, the panel said the benefits of the vaccine outweigh the
risks for people 16 years of age and older. (WSJ)
Consumption of gasoline continued moving lower last week,
according to the Energy Information Administration, and is
considerably below the lower end of a normal range for this time of
year. This is consistent with a marked deterioration in internal
mobility and could be a sign of broader macroeconomic weakness
heading into December. Meanwhile, passenger throughput at US
airports, relative to year-ago levels, has been trending lower over
the last week or so, according to the TSA. Recent readings appear
to have broken below what had been a broadly firming trend, hinting
at a broader re-weakening in the travel sector. (IHS Markit
Economists Ben Herzon and Joel Prakken)
Between past due rent, late fees and unpaid utility bills,
Americans may collectively owe $70 billion by January, when the
current federal eviction moratorium is set to expire. Estimates for
the nation's total rent shortfall on Jan. 1 range in the tens of
billions of dollars, potentially exceeding the amount of emergency
rental assistance that Congress may or may not deliver over the
next few weeks. If lawmakers fail to act, the New Year could
trigger a long-feared disaster — an avalanche of evictions
during the dead of winter, as the pandemic rages. (Bloomberg)
Seasonally adjusted (SA) <span/>US initial claims for unemployment
insurance rose by 137,000 to 853,000 in the week ended 5 December,
its highest level since mid-September. The not seasonally adjusted
(NSA) tally of initial claims rose by 228,982 to 947,504, its
highest level since early August. Initial claims have risen for
three of the last four weeks, suggesting a flagging recovery in the
labor markets amid the resurgence of the virus that is forcing some
states into lockdown again. (IHS Markit Economist Akshat Goel)
Seasonally adjusted continuing claims (in regular state
programs), which lag initial claims by a week, rose by 230,000 to
5,757,000 in the week ended 28 November. Prior to seasonal
adjustment, continuing claims rose by 533,336 to 5,780,893, rising
for the first time in 13 weeks. The insured unemployment rate in
the week ended 28 November was up 0.1 percentage point to
3.9%.
There were 427,609 unadjusted initial claims for Pandemic
Unemployment Assistance (PUA) in the week ended 5 December. In the
week ended 21 November, continuing claims for PUA fell by 313,739
to 8,555,763.
In the week ended 21 November, continuing claims for Pandemic
Emergency Unemployment Compensation (PEUC) fell by 36,140 to
4,532,876.
The Department of Labor provides the total number of claims for
benefits under all its programs with a two-week lag. In the week
ended 21 November, the unadjusted total fell by 1,120,049 to
19,043,429.
The Government Accountability Office claimed that the
Department of Labor's estimates of the number of individuals
receiving benefits are flawed. The inaccuracies largely stem from
inconsistent reporting from states, and although the Labor
Department does not anticipate a change in its methodology for
counting claims, it expects to add a clarifying statement in future
weekly news releases.
The consumer price index (CPI) rose 0.2% in November after no
change (0.0%) in October. During November, the CPI for energy
increased 0.4%, while the food index declined 0.1%. The core CPI,
which excludes the direct effects of movements in food and energy
prices, rose 0.2%. (IHS Markit Economists Ken Matheny and Juan
Turcios)
The core CPI has partially recovered to its rising pre-pandemic
trend following declines last spring when some components recorded
sharp declines amid plummeting demand due to COVID-19. The core CPI
fell 0.6% (not annualized) during the period from March to May,
then rose 1.7% over the period from June to November. The 12-month
change in the core CPI has recovered only a few tenths of the sharp
decline it experienced last spring, when it fell from 2.4% (in
February) to 1.2% (in May and June). As of November, the 12-month
core CPI inflation rate was 1.6%, unchanged from October.
In November, the CPI for shelter rose 0.1% for a fourth
consecutive month. Rent inflation has eased this year as some
landlords have agreed or been forced to accept lower rents. Rent of
primary residence and owners' equivalent rent were each unchanged
(0.0%) in November. Their 12-month rates of change have slowed
substantially from 3.8% and 3.3% in February to 2.4% and 2.3% as of
November, respectively. Rent inflation represents about 32% of the
overall CPI and 40% of the core CPI.
Prices for used cars and trucks decreased 1.3% in November, the
second consecutive monthly decline. Used cars and trucks prices
surged a cumulative 15.1% from June to September. As of November,
the CPI for used cars and trucks prices was 12.2% higher than in
February 2020. Prices for apparel (0.9%), household furnishings
(0.9%), and transportation services (1.8%) rose during
November.
LeddarTech has collaborated with dSPACE to develop LiDAR
sensors for autonomous vehicles (AVs). The companies will jointly
provide simulation models and interfaces for testing and validating
LiDAR sensors throughout the development process. This will enable
OEMs and suppliers to incorporate their LiDAR innovations into
ready-for-application solutions faster. The co-operation will also
support LeddarTech to integrate dSPACE's sensor models into its
development projects. Dr Christopher Wiegand, product manager at
dSPACE, said, "This partnership will enable our customers to
accurately and quickly perform validation tasks for lidar
applications. Without reliable simulations, automated driving
systems (SAE Levels 3-5) cannot be achieved." LeddarTech develops
high-performance, low-cost LiDAR solutions for advanced driver
assistance system (ADAS) and AV operation applications. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Cruise AV is beginning testing of autonomous vehicles (AVs)
without a person behind the wheel in San Francisco, California,
United States, according to media reports. The CEO of Cruise AV,
Dan Ammann, said the company is deploying driverless AVs in a
gradual process, growing both the scope of driverless operations as
well as the number of driverless vehicles on the road and the area
in which the vehicles operate, reports Automotive News. Cruise
received approval from the US state of California to run vehicles
without a backup driver in October. Cruise was one of five
companies given approval to test in this way, with the others being
AutoX, Waymo, Nuro, and Zoox. In China, AutoX began driverless
testing in Shenzhen and Baidu in Beijing this month. Waymo has been
allowing riders to book rides in driverless vehicles as well,
although only in its Phoenix, Arizona, testing location. (IHS
Markit AutoIntelligence's Stephanie Brinley)
An explosion and fire at Optima Chemicals' manufacturing
facility in Belle, West Virginia, Tuesday evening has left four
injured, according to local news reports. Doug Cochran, general
manager of the facility, says all process units have been taken
offline. The Optima facility is located on a site owned by
Chemours, which sold the assets to Optima, a toll and custom
manufacturer of fine chemicals, in 2015. Belle Chemicals, which
also has a production facility at the Chemours site, says it has
also taken production offline. Belle, an affiliate of Cornerstone
Chemical, acquired Chemours's methylamines business and associated
assets in January 2020. The explosion, which reportedly threw
debris as far as one mile, occurred at about 10 pm. It seems to
have involved chlorinated dry bleach and methanol, and to have
started on a barge, according to local authorities cited by the
West Virginia Metro News. The fire was extinguished within two
hours. Other producers with operations at the site include Lucite
International and Kureha PGA. Kureha has been manufacturing
polyglycolic acid (PGA) at Belle since 2011. Lucite produces higher
methacrylates at Belle. (IHS Markit Chemical Advisory)
According to Argentina's National Institute of Statistics and
Census (Instituto Nacional de Estadística y Censos: INDEC), the
country's industrial production decreased by 2.9% year on year
(y/y) in September. Seasonally adjusted data show a 2.5%
month-on-month (m/m) decline in October, compared with a 5.3% m/m
rise in September (revised figure). The cumulative change for the
first 10 months of 2020 is a decline of 9.9% y/y. (IHS Markit
Economist Paula Diosquez-Rice)
The biggest annual decreases in October were in transport
equipment, clothing and apparel, textiles, metal products, tobacco
products, and oil refining, among others. On the other hand, a few
sectors posted a year-on-year expansion in October: the rubber and
plastics sector, the non-metal minerals sector, the machinery and
equipment sector, and the general equipment sector.
A qualitative industrial poll of companies conducted by INDEC
shows that 30% of respondents estimate that demand will deteriorate
in November 2020-January 2021, compared with the same period in
2019-20 (down from 38% in the previous month's survey). The
percentage of respondents expecting demand to pick up rose to 31%,
while 31% of respondents expect exports to fall during the
period.
Construction activity increased by 4.3% m/m in seasonally
adjusted terms in October and decreased by 0.9% compared with
October 2019 (the comparison base was quite depressed as
construction activity dropped nearly 10% y/y in October 2019).
Construction employment in the formal sector, registered, decreased
by 23.9% y/y in October, while cumulative job losses in the sector
stood at 23.9% in the first 10 months of the year. Approximately
23% of the construction firms that responded to the qualitative
survey expect private-sector activity to shrink in the next three
months, whereas 42% expect no change in activity.
Brazil slashed its next orange forecast, making it the largest
crop loss for over 30 years. Orange juice is likely to be in even
shorter supply in 2021 than was first feared. The latest
Fundecitrus forecast is for just 269 million boxes. The weather has
been hotter and drier than the worst forecasts. El Niña was
expected, but whereas the last such event happened in November,
this time it hit in September and when only 30% of the crop has
been harvested. Rainfall was 14% below average between May and
August and 41% between September and November. For the whole
period, the average rainfall in the citrus belt was just 337
millimeters, some 150mm below normal. Three regions in the citrus
belt had reasonable rainfall but even that was below the historical
average. Elsewhere, farmers even resorted to watering the trees
from tankers. Harvesting is progressing slowly. In November, it had
only reached 58% compared with 74% last year. The average fruit
weight is put at 156 grams, 3g less than in the May forecast. The
fruit drop has risen from 17.3% to over 21%, the worst figure since
2015. (IHS Markit Food and Agricultural Commodities' Neil
Murray)
Europe/Middle East/Africa
European equity markets closed mixed; Spain -0.6%,
Germany/Italy -0.3%, France +0.1%, and UK +0.5%.
10yr European govt bonds closed mixed; UK -6bps, Italy -1bp,
Germany flat, and Spain/France +1bp.
iTraxx-Europe closed +1bp/48bps and iTraxx-Xover
+10bps/250bps.
Brent crude closed +2.8%/$50.25 per barrel, closing above $50
per barrel for the first time since 4 March.
Limited monthly GDP gains from August to October confirm our
long-held assessment that the United Kingdom was never on course
for a strong "V-shaped" recovery. In addition, the outlook is
increasingly challenging, with the latest COVID-19 virus-related
developments suggesting that the economy endured a cliff-edge fall
in November. (IHS Markit Economist Raj Badiani)
The Office for National Statistics (ONS) reports that the UK
economy rose for the sixth successive month in October following a
record fall of 19.5% month on month (m/m) in April, but the pace of
recovery slowed for the fourth straight month.
Specifically, real GDP grew by just 0.4% m/m in October, which
followed m/m gains of 1.1% in September and 2.2% in July.
Nevertheless, it remains 8.6% below the January level, which
represents the pre-COVID-19 virus peak.
This was broadly in line with our October estimate of a 0.3%
m/m rise. In addition, it outperformed the 0% consensus forecast of
economists polled by Reuters.
In annual terms, the economy in October was 8.2% smaller than a
year earlier.
Meanwhile, the economy grew by 10.2% in the three months to
October compared with the three months to July, down from growth of
15.5% in the three months to September. Nevertheless, GDP was still
8.6% smaller when compared with the August-October 2019
period.
A breakdown by type of output reveals that the services sector
increased by 0.2% m/m in October while remaining 8.6% lower than
February 2020's level. The main narrative was accommodation and
food service activities falling by 14.4% m/m in October because the
sector faced stricter COVID-19 virus-related restrictions and an
accompanying lack of demand.
Meanwhile, many other parts of the services sector recorded
moderate growth during October.
The recovery in industrial production regained some momentum,
rising by 1.3% m/m in October, after slowing notably in September
and August. Manufacturing was the leading sector, up by 1.7% m/m,
with 8 of the 13 manufacturing sub-sectors continuing to recover
lost ground after experiencing large falls across March and April.
The ONS reports that the manufacture of transport equipment grew by
5.4% m/m in October.
Despite stronger growth in October, industrial production was
still 4.4% lower than the level in February, with manufacturing
trailing by 6.6%.
The rolling three-month growth comparison reveals that output
in the production sector grew by 7.6% in October. Again, the
manufacturing sector was a strong performer, rising by 10.0%, with
the manufacture of transport equipment leading the way.
Supermarket sales have increased by 10% year-on-year in the
month of November, with growth peaking at 13% in the week of 7
November as shoppers prepared for England's second national
lockdown (5 November-1 December), data from market researchers
Nielsen and Kantar shows. Consumers limited their supermarket
trips, with visits down 12% compared with the same time last year.
However, they spent, on average, 16% more each time they shopped.
Sales of frozen food were up 19.7%, according to Nielsen. At the
same time, Kantar highlighted that limited opportunities to drink
in pubs and restaurants, as well as an early eye on festivities,
pushed alcohol spend 33% higher than in the same four weeks last
year. Two-fifths of that growth came from spirits, with sales of
cream liqueurs - popular Christmas drinks - more than doubling
compared with 2019. Online sales increased by 109% compared with
the same period last year, with the online share of grocery spend
exceeding 13%, compared with 7% in November 2019 and not far from
the 14% peak seen in June of this year, according to Nielsen.
November was the single largest month ever for the supermarkets,
with GBP10.9 billion (USD14.6 billion) spent over four weeks.
December's numbers are likely to surpass that again, and Kantar
expects spend to be close to GBP12 billion in the month ahead,
around GBP1.5 billion more than last year. (IHS Markit Food and
Agricultural Commodities' Cristina Nanni)
Asset purchases and long-term loans to banks remain the favored
policy instruments, in line with prior signals. The European
Central Bank's (ECB) apparent reluctance to take its deposit
facility rate (DFR) further below zero could lead to further euro
appreciation. As expected, the ECB announced a "recalibration" of
various policy instruments following its policy meeting on 9-10
December. (IHS Markit Economist Ken Wattret)
The envelope of the pandemic emergency purchase programme
(PEPP) has been increased by EUR500 billion (USD606 billion) to a
total of EUR1.850 trillion.
The horizon for net purchases under the PEPP has been extended
to at least the end of March 2022 and will continue until the ECB
judges that the COVID-19 crisis phase is over.
The reinvestment of principal payments from maturing securities
under the PEPP has been extended until at least the end of
2023.
Net purchases under the asset purchase programme (APP) will
continue at a monthly pace of EUR20 billion for as long as
necessary, to end shortly before the ECB starts to raise policy
rates.
The principal payments from maturing securities purchased under
the APP will continue for an extended period past the date when the
ECB starts raising interest rates.
The third series of targeted longer-term refinancing operations
(TLTRO III) has been recalibrated, with three additional operations
to be conducted between June and December 2021.
The total amount that counterparties will be entitled to borrow
in TLTRO III operations will increase from 50% to 55% of their
stock of eligible loans.
The recalibrated TLTRO III borrowing conditions will only be
made available to banks that achieve a new lending performance
target.
There will be four additional pandemic emergency longer-term
refinancing operations (PELTROs) in 2021.
The collateral easing measures adopted on 7 and 22 April 2020
will be extended to June 2022.
The Eurosystem repo facility for central banks and all
temporary swap and repo lines with non-eurozone central banks will
be extended until March 2022.
Regular lending operations will be conducted as fixed-rate
tender procedures with full allotment for as long as
necessary.
Policy rates remain unchanged, although the ECB maintained its
easing bias via forward guidance that states that they are expected
to remain "at their present or lower levels" until inflation is
seen to be robustly converging towards 2%.
The ECB also signaled that it will "continue to monitor
developments in the exchange rate" and "stands ready to adjust all
of its instruments".
It goes without saying that eurozone monetary policy will
remain highly accommodative for a very long time. Indeed, the new
staff projections imply that even by 2023, inflation will still be
well below the ECB's objective of "below but close to 2%".
French industrial production rose by 1.6% month on month (m/m)
in October, matching its increase in September, according to
seasonally adjusted figures released by the National Institute of
Statistics and Economic Studies (Institut national de la
statistique et des études économiques: INSEE). Production grew m/m
for the sixth consecutive month. (IHS Markit Economist Diego
Iscaro)
Nevertheless, industrial output fell by 5.5% year on year (y/y)
in October and remained 3.6% below its pre-COVID-19 virus pandemic
level.
Manufacturing output grew by a weaker 0.5% m/m in October,
following a rise of 2.3% m/m in September. Manufacturing production
in October was still 5.0% below its level in February.
While energy production rebounded by a strong 7.9% m/m in
October following a fall of 2.7% m/m in September, production of
transport equipment and food/beverages products declined by 2.7%
m/m and 0.3% m/m, respectively. Meanwhile, production of machinery
and equipment goods increased for the second consecutive month,
rising by 1.0% m/m following a 3.9% m/m rise in September.
The breakdown by main industrial groupings shows production of
energy (+8.6% m/m), consumer non-durables (+1.1% m/m), and
intermediate goods (+0.9% m/m) driving the m/m growth rate in
October, while production of capital goods and consumer durables
fell by 0.4% m/m and 2.6% m/m, respectively. With the exception of
energy, production was below February's level in all sectors (see
Chart 1).
October's increase in production raises the prospect of the
industrial sector making a positive contribution to growth during
the fourth quarter of 2020. Indeed, October's figures are likely to
drive a modest upward revision of our GDP forecast for the period,
which currently stands at -4.5% quarter on quarter (q/q).
BASF says it has launched a circular-economy program, under
which it aims to double its sales generated by solutions for the
circular economy to €17.0 billion ($20.6 billion) by 2030, and
process 250,000 metric tons of recycled and waste-based raw
materials annually as of 2025, replacing fossil-based raw
materials. The company says it is concentrating on three action
areas to achieve its circular-economy targets: circular feedstocks,
new material cycles, and new business models. In a circular
economy, the aim is to avoid waste, reuse products, and recover
resources, BASF says. As a result, the company's circular-economy
program focuses on battery recycling, to develop processes that
reduce carbon footprint; the development of additives to improve
plastics recycling; chemical recycling that can turn plastic waste
into feedstock for the chemical industry; and increasing the volume
of renewable raw materials from sustainable sources in the
company's production. (IHS Markit Chemical Advisory)
The Netherlands' output increase in October demonstrates that
the dip in September was only an interruption to the recovery
ongoing since June, but it remains likely that the recent
resurgence of the COVID-19 virus across Europe will cause another
setback during November-December - even if containment measures
taken affect manufacturing much less than services. (IHS Markit
Economist Timo Klein)
In October, on a seasonally and working-day-adjusted basis,
manufacturing output increased by 2.0% month on month (m/m), more
than compensating for September's modest dip by 0.3% m/m (curtailed
from -1.0% originally) and resuming the recovery observed since
June. Output was down by 4.1% year on year (y/y) and by 2.4%
compared with February, prior to the impact of the COVID-19 virus
pandemic.
On a seasonally unadjusted basis, average daily output of the
Dutch manufacturing sector was down by 3.7% y/y in October,
compared with -6.7% y/y in September. On a three-month moving
average basis, output was down by 4.7% y/y.
In October, most sub-components remained a drag in annual
terms. The biggest drops were recorded for machinery, which was
down by 18.1% y/y, followed by the repair and installation of
machinery (-16.8%), metals (-4.9%), and transport (-4.8%).
Chemicals were the chief positive offset, increasing by 9.5%
y/y.
The Dutch manufacturing purchasing managers' index, which had
deteriorated by more than five points in October (the largest
monthly drop over the last decade apart from April this year),
managed to rebound from 50.6 to 51.3 in November. Being above 50,
this indicates that mild expansion continues at the data edge.
The latest output and survey data were unexpectedly positive,
correcting for September's sudden and broad-based deterioration.
Nevertheless, the second wave of COVID-19 cases across Europe
during the fourth quarter renders further setbacks during November-
December more likely than not. After all, the Dutch export sector
and thus also manufacturing activity in the Netherlands are highly
dependent on European demand, with 70% of goods exports going
elsewhere in the European Union. The output index will not drop to
anywhere near its April low, however.
Volvo Group has announced that its investment arm is backing a
business that is using technology to pool goods shipments and
reduce unused trailer capacity. According to a company statement,
Volvo Group Venture Capital AB is investing in Flock Freight, based
in Solana Beach, California (United States), which uses algorithms
to match multiple less-than-a-truckload shipments to reduce the
handling of goods in terminals and hubs, and intended to boost
quality and efficiency. On the announcement, Dan Tram, investment
director of Volvo Group Venture Capital, said, "Flock Freight can
provide the Volvo Group with further insights into optimizing road
haulage. Together we can offer our operators and our operators'
customers additional services." The company said that the
transaction has no significant impact on Volvo Group's earnings or
financial position. This is the latest announced investment to be
made by Volvo Group Venture Capital recently. Last month, it
announced an investment in Adnavem, an online marketplace for
freight services. (IHS Markit AutoIntelligence's Ian Fletcher)
Volvo Cars has announced that it is investing SEK700 million in
its Skövde (Sweden) site to support the manufacture of electric
motors. According to a statement, Skövde will only assemble the
motors in the first stage of investment, and the company intends to
bring the full manufacturing process in-house later on. The company
added that this should take place by the middle of the decade. The
latest investment will support the automaker's goal of making 50%
of its global vehicle production fully electric by 2025, with the
remainder set to be hybrids. This means that there will be a huge
requirement for batteries, motors and systems that the company is
looking to address. Having already set up a design and development
facility for motors in Gothenburg (Sweden), it has now set up a
similar function in Shanghai. (IHS Markit AutoIntelligence's Ian
Fletcher)
Valmet Automotive has announced that it is to expand its
Uusikaupunki (Finland) facility to allow it to undertake battery
assembly. According to a statement, this is in response to it being
"nominated as a Tier-1 system supplier for a battery program by a
leading, new customer from the automotive industry". It added that
the agreement includes the assembly of the battery pack as well as
the production of the cell modules. Production at this facility is
set to go on stream in the second half of 2021. The Uusikaupunki
facility is best known for its contract vehicle manufacturing
operations; it currently builds Mercedes' A-Class and GLC. This
will expand the company's battery assembly operations, which
currently take place at its site in Salo (Finland) which started in
November 2019, and Valmet has recently revealed that it will
benefit from investment to expand output, which will be completed
at around the same time as Uusikaupunki's operations. The decision
to expand in this direction underlines how great the future demand
for battery packs will be as OEMs are pushed towards greater
electrification by legislation. IHS Markit forecasts that in 2021,
European light vehicle production of battery electric vehicles
(BEVs) and plug-in hybrid electric vehicles (PHEVs) combined will
reach 2.137 million units and by 2025 this will hit 4.973 million
units. (IHS Markit AutoIntelligence's Ian Fletcher)
Lithuania is launching its first offshore wind project, setting
aside EUR 7.5 million for tender preparations. The wind farm, to be
located 29 kilometers from shore in the Baltic Sea in 39 meters
water depth, is expected to have a capacity of 700 MW. The
investment will go towards typical studies to be conducted such as
environmental impact assessments, wind resource, and metocean
surveys. The Lithuanian Energy Agency will lead the studies and
surveys . A tender is currently underway for the preparation of a
special plan for renewable energy development and will close on 21
December 2020. The selected company will have 18 months to complete
its studies after which a tender will be launched in 2023. In
September 2020, Lithuania's state-owned Ignitis Group selected
Ocean Winds as a strategic partner for the development of offshore
wind farm projects. Ocean Winds is a joint venture between Engie
and EDPR. It is widely expected that the partners will jointly
develop the wind farm, which is estimated to attract an investment
of up to EUR 1.5 billion. (IHS Markit Upstream Costs and
Technology's Melvin Leong)
The Monetary Policy Committee (MPC) of the National Bank of
Georgia (NBG) in its December monetary policy meeting decided to
keep the refinancing rate unchanged at 8.0%. The policy rate was
also kept stable in the September and October meetings, while both
the June and August meetings had resulted in rate cuts of 25 basis
points, following a more substantial 50-basis-point reduction in
April. (IHS Markit Economist Venla Sipilä)
Consumer price inflation has recently showed a decelerating
trend, while it has remained stable at 3.8% year on year (y/y) in
September-November. According to the Georgian National Statistics
Office (GeoStat), a gain of 6.0% y/y in prices of food and
non-alcoholic beverages contributed 1.9 percentage points to annual
inflation, while falling prices of transport services held back
inflation.
The NBG currently expects inflation to remain close to the
target of 3% in the first half of 2021, with inflation pressures
suppressed by weak aggregate demand. According to the latest Rapid
Estimate of Economic growth from GeoStat, Georgian GDP in
January-October contracted by 5.1% y/y, while shrinking by 3.9% y/y
in October.
Recovery in 2021 in GDP growth is expected to be driven by
domestic demand. The MPC also took note of the upward impact on
inflation from the 2020-21 fiscal stimulus related to pandemic
relief, as well as supply-side pressures due to increased
production costs in conditions of COVID-19 restrictions.
The Bank noted the elevated level of uncertainty caused by the
persisting global pandemic, and the tightened related restrictions
globally during the second wave. In any case, for now, given the
high degree of dollarization of the Georgian economy, the room for
monetary easing is limited, in its opinion.
The NBG also announced that as part of a COVID-19 relief
program, the European Central Bank (ECB) and the NBG have agreed to
launch an EUR100-million repo line to support liquidity in the
Georgian financial system. This line is introduced under the
framework of the Eurosystem repo facility for central banks (EUREP)
and will be in place until the end of June 2021, with operational
support provided by the German Bundesbank.
The interest rate decision matches our forecast. Moreover,
unsurprisingly, it seems that, while fully committed to its
inflation-targeting policy and the flexible exchange rate
framework, the MPC also is more mindful of exchange rate risks at
present.
We continue to see exchange rate volatility as an important
indicator of risk of imported inflation, which is likely to be
affecting inflation expectations. Indeed, the exchange rate of the
lari ended November at GEL/USD3.316, having depreciated by 2.5%
during the month, after appreciating by 1.7% in October and
weakening by 7.1% during the second quarter. The NGB intervened by
selling a total of USD174 million of foreign currency in the
foreign exchange markets in November, following sales of USD200
million in October.
Israel-based Meat-Tech 3D has agreed to acquire Peace of Meat -
a Belgian producer of cultured avian products, for EUR15 million.
Under the terms of the deal, Meat-Tech will pay half the total
immediately, with the payment of the balance subject to Peace of
Meat complying with preset technological milestones over a period
of two years. Meat-Tech said it aims to leverage Peace of Meat's
technologies to secure market entry while it develops an industrial
process for cultivating and producing meat using 3D bioprinting
technology. Peace of Meat has developed a way of cultivating animal
fats from chicken and ducks, using stem-cell-based bioreactor. The
technology's first expected application is in hybrid food products,
combining plant-based protein with cultured animal fat, designed to
provide meat analogues with qualities of "meatiness" (taste and
texture) closer to that of conventional meat products. Meat-Tech
estimates that the first hybrid products based on Peace of Meat
technology could hit the market as early as 2022. Meat-Tech said
the acquisition is consistent with its growth strategy, which aims
to streamline development processes and penetrate cultured meat
technology markets as quickly as possible. (IHS Markit Food and
Agricultural Commodities' Max Green)
Asia-Pacific
Most APAC equity markets closed lower; Australia -0.7%, Hong
Kong -0.4%, India/South Korea -0.3%, Japan -0.2%, and Mainland
China flat.
Volkswagen (VW) is introducing a new sales model for electric
vehicles (EVs) in China in which the dealers will not have to
maintain inventory of models and prices would be fixed by the
automaker, according to Reuters. The store, named "ID. Store X",
will sell its ID. range of family cars and will be invested and run
by selected dealers, who will get certain commission on sales.
Customers can order vehicles at a fixed price directly through the
company website, phone app or from authorized dealers. The new
model will bring a concept of uniform pricing across dealers of
VW's EV models as they will not be allowed to offer discounts from
their own side as they can with the traditional sales model. The
dealers would also benefit from not having to invest heavily
upfront in maintaining inventories of different models. VW has been
focusing on gaining foothold in the Chinese NEV market. In
September, VW announced that the automaker along with its three
local joint venture (JV) partners - FAW Group, SAIC Motor, and JAC
Motor - plan to invest around EUR15 billion (USD18.1 billion) in
electric mobility in China between 2020 and 2024. (IHS Markit
AutoIntelligence's Nitin Budhiraja)
The first monopile at the Yunlin offshore wind farm has been
installed by Sapura Energy. This is Sapura's first construction
project in the offshore wind sector and it is undertaking the work
using its Sapura 3500 heavy lift vessel. The vessel will install 80
momopiles altogether. The Yunlin wind farm, located 8 kilometers
off the west coast of Taiwan, reached financial close in May 2019.
The wind farm consists of 80 Siemens Gamesa SG 8.0-167 DD wind
turbines generating a total of 640 MW. Siemens Gamesa also signed a
15-year service agreement for the turbines. (IHS Markit Upstream
Costs and Technology's Melvin Leong)
Japan's current Business Survey Index (BSI) for large
enterprises rose by 9.6 points to 11.6 in the Business Outlook
Survey for the fourth quarter of 2020. The improvement largely
reflected a solid increase for manufacturing groupings, which
surged from 0.1 in the previous survey to 21.6. Business conditions
began to improve for a broad range of manufacturing industries.
(IHS Markit Economist Harumi Taguchi)
While the BSI for medium-sized enterprises also began to
improve (up 13 points to 5.5), the BSI for small enterprises
remained in negative territory despite a 10.3-point improvement to
-15.5, suggesting that current business conditions remained
sluggish for most small enterprises. The future conditions BSI
suggests that all enterprises expect business conditions to worsen
and upward momentum to soften in the first quarter of 2021.
The outlook for sales for all industries in fiscal year (FY)
2020 was revised down to a 7.5% year-on-year (y/y) drop from a 6.8%
y/y decrease because of outlooks for a weak recovery. Ordinary
profit outlooks were also revised down to a 24.3% y/y drop from a
23.2% y/y decline.
Labor demand remains resilient, as a broad range of enterprises
(particularly non-manufacturing industries) face labor
shortages.
Fixed investment plans for FY 2020 were revised down from a
6.8% y/y drop to a 7.6% y/y decrease. Although medium-sized and
small non-manufacturing enterprises noted a lack of capacity in
machinery and equipment, all size categories in manufacturing
expect capacity utilization (machinery and equipment) to remain
below sufficient levels over the short term.
The third-quarter 2020 results suggest that the resumption of
economic activity continued to improve for businesses in the fourth
quarter. Upward momentum is likely to ease in the first half of
2021, reflecting concerns about the negative effect of the
resurgence of COVID-19 in Japan and overseas as well as other
persistent uncertainties.
Although machinery orders show that capex is bottoming, weaker
fixed investment plans suggest that sluggish outlooks of sales and
profits could suppress a recovery of capex over the short term.
While resilient labor demand could underpin consumer spending to
some extent, sluggish sales and profit outlooks suggest weak wage
increases over the short term.
High-frequency data for South Korea show a mixture of slow
growth and flattening, consistent with a sluggish fourth quarter.
(IHS Markit Economist Dan Ryan)
Exports rose again in November, although they are still down
from the September rebound. Imports are still lagging because of
sluggish domestic demand, thereby keeping the trade balance in
large surplus.
The current account balance, reflecting the merchandise
surplus, remains large and positive. This net demand for the South
Korean won is partly responsible for the recent strength of the
currency.
The recovery from the COVID-19 pandemic-induced recession has
increased price volatility. Both the core CPI and the overall have
fluctuated widely as of late, although the trend rate of inflation
remains low.
Producer prices remain on a downward trend. This mainly
reflects productivity growth in the industrial sector, but also
limited demand for consumer goods.
There has been no noticeable change to interest rates. They are
expected to remain low and relatively constant for many months to
come.
The won has strengthened sharply because of the large
current-account surplus combined with limited net capital outflows.
The Bank of Korea actually slowed the rate of appreciation by
selling won and buying foreign currency, as seen by the rise in
foreign reserves.
Industrial production in October retreated slightly from the
previous month's strong rebound. However, the index is now at a
level consistent with the overall economy; therefore, growth should
be slow in the near term.
Retail sales have been volatile following the March nadir but
on average appear to be levelling off near levels last seen at
end-2019. These numbers, however, tend to overstate the level of
total consumption - so that component of GDP remains weak.
The number of unemployed increased by 80,000 people in October,
taking the unemployment rate up to 4.2%. The job losses were
widespread throughout the private sector.
The number of employed also increased in October; therefore,
the overall labor force continues to trend upwards. However, there
are still about 200,000 discouraged workers who have dropped out of
the labor force during the pandemic and have not yet rejoined.
The latest data are consistent with expectations. Inflation
remains low and monetary policy is expansionary, a situation that
will continue through most of next year.
The manufacturing and export sectors are still the main drivers
of the economy, although these have been decelerating. Consumer
spending has largely returned for merchandise purchases, but not
for services.
Mahindra & Mahindra (M&M) has announced in a filing to
the Bombay Stock Exchange (BSE) that a shortage of microprocessors
(semiconductors) used in electronic control units (ECUs) will
negatively impact on its production and sales volume. M&M says
that the shortage will affect operations in its Automotive division
and in its wholly owned subsidiary, Mahindra Vehicle Manufacturers
Limited (MVML), in the last quarter of fiscal year (FY) 2020/21.
M&M stated in its filing, "The company is engaging closely with
Bosch Limited and assessing likely production loss for the last
quarter of FY 2020/21 on account of this supply disruption as also
steps to be taken to minimize the impact of the same. However,
estimation of exact likely reduction in production/sales volume of
the company (Automotive division) and MVML for the last quarter is
not ascertainable at this stage." The automaker confirmed that its
operations in December will not be impacted due to the parts
shortage. M&M's announcement comes a day after Bosch India said
in a regulatory filing that it was witnessing a severe shortage of
imported semiconductors, affecting its ability to deliver to the
automotive industry in India. The auto-parts supplier stated,
"Steep escalation of demand in consumer electronics industry driven
by driven by safety and hygiene sentiments as well as the rise of
5G connectivity, led to a surge in global demand of semiconductors,
a critical component in manufacturing of automotive electronics."
The shortage in supply of critical parts could impact on other
companies as well in the coming months as Bosch is a key supplier
to several automakers in India. (IHS Markit AutoIntelligence's Isha
Sharma)
German aviation startup Volocopter will launch air taxi
services in Singapore by 2023, reports Bloomberg. The startup,
which is developing vertical-takeoff craft, will commence
operations after completing flight trials, evaluation, and
certification in partnership with the city-state. Volocopter said
it will need to obtain the necessary approval from the Civil
Aviation Authority of Singapore and the European Union Aviation
Safety Agency as a prerequisite for the flights. The craft will
initially carry a pilot and one passenger; after receiving approval
for autonomous operations, the company may switch to carrying two
passengers. Volocopter plans to set up a team of 50 pilots,
engineers, and operations specialists to support the launch of its
commercial operations in Singapore. Florian Reuter, CEO of
Volocopter, said, "Singapore is renowned for its leading role in
adapting and living new technologies. Local capabilities in battery
research, material science and route validation for autonomous
operations will be central to the project." Volocopter is an urban
air mobility service provider and is backed by computer chip
manufacturer Intel Corp. and automakers Daimler and Geely. In
October 2019, Volocopter demonstrated a flight over Singapore's
Marina Bay area. Although electric vertical take-off and landing
(eVTOL) products are not yet close to commercial deployment, the
appeal of this solution is growing. For instance, at the CES expo
held earlier this year, Hyundai announced an air taxi partnership
with Uber. Toyota has also invested in the fledgling industry of
flying cars. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Posted 10 December 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
