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Most major US equity indices closed higher, and APAC and
European markets closed mixed. US government bonds closed sharply
lower, while all benchmark European bonds closed higher. European
iTraxx and CDX-NA credit indices were close to unchanged across IG
and high yield. Oil reported its first down day this month, with
gold/silver also lower and copper flat on the day.
Americas
Most US equity indices closed modestly higher except for DJIA
which was unchanged on the day; Nasdaq +0.4%, S&P 500 +0.2%,
and Russell 2000 +0.1%.
10yt US govt bonds closed +4bps/1.17% yield and 30yr bonds
+5bps/1.96% yield.
CDX-NAIG closed flat/50bps and CDX-NAHY +1bp/286bps.
DXY US dollar index closed +0.1%/90.42.
Gold closed -0.9%/$1,827 per ounce, silver -0.1%/$27.05 per
ounce, and copper flat/$3.77 per pound.
Crude oil closed -0.7%/$58.24 per barrel.
The custody bank Bank of New York Mellon Corp said Thursday it
will hold, transfer and issue bitcoin and other cryptocurrencies on
behalf of its asset-management clients. In time, BNY Mellon will
allow those digital assets to pass through the same plumbing used
by managers' other, more traditional holdings—from Treasuries
to technology stocks—using a platform that is now in prototype.
The bank is already discussing plans with clients to bring their
digital currencies into the fold. (WSJ)
Mastercard said on Wednesday that later this year it would
begin moving cryptocurrencies directly across its card payments
network. Previously, the company had only worked with crypto
wallets and exchanges to move funds after they had been converted
from digital coins into fiat currency. (FT)
US gas demand showed relative resiliency in 2020, with low
prices providing strong support for gas for power generation (+0.6
Bcf/d year-on-year), and expanded LNG export capacity driving a 1.6
Bcf/d year-on-year increase in LNG export feedgas demand. As we
look to 2021, however, lower-48 gas-fired power generation is
expected to retreat in 2021 and LNG exports will show only a slight
increase in spite of continued capacity expansion. Higher natural
gas prices and renewables growth are expected to suppress 2021 gas
demand for power generation our experts identify three key
disrupters to gas for power demand in 2021 (IHS Markit Energy
Advisory's Breanne Dougherty and Yulia Ivanovskaya): a.
Economic-driven gas-to-coal switching within the electric
generation stack tied to the $0.74/MMBtu annual increase in Henry
Hub spot market prices b. Retirement of three nuclear plants,
resulting in the record removal of 5.1 GW of nuclear capacity in a
single year—or 5% of the current operating nuclear fleet. The
loss of this carbon-zero generation will make it more difficult for
affected states and regions to meet their targeted emissions goals.
c. The US Lower 48 will retire 9.3 GW of generation capacity in
2021, including nuclear, and add 43.2 GW, mostly from solar and
wind. The net capacity addition of 33.9 GW will be the largest
annual increase on record. The impact of continued renewables
penetration and its displacement of gas-fired power plants are
prevalent throughout our gas demand and power generation
forecasts.
US seasonally adjusted (SA) initial claims for unemployment
insurance fell by 19,000 to 793,000 in the week ended 6 February.
The not seasonally adjusted (NSA) tally of initial claims fell by
36,534 to 813,145. Even as initial claims trend down, they remain
at historically high levels—the high during the Great Recession
was 665,000. (IHS Markit Economist Akshat Goel)
Seasonally adjusted continuing claims (in regular state
programs), which lag initial claims by a week, fell by 145,000 to
4,545,000 in the week ended 30 January. The insured unemployment
rate edged down 0.1 percentage point to 3.2%.
There were 334,524 unadjusted initial claims for Pandemic
Unemployment Assistance (PUA) in the week ended 6 February. In the
week ended 23 January, continuing claims for PUA rose by 1,496,505
to 8,715,306.
In the week ended 23 January, continuing claims for Pandemic
Emergency Unemployment Compensation (PEUC) rose by 1,172,948 to
4,777,842. With the latest extension to 24 weeks for PEUC, eligible
recipients can receive up to 50 weeks of unemployment benefits
between the regular state programs and PEUC.
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 23 January, the unadjusted total rose by 2,596,539 to
20,435,018, breaching the 20-million mark for the first time in
seven weeks.
Passenger throughput at US airports has remained depressed in
recent days near levels prior to a temporary lift around the
holidays. Recovery in the travel sector remains slow. Meanwhile,
consumption of gasoline inched up last week but remains below a
normal range, an indication of continued depressed internal
mobility. (IHS Markit Economists Ben Herzon and Joel Prakken)
The seasonally adjusted US mortgage delinquency rate fell 92bps
from the end of the third quarter to 6.73% at the end of the fourth
quarter; it was up 296 basis points from a year earlier. (IHS
Markit Economist Patrick Newport)
The serious delinquency rate—loans more than 90 days
delinquent or in foreclosure—was 5.03%, 327 basis points higher
than a year earlier.
The five states with the sharpest increase in delinquency rates
from a year earlier—New York, New Jersey, Nevada, Florida, and
Hawaii—were all initially hit hard by the pandemic.
On 27 December (about the end of the fourth quarter), 2.7
million homeowners were in forbearance plans. That number has
dropped slightly, but, after rounding, is still 2.7 million. The
Coronavirus Aid, Relief, and Economic Security (CARES) Act allows
homeowners to delay mortgage payments for 90 days and apply for a
one-year extension; currently, just over 80% of loans in
forbearance are in an extension. The Mortgage Bankers Association
(MBA) expects "a sharp increase in exits" from forbearance in March
and April as borrowers reach the 12-month expiration date.
This report was not all grim: the percentage of loans in the
foreclosure process was 0.56%, down 22 basis points from a year
earlier and the lowest reading since the second quarter of 1982;
the 30-day delinquency sank to a record low; and the seasonally
adjusted rate on new foreclosures remained at a survey low
0.03%—almost zero.
US fruit, vegetable and sunflower growers are pressing EPA to
reregister chlorpyrifos, arguing the organophosphate insecticide is
a critical crop protection tool and that alternatives are costly
and less effective. Comments sent to EPA by the Pacific Northwest
Vegetable Association, Florida Fruit and Vegetable Association and
the National Sunflower Association lay out support for continued
use of chlorpyrifos, with the groups telling the agency the
insecticide can be used safely. The backing of the industry groups
comes as the Biden administration is reviewing EPA's work on
chlorpyrifos, notably the decision by Trump administration
officials to abandon an agency plan to revoke food tolerances and
effectively ban agricultural use of the insecticide. In 2015 EPA
found cumulative exposures to the known neurotoxin exceeded the
safety standard set by federal food safety law and proposed
granting a petition that called for revocation of food tolerances.
Pressure from ag groups and the pesticide industry helped convince
the Trump administration to change course and deny the petition.
EPA subsequently issued new risk assessments in September 2020 to
support a reregistration decision and proposed an interim
registration decision last December. (IHS Markit Food and
Agricultural Policy's JR Pegg)
Toyota has announced plans to debut three new electrified
vehicles for the US market in 2021; these will include two battery
electric vehicles and one plug-in hybrid electric vehicle (PHEV).
Furthermore, Toyota has confirmed that it expects 40% of its US
sales to be electrified models - including traditional hybrid
vehicles, battery electric vehicles (BEVs), and PHEVs - by 2025. By
2030, Toyota aims to increase that to 70%. (IHS Markit
AutoIntelligence's Stephanie Brinley)
The Stellantis group has announced that the Jeep automotive
hub, located in Goiana (in the state of Pernambuco), is the first
carbon-neutral industrial complex in Latin America, reports
Automotive Business. The plant had already achieved the Gold Seal
of the Greenhouse Gas Protocol (GHG) Protocol Brazil Program, which
was launched in 2008 to promote voluntary GHG management and
reporting. Sixteen plants (including factories as well as
suppliers) joined the emissions compensation programs, making the
entire automotive hub carbon neutral. (IHS Markit
AutoIntelligence's Tarun Thakur)
Automated truck startup Plus has raised USD200 million in a
Series B funding round led by new investors Guotai Junan
International, CPE, and Wanxiang International Investment, reports
VentureBeat. Existing investors including Sequoia, Lightspeed, GSR
Ventures, CGC, Mayfield, SAIC, and Full Truck Alliance also
participated in the round. The company will use the infused capital
to accelerate the commercialization and deployment of its automated
trucking system. In addition, Plus will develop a sales and support
network to support fleets in integrating its automated trucking
system and will scale up deployments in the United States and
China. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Velodyne Lidar and ThorDrive have entered into a five-year
LiDAR sensor supply agreement. ThorDrive will integrate Velodyne's
Ultra Puck LiDAR sensors, which allow 360-degree surround view,
into its cargo and baggage ground support tractors. These tractors
will be deployed for an autonomous vehicle (AV) program at the
Cincinnati/Northern Kentucky International Airport (CVG) in the
United States. This will enable airlines to autonomously transport
baggage and cargo to and from planes and throughout facilities,
thereby improving airport safety and cargo efficiencies. (IHS
Markit Automotive Mobility's Surabhi Rajpal)
Europe/Middle East/Africa
European equity markets closed mixed; Germany +0.8%, Italy
+0.2%, UK +0.1%, France flat, and Spain -0.3%.
10yr European govt bonds closed higher across the region, with
Italian bonds closing -5bps and at a new record low yield of 0.46%;
France, Germany, Spain, and UK all closed -2bps on the day.
Italy's 5-Star Movement, the party with the largest number of
lawmakers, will hold an online vote on Thursday on whether to
support a government led by Draghi, a former European Central Bank
chief. It urged its members to vote yes. (Reuters)
iTraxx-Europe closed -1bp/47bps and iTraxx-Xover
-3bps/241bps.
Brent crude closed -0.5%/$61.14 per barrel.
Fuel-cell vehicle conversion company ULEMCo has announced that
it is set to supply ambulances powered by hydrogen fuel cells to
the London Ambulance Service NHS Trust (LAS) later in 2021 for
testing purposes. The ambulances are being developed under the Zero
Emission Rapid Response Operations (ZERRO) project banner, and
ULEMCo is leading a range of other businesses in shaping the
vehicle, which is being funded by the UK government's Office for
Zero Emission Vehicles (OZEV). These other businesses include Lyra
Electronics, which is providing its specialist DC-DC electronics
capability; Promech Technologies, which is providing battery
technology solutions and expertise; and Woodall Nicholson Group's
Mellor and VCS Limited, which has designed and manufactured the
body. (IHS Markit AutoIntelligence's Ian Fletcher)
Aker Solutions, in a consortium with Siemens Energy, has been
selected by Vattenfall as preferred bidder for the Norfolk offshore
wind project located in the UK North Sea off the coast of Norfolk.
If Vattenfall proceeds with the development, the intention is to
conclude an EPCI contract where the consortium will deliver HVDC
converter platforms for the grid connection infrastructure. The
Norfolk wind zone consists of the Norfolk Vanguard and Norfolk
Boreas offshore wind farms. The planned 3.6 GW total installed
capacity will make this one of the largest offshore zones in the
world. (IHS Markit Upstream Costs and Technology's Helge Qvam)
The rapid adoption of technology will allow supermarkets to
reduce food waste and drive ever greater customer loyalty,
according to Mel Smith CBE, chief executive of Ocado, the UK online
supermarket operation. On 10 February, speaking at the City Food
Lecture to an international online audience of over 1,400 food and
drink industry leaders, the largest to ever attend the event, she
said that technology has been the driving force behind Ocado's
success, has enabled the company to service the rapid rise in
online shopping in the last 12 months, and that the rapid expansion
of online grocery shopping is set to continue post pandemic. (IHS
Markit Food and Agricultural Commodities' Neil Murray)
"The growth in online sales has wildly accelerated over the
past year. Before the pandemic online grocery sales accounted for
7% of the total market. In 2020, the channel almost doubled to
13%," she said. "The UK has one of the highest online penetrations
globally, and we expect that the online channel will double in size
again over the next few years.
She added that Ocado produces hardly any food waste, partly
because it has a really short supply chain but also because it has
a perfect view of what its customers have in their baskets, up to
28 days in advance.
"5G and the growing number of smart appliances also open up
huge new possibilities. Smart appliances are filled with sensors
and connect to the internet to upload and analyse collected
data."
The Volkswagen (VW) Group has agreed an alliance for its
Car.Software organization to work together with Microsoft on
building a new automated driving technology platform, according to
a company statement. The platform will be cloud-based and
collaborative, and will be aimed at sharing technology and data
which will help VW accelerate its research and development
(R&D) times in the area. The Car.Software organization will
look to simplify its autonomous vehicle (AV) technology developing
processes to bring technology to production with shorter lead
times. This enhanced collaboration with Microsoft on a development
platform to speed the introduction of new AV technologies, will
help the VW Group in its goal of developing core proprietary
technologies. This will, in turn, ensure it retains technological
relevance and autonomy as the industry moves ever closer to the
production of full AVs. (IHS Markit AutoIntelligence's Tim
Urquhart)
The European Commission has announced that it has approved a
new fuel cell joint venture (JV) between Daimler and Volvo Group.
According to a statement, the JV, known as Daimler Truck Fuel Cell
and based in Germany, has been approved under the 'EU Merger
Regulation'. The announcement is an important step towards
finalizing the JV which will development, produce, sell and provide
aftersales support for hydrogen fuel cell systems (FCS) primarily
for heavy-duty trucks but also, to a smaller extent, for stationary
applications. The companies signed a binding agreement in November
2020 under which Volvo would acquire a 50% stake in the
organization for around EUR600 million on a cash and debt free
basis. (IHS Markit AutoIntelligence's Ian Fletcher)
In December 2020, on a seasonally and working-day adjusted
basis, Dutch manufacturing output was up by 0.5% month on month
(m/m), while the data for November were revised up from a
contraction of 0.2% to growth of 0.1%. Output was down by just 0.7%
year on year (y/y) and by 1.9% compared with February 2020, prior
to the impact of the COVID-19 virus pandemic. (IHS Markit Economist
Daniel Kral)
On a seasonally unadjusted basis, average daily output of the
Dutch manufacturing sector was down by 0.2% y/y in December,
compared to -2.7% y/y in November. On a three-month moving average
basis, output was down by 2.4% y/y and by 1.8% since February
2020.
In December, around half of the sub-components were a drag. The
biggest drops were recorded for the repair and installation of
machinery, which was down 25.1% y/y; metals, down 3.5% y/y; and
machinery, down 1.2% y/y. Chemicals, electronics, and transport
equipment recorded strong annual growth (see Chart 3).
For the full year, manufacturing output was down by 4.6% on a
seasonally adjusted and 4.7% on a seasonally unadjusted basis.
After large contractions in February-May 2020, Dutch manufacturing
output has been on an uninterrupted recovery path, apart from a
small contraction in September.
The Dutch manufacturing purchasing managers' index (PMI)
continued to indicate strong growth in January. The output
sub-index rebounded to 58.4, the highest level since September
2018.
Slovakia's December 2020 output and trade data were broadly
positive despite coronavirus COVID-19 virus restriction, signaling
that fourth-quarter-2020 GDP results may be stronger than
previously expected. (IHS Markit Economist Sharon Fisher)
Although seasonally adjusted industrial production edged
downwards by 0.3% month on month (m/m) in December 2020,
working-day-adjusted output jumped by 6.8% year on year (y/y).
December output growth benefitted from strong results across all
three sectors: mining, manufacturing, and utilities.
Within manufacturing, the key machinery and equipment, metals,
transport equipment, and rubber and plastics categories reported
especially robust growth. In contrast, food and beverages
production declined.
By industrial groupings, production of intermediate goods
jumped by 11.0% y/y in December 2020, while capital goods output
increased by 8.0%, the fastest rate since May 2019. The only
category to record a decline was non-durable consumer goods (-6.0%
y/y).
In 2020 as a whole, industrial output fell by 9.1%, a better
result than we had expected around mid-2020. Mining and utilities
production increased in 2020, but manufacturing output plummeted by
11.6%, partly because of a steep drop in the transport equipment
category.
As per the Russian Ministry of Energy, coal exports (seaborne
and overland) during January 2021 stood at 16.3mt (up 30% y/y). As
per IHS Markit's Commodities at Sea, Russian seaborne coal export
shipments during January 2021 stood at 12.1mt (down 4% y/y). Thus,
indicating around 4mt Russian coal was exported via overland to
Europe and China (Mainland). One of the reasons for the increase in
overland transportation was lower railcar lease rates which were
reduced early this year. In terms of import regions, during January
2021, Russian shipments increased to JKT (3.7mt, up 19% y/y),
Mediterranean (1.7mt, up 47%), and Mainland China (1.9mt, up 17%).
Shipments declined to NW Europe (1.6mt, down 48% y/y) and the
Indian Subcontinent (0.4mt, down 71%). As the year had ended, there
was a severe cold blast that hit North Asian countries which
significantly increased electricity demand and hence the demand for
fuels ranging from coal to LNG across the region. (IHS Markit
Maritime and Trade's Pranay Shukla)
Asia-Pacific
Several major APAC equity markets were closed for the Lunar New
Year holiday; Hong Kong +0.5%, India +0.4%, and Australia
-0.1%.
Resurgence of COVID-19 cases in some regions of China present
some short-term uncertainty, but domestic milk price averages and
production continue to rise at the beginning of 2021. (IHS Markit
Food and Agricultural Commodities' Jana Sutenko)
The China-wide milk price average continued to rise in the
first three weeks of 2021, according to Rabobank's latest China
report. Milk currently averages CNY4.26 per kilo (USD0.66/kg) which
is just below the historical high of February 2014 and 12% above
the 2020 price average.
The rising milk price trend is mirroring the prices of feed, in
particular corn and soymeal, which have also reached multi-year
highs.
With recent global price increases for WMP, the discount of the
Oceania-origin WMP to the domestic average milk price has narrowed
from 25% to 18% at the end of the third quarter of 2020 (based on
import parity).
Full-year 2020 milk production grew 7.5% y/y, implying a
slowdown to 5-6% in the fourth quarter of 2020 versus 8.2% rise
during the first three quarters, according to the National
Statistics Bureau.
Autonomous vehicle (AV) startup WeRide has received a permit
for ride-hailing operation by the Guangzhou Municipal
Transportation Bureau, according to a blog posted on the Medium
website. The company claims to becoming China's first AV company
with this kind of qualification. Tony Han, founder and CEO of
WeRide, said, "Today I am very delighted to see that we have taken
another solid step towards the commercialization of autonomous
driving. WeRide becomes the first AD company in China to have
obtained the permit for ride-hailing operation, adding another
important advantage to those we have already had in the industry.
We have been prepared for the application of this license with
significant investment of energy and time throughout the process".
(IHS Markit Automotive Mobility's Surabhi Rajpal)
Monthly-frequency data for South Korea show a deceleration at
end-2020, not surprising due to the increase in COVID-19 cases.
(IHS Markit Economist Dan Ryan)
Exports now appear to be moderating, after their post-pandemic
rebound. In fact, exports in the past two months nearly returned to
the highs of 2018, before the 2019 global slowdown and the 2020
pandemic.
Imports have also been rising, although not to the extent of
exports, due to the lack of domestic demand. In the short term,
imports could decline as a response to the resurgence of COVID-19,
although this should quickly reverse in mid-year as vaccinations
become widespread.
Prices have recently been rising at a slow pace, but much of
this is a return to normal valuation as the economy approaches
pre-pandemic levels. However, it is surprising that consumer prices
have been rising faster than producer prices, since consumer
spending remains sluggish.
The Bank of Korea is keeping interest rates low during the
domestic and global recovery phase. We do not expect the policy
rate to increase until the second half of next year.
Industrial production has performed well, thanks to the strong
export recovery of exports in recent months. But the industrial
index is now looking very high, at the upper end of the growth
envelope of recent years, suggesting that a negative correction is
likely.
The resurgence of COVID-19, and the resulting lockdowns, had a
negative effect on jobs. The unemployment rate jumped a
half-percentage point to 4.6%, only slightly lower than the 4.7
seen during the recession over a decade ago.
The growth in the South Korean new vehicle market during
January can be attributed to rising demand for newly launched
models, attractive sales promotions by automakers, growth in
imported passenger vehicle sales, and a higher number of working
days compared with January 2020. IHS Markit expects light-vehicle
sales in South Korea to decline by 4.0% year on year (y/y) to
around 1.79 million units in 2021, mainly owing to a high base of
comparison as consumption tax relief on passenger vehicles pulled
forward new vehicle demand to 2020. (IHS Markit AutoIntelligence's
Jamal Amir)
The Korea Fair Trade Commission (KFTC) has approved a proposal
by T Map Mobility to form a taxi-hailing joint venture (JV) with
Uber, reports Yonhap News Agency. Last year, T Map Mobility, SK
Telecom's mobility spin-off, announced its intention to form a JV
with Uber, which will invest USD100 million for a 51% stake. South
Korea's anti-trust watchdog has given the green light to the JV as
it will not hurt market competition. This gives Uber an opportunity
to expand in South Korea's ride-hailing market, which is dominated
by local player Kakao's mobility unit, which has a market share of
nearly 80%. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Posted 11 February 2021 by Chris Fenske, Head of Fixed Income Research, Americas
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