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All major European and US equity indices closed higher, while
APAC markets were mixed. US government bonds closed higher, while
most benchmark European bonds closed lower. CDX-NA and European
iTraxx closed tighter across IG and high yield. The US dollar
closed lower, while oil, natural gas, copper, silver, and gold
closed higher. Markets will be focusing on tomorrow morning's
8:30am ET US CPI release for any signs that US consumer prices are
stabilizing.
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 Experts
by IHS Markit platform.
Americas
All major US equity indices closed higher; Nasdaq +1.4%,
Russell 2000 +1.1%, S&P 500 +0.9%, and DJIA +0.5%.
10yr US govt bonds closed -3bps/1.74% yield and 30yr bonds
-3bps/2.07% yield.
CDX-NAIG closed -1bp/52bps and CDX-NAHY -7bps/300bp.
DXY US dollar index closed -0.4%/95.62.
Gold closed +1.1%/$1,819 per troy oz, silver +1.6%/$22.81 per
troy oz, and copper +1.8%/$4.43 per pound.
Crude oil closed +3.8%/$81.22 per barrel and natural gas closed
+3.5%/$3.97 per mmbtu.
U.S. hospitals are caring for the highest number of patients
with COVID-19 reported during the pandemic, according to federal
government data, as the Omicron variant worsens pressures on the
already strained facilities. The U.S. seven-day average reached
140,576 people hospitalized with confirmed and suspected COVID-19
cases on Tuesday, more than the previous high recorded during the
surge last winter, according to a Wall Street Journal analysis of
U.S. Department of Health and Human Services data. (WSJ)
Lithium-ion (Li-ion) battery prices have increased by 10-20% in
the later months of 2021, predominantly for lithium iron phosphate
(LFP) technology, which is the favored technology for grid energy
storage systems. Surging raw materials prices, automotive industry
demand for LFP batteries, and tight, geographically concentrated
LFP supply are all drivers of higher prices. (IHS Markit EnergyView
Climate & Cleantech's Peter
Gardett and Sam
Wilkinson)
The latest IHS Markit forecasts for battery energy storage
capex suggest that average battery module prices in 2022 will be 5%
higher than in 2021, contributing to a 3% increase in total battery
energy storage system costs. Compared with the previous IHS Markit
forecast, these battery prices are 16% and 22% higher,
respectively. Prices may decline modestly in 2023, contingent upon
scaled-up LFP manufacturing capacity and energy storage system
integrators securing supply agreements with LFP suppliers.
Higher prices alone are not expected to severely impact the
near-term outlook for energy storage installations. With
electricity and fuel prices all trending upward and displaying
unprecedented levels of volatility, battery energy storage remains
competitive with the alternative technologies that can help provide
the flexibility required to enable high renewable penetrations in
the power system.
The bigger threat to industry growth is the ability of system
integrators to procure the required volumes of batteries, meaning
that strategic partnerships with multiple vendors will become
increasingly important for system integrators to mitigate against
supply disruption.
US job postings rose last week to 2.8% below the January 2020
level, according to the Opportunity Insights Economic Tracker. This
and the prior week's reading are significantly below the prior
trend. The weakness could simply be a temporary lull following the
holidays but could also signal a more fundamental slowing in labor
demand. The next few weekly readings will help to clarify which is
more likely the case. (IHS Markit Economists Ben
Herzon and Lawrence Nelson)
Vietnamese automaker VinFast has partnered with Applus+ IDIADA,
a leading global firm with complete vehicle testing and engineering
capabilities in the US, Europe, and Asia, for electric vehicle (EV)
safety testing, according to a company statement. It will conduct
safety tests to examine the performance of VinFast EVs in
accordance with global regulatory and consumer requirements. "We
are very pleased to deserve the trust of VinFast as their technical
partner for vehicle safety in this ambitious and challenging
project," said Carlos Garcia, director of Applus+ IDIADA North
America. (IHS Markit AutoIntelligence's Jamal Amir)
Peer-to-peer car-sharing startup Turo has released its filing
to become a publicly listed company in the United States, reports
Bloomberg. The company confidentially filed for an initial public
offering (IPO) with the US Securities Exchange Commission (SEC) in
August last year. In its public filing, Turo listed the size of the
offering as USD100 million, a placeholder that will alter when
terms of the share sale are finalized. The company also revealed in
its filing that its revenue more than tripled to reach USD330
million for the nine months ended 30 September 2021, compared with
USD108 million for the same period a year earlier. Turo reported a
net loss of USD129 million for that period in 2021, compared with a
loss of USD52 million for the first nine months of 2020. Turo,
which competes with Getaround, allows private vehicle owners to
rent out their cars through its platform. The company's service is
currently available in more than 5,500 cities in Canada, Germany,
the United Kingdom, and the US. It has over 450,000 vehicles
listed, with more than 850 unique makes and models on its platform,
and has a community of 14 million members globally. Turo's largest
investors include IAC/InterActiveCorp, August Capital, Canaan
Partners, G Squared, Shasta Ventures, and GV and their affiliates.
Turo's IPO will be led by Morgan Stanley and JPMorgan Chase &
Co with plans for listing its shares on the New York Stock Exchange
under the symbol TURO. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Bus maker GILLIG has partnered with RR.AI to jointly develop
automated vehicle technology for commuter buses in the United
States, according to a company statement. The companies will
jointly develop Level 4 autonomous technology for buses, which
would allow a vehicle to drive itself under certain circumstances.
Safety features such as automatic emergency braking, precision
docking, bus yard automation, blind spot detection, and pedestrian
avoidance will be developed and tested by the two companies. Derek
Maunus, GILLIG president and CEO, said, "We see this partnership as
a great fit for both our companies. The GILLIG team is passionate
about delivering transformative products and solutions that make
transportation safe, efficient and help eliminate roadway
congestion. RR.AI is equally committed to those important goals.
We're excited to work with such a technology leader to bring
advanced vehicle automation technologies to cities across America."
(IHS Markit Automotive Mobility's Surabhi Rajpal)
On January 7, three Community Choice Aggregators (CCAs) -
Central Coast Community Energy, Silicon Valley Clean Energy and
Sonoma Clean Power - announced that they have partnered to jointly
issue a Request for Proposals (RFP) for new clean energy resources.
The RFP seeks proposals from qualified and experienced individuals
or firms to develop non-polluting energy sources to meet the
state's new Mid-Term Reliability procurement mandate in addition to
each CCA's Renewable Portfolio Standard (RPS), greenhouse gas
emission reductions and reliability requirements. The RFP is at:
sonomacleanpower.org/request-for-proposals. Proposals are due by 5
p.m. PT on January 31. The CPUC ordered all load serving entities
in the state, including CCAs, to purchase 11,500 MW of new, clean
resources to come online by 2026. The decision requires the three
CCAs to procure a combined total of more than 600 MW of additional
Net Qualifying Capacity (NQC) to come online before June 1, 2026.
NQC refers to the ability of a power plant to meet the reliability
needs of the grid, particularly during peak, evening hours.
Eligible resources for this RFP include (IHS Markit PointLogic's
Barry Cassell):
Non-fossil fuel sources such as solar, wind, renewable plus
storage hybrids, and demand response.
Zero-emitting resources available during peak evening hours,
such as energy storage.
Firm-generation resources that are not weather dependent, such
as geothermal.
Long-duration energy storage that is able to discharge over at
least an eight-hour period.
Europe/Middle East/Africa
All major European equity markets closed higher; Germany +1.1%,
France +1.0%, Italy +0.7%, and UK/Spain +0.6%.
Most 10yr European govt bonds closed lower except UK -2bps;
Germany/France +1bp and Italy/Spain +2bps.
iTraxx-Europe closed -1bp/51bps and iTraxx-Xover
-5bps/252bps.
Brent crude closed +3.5%/$83.72 per barrel.
Toyota plans to use its Burnaston facility in the United
Kingdom to carry out comprehensive refreshing of former customers'
vehicles to extend their lifecycle. In an interview with Autocar,
Agustín Martín, president and managing director of Toyota GB, said,
"We need to stretch the way we look at life for both the vehicle
and the customer." He added, "I think we're very familiar with the
usual two- to three-year cycles that are extremely popular in the
UK, but we need to go beyond that two- to three-year cycle and say,
'Okay, what happens in that second cycle and in the third cycle?'"
In this new initiative, which comes under the automaker's mobility
sub-brand Kinto, Toyota plans to take vehicles back after their
first use cycle - similar to the end of a lease - and refurbish
them "to the best standard", leading to a vehicle as close to new
as possible, it says. Martín added that this process should allow
the vehicle to go through three cycles. Beyond that, the senior
executive said that Toyota would recycle the vehicles. Martín
reportedly said the questions that still need answering include,
"How do we recycle it? How do we reuse different parts that are
essential and maybe can be used for other services? How do we then
rebuild the batteries, reuse them and recycle them? How do we use
part of the material for the brand-new vehicle that's going to be
used in the factory?" The report indicates this new initiative may
achieve several benefits. Martín suggests that the rejuvenation
process could extend the automaker's relationship with customers
"at least to 10 years". This likely means 10 years through the life
of a car, whereas currently, after the initial ownership period and
perhaps some further continued servicing at a dealer after being
sold as a used car, the vehicle will likely slip out of the
franchised network well before this point. The rejuvenation process
is likely to bring with it a warranty similar to one with a new car
and, therefore, provide peace of mind for a second or third owner;
however, it is likely to require dealer servicing or check-ups to
maintain its validity. Furthermore, by maintaining the relationship
with the car and owners through its lifecycle, this will enable the
company at the end of it potentially to recycle the vehicle in a
way that avoids waste and can support new vehicle production with
the least environmental impact. (IHS Markit AutoIntelligence's Ian
Fletcher)
The European Banking Authority published its latest quarterly
risk dashboard on 10 January 2022. The report indicates stable
impairment and profitability, but the sector continues to face
potential asset quality deterioration from loans previously subject
to forbearance measures, along with growing threats from securities
revaluation and operational risks, notably those relating to cyber
threats and climate risk. This risk dashboard is based on a sample
of 161 European banks (unconsolidated banks, including 30
subsidiaries). (IHS Markit Banking Risk's Brian
Lawson and Natasha
McSwiggan)
The stock of non-performing loans (NPLs) of the overall sample
has fallen by 5%, permitting the NPL ratio to reach 2.1%. Alongside
this, NPL ratios for loans to commercial real estate and small and
medium-sized enterprises (SMEs) fell to 5.4% and 5.3%,
respectively, compared with 5.9% and 5.7%, respectively, in the
second quarter of 2020.
The share of non-expired and expired EBA-compliant loan
moratoria to total loans fell in the third quarter of 2021 in the
European Union. Nevertheless, this share remains relatively high in
Hungary, Poland, and Croatia at 15.2%, 10.3%, and 9%, respectively.
However, the stock of loans benefitting from support is higher than
the calculated figures given that the data only reflect
EBA-compliant moratoria.
The average common equity tier-1 capital ratio (on a fully
weighted basis) has fallen by 0.1 % to 15.4%, reflecting a small
decline in capital and a parallel increase of over 1% in assets.
The capital ratio and the tier-1 capital ratio stood at 19.5% and
17%, respectively, a minimal decrease over the quarter. The return
on equity for the sample was stable, at 7.7%, a marked improvement
compared with the 2.5% return recorded in the third quarter of
2020, with an unchanged net interest margin of 1.24%.
According to the EBA, increased profitability in the quarter
was supported by low impairment, but the net interest margin (NIM)
remains at historically low levels. The pre-tax return on assets
ratio was 0.49% in the third quarter of 2021, largely unchanged for
the third consecutive quarter. Banks aim to increase income from
fees and commissions and reduce operating expenses in the coming
months.
Coverage ratios remain low, with only 16.3% of the sample
reporting over 55% coverage: 32.5% of banks had below 40% coverage,
versus 38.1% in the preceding quarter.
Market risk remains high. The report highlights "price
corrections and further increased volatility" with the valuation of
securities holdings facing downside risk from high inflation and
central bank tightening. This risk is already affecting the price
of debt securities holdings, exemplified by an increase of around
0.7 percentage points in the yield on 10-year German Bunds from
their 2020 low to just under zero, threatening a move to positive
yields for the first time since May 2019.
The German general election of November 2021 saw the end of a
political epoch with Angela Merkel stepping down after 16 years as
Western Europe's longest-serving leader. The results of the
election were tight and inconclusive, and required the formation of
a coalition government, a not unusual situation in German politics.
The new coalition of three parties forms a centrist government -
the centre-left Social Democratic Party (Sozialdemokratische Partei
Deutschlands: SPD), the Green Party (Die Grünen), and the liberal
Free Democratic Party (Freie Demokratische Partei: FDP) - with a
four-year plan for the coalition agreed at the end of November last
year, and the SPD's Olaf Scholz was confirmed as the new Chancellor
on 8 December. The new government has a clear focus on Germany's
transition to a greener economy and the fight against climate
change, which will require legislative changes and subsidized
incentives in a broad array of areas. This will include advancing
energy policies that phase out carbon-intensive industries. The
SPD, the Greens, and the FDP announced that 80% of Germany's power
supply should come from renewable sources by 2030. At the same
time, the new administration also stated that 15 million electric
vehicles (EVs) are envisaged to be on German roads by that date.
Following the initial broad brushstroke policy, extra details has
emerged that could have implications for the accelerated greening
of the German automotive market. This is a high-stakes game for the
German government and automotive industry, which employs 880,000
people across Germany and that it is a huge net positive for the
German economy as well as being a symbol of national pride.
Therefore, it is vital that the correct balance is struck between
accelerating the pace of electrification and protecting the
stability of, and employment within the industry. Continental, for
example, has previously warned that too rapid a transition to an
all-electric future will hit jobs, while Bosch has 15,000 workers
in Germany alone allocated to the production of diesel engine
components. That is the pragmatic approach the OEMs and suppliers
would like to see, but with the Green Party's influence, there may
not be such a staged transition. It would appear that the new
government will look to encourage the sale of pure BEVs over PHEVs.
(IHS Markit AutoIntelligence's Tim Urquhart)
Russia's Prodo Group, owned by Roman Abramovich, has pulled out
of the egg sector by selling its Chikskaya production facility to
Chelyabinskaya Ptitsefabrika. (IHS Markit Food and Agricultural
Commodities' Max Green)
In a statement, Chelyabinskaya said it had acquired a 100%
stake in Chikskaya, a business based in Russia's Novosibirsk
region. The acquisition, which closed on 29 December, will
strengthen Chelyabinskaya's position as one of Russia's largest egg
producers.
Chelyabinskaya produces table eggs, along with liquid and
powdered eggs and chicken meat products. Prior to the latest
acquisition, the company produced more than 720 million eggs per
year and 1,500 tons of poultrymeat. The newly acquired facility has
the capacity to produce around 300 million eggs per year, which
will lift the company's annual production capacity beyond one
billion.
Prodo is better known for its meat production activities, which
include sausages, semi-finished meat products and meat delicacies.
The company has four poultry factories and three meat processing
enterprises located in the Central, Siberian, Ural and Volga
federal districts. Its brands include Klinsky, Omsky Bacon,
Troekurovo, Rococo, UMKK, Yasnaya Gorka.
Russia currently produces almost 45 billion eggs per year but
as in other parts of the world, producers have recently seen
profitability eroded by the high cost of animal feed and other
inputs.
In November 2021, Slovenian industrial production grew 2.8%
month on month (m/m) in seasonally adjusted terms, according to
data from the country's Statistical Office. November far exceeded
industrial performance previously noted since mid-year. Industrial
output increased by only 0.8% over the four prior months in total.
(IHS Markit Economist Andrew
Birch)
In particular, in November, the manufacture of durable consumer
goods enjoyed a recovery, with output rising by 4.7% m/m that month
after having contracted in each of the previous four months.
Continued industrial gains entering 2022 will depend upon
continued strong export gains. Through the first 11 months of 2021,
export growth increased by 19.3% year on year (y/y) in nominal euro
terms. Total shipments were over 15% higher than they had been
immediately before the pandemic, even in the face of global supply
and transportation challenges on ongoing COVID-19 lockdowns.
Botswana's economy continued to recover in the third quarter of
2021 with growth of 8.4% y/y, compared with a 4.5% y/y contraction
in the third quarter of 2020, thanks largely to stronger output in
the diamond industry. Although a marked slowdown from the
record-breaking 37.3% y/y growth in the second quarter of 2021,
third-quarter GDP's outcome seems robust enough to push full annual
growth to more than IHS Markit's current 7.9% y/y estimate. (IHS
Markit Economist Archbold
Macheka)
Supported by strengthening global diamond demand amid the
relaxation of COVID-19 travel restrictions, which disrupted the
diamond sight-holding calendar in 2020, real value added of mining
and quarrying grew by 29.8% y/y. The diamond sub-sector expanded by
31.0% y/y, driven by diamond production in carats, which surged by
32.2% y/y during the quarter under review.
The wholesale and retail trade sector's real value added also
expanded by 8.2% y/y, compared with an increase of 2.7% y/y
registered in the third quarter of 2020. The GDP report from
Statistics Botswana did not mention the growth drivers, but we
assume that the strong performance was supported by the relaxation
of strict COVID-19 pandemic protocols. Historically, the wholesale
value added has also been largely influenced by the performance of
downstream diamond industries.
Significant growth was also observed in the accommodation and
food services sector, which expanded by 5.1% y/y, reflecting
increased demand for leisure and conferencing activities as the
relaxation of the restriction measures during the quarter
continued. Real estate activities registered growth of 5.2% y/y,
supported by improved real estate services' performance, which grew
by 5.9% y/y.
Nonetheless, water and electricity utilities value added
contracted by 6.4% y/y, compared with growth of 18.6% y/y in the
corresponding quarter of 2020, thanks to the electricity component,
which recorded a decline of 12.6% y/y as local electricity
production decreased by 4.2% y/y. The agriculture, forestry, and
fishing value added fell by 4.0% y/y in the third quarter of 2021,
mainly as a result of a decline of 8.7% y/y in real value added of
livestock farming as fewer cattle were marketed during the
quarter.
Asia-Pacific
Major APAC equity indices closed mixed; India +0.4%, South
Korea flat, Hong Kong flat, Mainland China -0.7%, Australia -0.8%,
and Japan -0.9%.
General Motors (GM) and its joint ventures (JVs) delivered
2,891,900 vehicles in China in 2021, down 0.3% year on year (y/y).
Retail sales of the Buick brand contracted by 7.8% y/y to 815,900
units last year while sales of the Chevrolet brand slumped by 21.1%
y/y to 229,600 units. Cadillac reported growth of only 0.5% y/y
last year with sales of 231,800 units. Sales of the Baojun brand
have declined by 47.6% in 2021 to 210,800 units. As a highlight in
GM's sales report, the Wuling brand's sales rose 28.5% y/y in 2021
to 1,403,800 units. The budget car brand is also the
highest-selling brand under GM in the Chinese market. GM's sales
stayed flat last year in China thanks to strong performance of the
Wuling brand. The Wuling Hongguang Mini EV has outsold an array of
electric vehicles (EVs) in China to become the best-selling EV in
the market last year. According to GM, its sales approached 450,000
units last year, taking GM's small EV sales to over 750,000 units.
Strong market demand for the Wuling Hongguang Mini EV has boosted
GM's sales, and partially offset sales declines by the group's
other brands, however, the automaker is faced with mounting
pressure in the standard-price and premium vehicle market as
Chevrolet is clearly losing traction in the market. In the premium
EV market, GM has already launched the Cadillac Lyriq. The
E-segment premium model, based on GM's Ultium platform, will enable
GM to take on rivals such as Tesla, NIO and Audi, in the premium EV
segment. Deliveries of the Lyriq are set to begin in mid-2022 in
the country. IHS Markit currently expects sales of the Lyriq to
stay below 10,000 units in 2022 as the model is currently only
available in China as a long-range rear-wheel drive with high
selling price of CNY439,700 (USD69,006). (IHS Markit
AutoIntelligence's Abby Chun Tu)
Chinese electric vehicle (EV) startup NIO entered into an
agreement with Zhejiang Commercial Group on 9 January to build
battery-swapping facilities jointly. The two parties aim to
establish battery-swapping stations along expressways in Zhejiang
province. Under this partnership, 30 new stations are expected to
come online by the end of June. NIO expanded its battery-swapping
service network at an unprecedented rate during 2021 with the help
of other companies. By the end of 2021, the EV startup had deployed
a total of 777 battery-swapping stations in China, 605 of which
were newly built in 2021. NIO and Sinopec, one of China's leading
utility suppliers, have launched 101 supercharging and
battery-swapping stations in China since the opening of first
NIO-branded battery-swapping stations in April 2021. The new
stations built under NIO's partnership with Sinopec are located
inside existing petrol stations in Sinopec's network, saving costs
for NIO and making such locations easy to find for EV owners.
Thanks to its expanding battery-swapping network, NIO's vehicle
sales grew by 109% in 2021 to a record of 91,429 units. (IHS Markit
AutoIntelligence's Abby Chun Tu)
Hanwha Total Petrochemical Co., the largest styrene producer in
South Korea, has further reduced the operating rates at its styrene
plants in Daesan, said a source with knowledge of the matter. It on
Jan. 1 decreased the overall operating rates at its two styrene
plants to 70% of capacity, after implementing a run rate cut to
80%-90% in November, the source said. (IHS Markit Chemical Market
Advisory Service's Trisha Huang)
It plans to keep running its two styrene plants, with a
combined capacity of 1.05 million mt/yr, at the current reduced
rate in the near term, the source added.
Ongoing styrene capacity expansion in China has pressured
margins for Northeast Asian styrene producers and prompted several
to curtail output in late 2021.
The price spread between spot CFR China styrene to key
feedstock spot FOB Korea benzene shrank in December to the smallest
in 2021, data compiled by OPIS show.
Ahead of the early-2022 commissioning of three new styrene
units in China with a combined capacity of 1.97 million mt/yr, the
styrene/benzene price spread fell to an average of $151/mt in
December, down by 32.9% from $225/mt in November, OPIS data
show.
For comparison, the styrene/benzene price spread averaged
$284/mt in the first six months of 2021, the data show.
SML Isuzu has temporarily suspended production at its
commercial vehicle manufacturing plant located in Shahid Bhagat
Singh Nagar district in Punjab (India) for five days until 15
January due to an increase in COVID-19 cases. According to a filing
to the Bombay Stock Exchange (BSE), the company said that due to
the sudden increase in COVID-19 cases, especially with the highly
infectious Omicron variant, resulting in challenges in the supply
chain and likely impact on the demand of school buses, and to
ensure safety of its employees and optimize inventory, the company
has decided to temporarily suspend production. (IHS Markit
AutoIntelligence's Isha Sharma)
Posted 11 January 2022 by Chris Fenske, Head of Fixed Income Research, Americas
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