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European and US equity markets closed higher on the day, while
APAC markets were mixed. The S&P 500 came very close to a new
record high, while US and European governments bonds posted a
second consecutive day of significant selling. iTraxx/CDX credit
indices tightened across IG/high yield and oil was sharply higher
on the day, while gold recovered slightly after yesterday's sharp
sell-off.
Americas
US equity markets closed higher on the day and near the highest
levels of the day; Nasdaq +2.1%, S&P 500 +1.4%, DJIA +1.1%, and
Russell 2000 +0.5%. The S&P 500 closed at 3,380, which is only
0.4% away from the all-time intraday high level of 3,393 on 19
February.
10yr US govt bonds closed +4bps/0.68% yield and 30yr bonds
closed +5bps/1.38% yield. 10s are now +18bps from this month's low
yield of 0.50% on 4 Aug.
CDX-NAIG closed -2bps/65bps and CDX-NAHY -9bps/390bps.
Crude oil closed +2.5%/$42.67 per barrel.
Gold closed +0.1%/$1,949 per ounce.
As the earnings season draws to a close, companies within the
Russell 2000 stock index — the small-cap benchmark — have
reported an aggregate loss of $1.1 billion, compared to profits of
almost $18 billion a year earlier, according to data provider
FactSet. Meantime, the much bigger companies within the benchmark
S&P 500 index have posted a 34% aggregate drop in earnings, to
$233 billion. (FT)
The US consumer price index (CPI) jumped 0.6% in July, matching
June's increase. Energy prices rose by 2.5% as gasoline prices
continued to rebound. The food CPI declined 0.4%. The core CPI rose
0.6%, the largest one-month increase since January 1991. (IHS
Markit Economists Ken Matheny and Juan Turcios)
Consumer prices have risen sharply over the last two months,
partially reversing declines from March through May. Recent
increases leave the levels of the headline and core CPIs below
their pre-COVID trends, as consumer price inflation remains
muted.
The core CPI rose 0.9% over June and July following a 0.6%
decline over the prior three months. Gasoline prices rose 18.6%
over the last two months, reversing about two-fifths of a 31.5%
decline over the prior three months. In contrast, the CPI for food
fell in July, the first decline following large increases during
April, May, and June that totaled 2.8%.
Twelve-month inflation rates remain low. The 12-month change in
the overall CPI rose 0.4 percentage point to 1.0% in July. The
12-month change in the core CPI also rose 0.4 percentage point, to
1.6%. Twelve-month rates of change for both headline and core CPI
remain below their pre-pandemic (February 2020) readings of 2.3%
and 2.4%, respectively.
The Securities Industry and Financial Markets Association
(SIFMA) has published US equity and debt issuance figures for July
2020. (IHS Markit Economist Brian Lawson)
Primary equity sales of common stock fell to USD18.3 billion in
July, versus USD67.5 billion and USD58.1 billion in the two
preceding months.
The July issuance level was slightly below that for July 2019
(USD18.5 billion), in stark contrast with the two preceding months
when sales were roughly double those for the corresponding months
in 2019.
This activity had been heavily focused on capital increases,
which totaled USD99.8 billion between May and June before declining
to USD9.5 billion in July.
In the fixed income markets, July corporate debt sales were
US93.3 billion (versus USD117.7 billion in July 2019).
This was well below the USD238.1 billion and USD301.1 billion
of corporate debt sold in the two preceding months, with
year-to-date (YTD) issuance standing at 1.526 trillion, 78.9% above
the USD852 billion sold in the first seven months of 2019.
Another notable growth segment is mortgage backed debt, where
YTD issuance stands at USD1.826 trillion, versus USD998 billion
between January and July 2019.
By contrast, US Treasury issuance of USD1.98 trillion is 19.5%
above the USD1.65 trillion sold in the first seven months of
2019.
US electric vehicle (EV) specialist Lucid has announced that it
has independent verification of its upcoming Air sedan reaching 517
miles on a single charge, based on US Environmental Protection
Agency (EPA) testing protocol. According to a press statement from
Lucid, FEV North America performed the testing, using the EPA's
Multicycle Test Procedure (SAE J1634 Oct 2012 standard). Lucid says
that FEV's results confirm that the sedan is the longest-range EV
to date. Lucid also notes that FEV's test results are similar to
what the startup automaker had found in its computer modelling.
Lucid notes that its technology division, Atieva, played a "large"
role in developing the battery pack, drawing on its experience of
providing battery packs for Formula E racing. Rawlinson also noted
that the 517-mile range was achieved even as the company reduced
the battery pack's capacity, reducing vehicle weight and cost.
Lucid also reconfirmed that the Air will be revealed fully on 9
September, including final interior and exterior designs, new
details about product specifications, available configurations, and
pricing. (IHS Markit AutoIntelligence's Stephanie Brinley)
Argentina recorded a drop in exports of soy and corn last
month, according to the Rosario Stock Exchange (BCR). Soymeal
exports declined by 22% to 2.4 million tons and soy by 23% to 1
million tons. Meanwhile, soy oil was the only commodity to perform
positively, up 8% to 586,736 tons, it said. Between April and July,
only soymeal exports decreased by 11% y-o-y, totaling 10.2 million
tons. Despite the decline, the segment is still the main soy
product exported by Argentina, while soy and soy oil increased to
5.2 million tons (+ 28%) and 2.4 million tons (+ 19%),
respectively, it indicated. Meanwhile, corn shipments also fell in
July by 5% y-o-y to 4.2 million tons, albeit smaller than soymeal
and soy. Corn shipments, through ports based on Gran Rosario,
dropped by 13% compared to the previous year. Gran Rosario which
processed over 3 million tons in July, remains the main exporting
route, BCR said. While corn shipments from Southern Santa Fe and
Northern Buenos Aires grew sharply by 284% to 115,806 tons, the
total volume is still small compared to other flow paths. Growth
was owed to record low water levels of the Paraná river, preventing
vessels to leave the Gran Rosario ports fully loaded, and complete
shipments further South, it indicated. Gran Rosario was also the
major road for soy and by-products exports which reached 3.4million
tons in July, accounting for 84% of total oilseed shipped, while
soymeal represented 70% share. Additionally, a total of 372,295
tons of wheat was exported via Gran Rosario in July down 15% y-o-y,
where around 315,625 tons were shipped, it concluded. (IHS Markit
Food and Agricultural Commodities' Ana Andrade)
Europe/Middle East/ Africa
European equity closed higher across the region for the second
consecutive day; UK +2.0%, Italy +1.1%, France/Germany +0.9%, and
Spain +0.5%.
10yr European govt bonds closed lower again across the region;
UK +4bps, Germany +3bps, and France/Italy/Spain +2bps.
iTraxx-Europe closed -1bp/52bps and iTraxx-Xover
-7bps/335bps.
Brent crude closed +2.1%/$45.43 per barrel.
The eurozone's industrial production rose by 9.1% month on
month (m/m) in June, below market consensus expectations (-10%
m/m), according to Reuters. Production is now estimated to have
increased by 12.3% m/m in May, slightly revised downwards from
12.4% m/m. (IHS Markit Economist Diego Iscaro)
Given the substantial m/m declines in March and April,
industrial production still collapsed by 16.0% quarter on quarter
(q/q) during the second quarter, by far the largest quarterly
contraction on record. Moreover, output was still 11.4% below where
it was in February.
June's increase was broad based across types of production,
although production was particularly strong in the consumer
durables (+20.2% m/m) and capital goods (+14.2% m/m) sectors. In
May, production of intermediate goods grew below the average (+6.7%
m/m).
In all main sectors, production remained well below their
pre-COVID-19 levels in February. Production of non-durable consumer
goods was still 7.8% below February's level, while production of
consumer durables stood 9.4% below where it was in February.
Output of capital and intermediate goods performed even worse,
standing 13.0% and 14.1% below their pre-COVID-19 levels. On the
other hand, energy production was "only" 3.8% below February's
levels.
The UK's Office for National Statistics (ONS) has reported that
the UK slipped into a short technical recession in the second
quarter, defined as two successive quarters of quarterly decline.
(IHS Markit Economist Raj Badiani)
According to the ONS's first estimate, the economy shrunk by a
record 20.4% quarter on quarter (q/q) in the second quarter after a
2.2% q/q drop in the first quarter.
In addition, real GDP contracted by 21.7% year on year (y/y) in
the second quarter, the biggest fall on record.
This implies that the UK economy shrunk by a cumulative 22.1%
in the first half of 2020, one of the most affected economies in
the Organisation for Economic Co-operation and Development (OECD;
see chart below).
Consumer spending bore the brunt of tumbling activity during
the second quarter, accounting for more than 70% of the fall of the
expenditure measure of GDP. It fell for the second successive
quarter after a 23.1% q/q decline in the second quarter, after
rising uninterruptedly since the end of 2015. The fall in the first
half of this year was because of falls in spending on tourism,
restaurants and hotels, transport, and clothing and footwear.
Other spending indicators confirm the dismal narrative. The
volume of retail sales shrunk by 9.5% q/q in the second quarter,
with declines across all store types except food stores and
non-store retailing.
Fixed capital formation fell for the third successive quarter,
declining by 25.5% q/q in the second quarter. Business investment
plunged, falling by a record 31.4% q/q, which is a staggering four
times larger than the sharpest quarterly fall experienced during
the 2008 global economic downturn.
Service-sector output in the second quarter posted its sharpest
quarterly fall on record, down by one-fifth compared with the first
quarter.
Construction output was the most affected by the COVID-19 virus
lockdown, resulting in a very sharp drop in new work and repair and
maintenance during April. The ONS reported that private new housing
declined by 51.2% q/q, with social distancing measures halting
housebuilding activity.
The United Kingdom's national standards body, the British
Standards Institution (BSI), has rolled out the first taxonomy for
specifying the operational design domain (ODD) of an automated
driving system (ADS). The new standard defines a common language
for describing the ODD, including the type of road, traffic, and
weather. The new standard, called "PAS 1883 Operational Design
Domain (ODD) Taxonomy for Automated Driving Systems (ADS) -
Specification", is the third publication from the CAV Standards
Program. This program aims to fast-track the safe use of connected
and autonomous vehicles (CAVs). Iain Forbes, head of the Centre for
Connected and Autonomous Vehicles, said, "Connected and
self-driving vehicle technology has the potential to level up
transport across the nation by making every day journeys greener,
safer, more flexible and more reliable. However, none of these
benefits will be realized without public confidence that connected
and self-driving technology is safe and secure. That is why BSI's
CAV Standards Program is so important to the world-class work CCAV
is leading on assurance, with PAS 1883 in particular supporting
better communication and collaboration within the sector to enable
even safer trialing and deployment of the technology." (IHS Markit
Surabhi Automotive Mobility's Rajpal)
According to all measures, the Swedish headline consumer price
inflation moderated in July. The consumer price index (CPI), which
is the national definition, came in at 0.0% year on year (y/y),
down from 0.7% in June. According to the EU-harmonised measure
(HICP), inflation was 0.7% y/y, down from 0.9% in June. (IHS Markit
Economist Daniel Kral)
CPI at fixed interest rates (CPIF), which is the most closely
watched indicator by the central bank, also moderated to 0.5% y/y
in July, which is 0.5pp above the Riksbank's latest forecast from 1
July. CPIF excluding energy came in at 1.5% y/y, slightly higher
than in June and also 0.2pp above the Riksbank's latest
forecast.
On an annual basis, electricity (-0.7pp), fuel (-0.3pp), and
package holidays (-0.2pp) were the main drags on headline CPIF
inflation. Food and non-alcoholic beverages, fruit, housing, and
rents all contributed 0.2pp to headline inflation.
On a monthly basis, CPIF rose by 0.2%. The main contribution to
the monthly rate came from the price increases on rental cars,
which added 0.2 pp to the rate, and higher prices for vegetables,
which added 0.1 pp. These were offset by lower prices for
electricity and dental care, both subtracting 0.2 pp from headline
inflation.
KINTO Share, a shared mobility program by Toyota, has selected
Ridecell as the platform provider for its service in Stockholm
(Sweden). KINTO Share offers vehicles for rental for any duration
required; the vehicles must be picked up and returned to designated
stations based in Stockholm. Ridecell will provide its high-yield
mobility platform, which will enable users to have access to
facilities such as customer verification, vehicle lock and unlock,
service management, and yield monetization analytics. Ridecell is
headquartered in San Francisco (United States) and has more than
170 employees in the US, Europe, Asia, and Australia. Ridecell's
shared mobility platform will help KINTO Share users to get their
fleet operational rapidly, as well as maximising efficiencies.
Since March, Ridecell has added new customers including ZITY in
Paris (France), GIG Car Share in Seattle (US), and now KINTO Share
in Stockholm. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Kenya's parliament on 4 August reviewed amendments to section
157(9) of the Public Procurement and Assets Disposal Act 2015,
which proposes increasing the required proportion of local
suppliers used by firms that win government tenders from 40% to
60%. Moreover, government guidelines published this month stipulate
that information and communications technology (ICT) companies must
be at least 30% Kenyan owned to obtain an operating license. In
response to increasing unemployment, caused in part by COVID-19
virus-related restrictions on businesses and movement, President
Uhuru Kenyatta is also prioritizing policies to increase local
employment. The fiscal year 2020/21 budget earmarked USD92 million
for the "Kazi Mtaani" ("work on the street") scheme to provide
extra jobs for more than 200,000 people in utilities, cleaning, and
road maintenance. Having allied with the main opposition Orange
Democratic Movement (ODM), Kenyatta has support from a majority of
MPs and senators, likely ensuring that the amendment to increase
the use of local suppliers in government tender works will be
finalized and implemented. (IHS Markit Country Risk's William
Farmer)
Asia-Pacific
APAC equity markets closed mixed; Mainland China -0.6%,
India/Australia -0.1%, Japan +0.4%, South Korea +0.6%, and Hong
Kong +1.4%.
Indian industrial production contracted by 16.6% year on year
(y/y) in June 2020. Despite the continued severe contraction, this
represented a significant improvement on the situation in May, when
industrial production fell by 33.9% y/y. (IHS Markit Economist
Rajiv Biswas)
The easing of lockdown restrictions on the industrial sector in
successive stages since 22 April has resulted in a significant
rebound in industrial output during June.
The overall contraction in industrial production for the
April-June quarter was 35.9% y/y, owing to the severe lockdown in
place during April, when production collapsed in many segments of
manufacturing, such as auto manufacturing.
Manufacturing output fell by 17.1% y/y in June. Although the
extent of contraction remained deep, the June number reflected a
significant rebound compared with the 40.7% y/y decline recorded
for second-quarter 2020.
Although most sectors of manufacturing continued to show y/y
declines in output, the pharmaceuticals sector showed a strong
rise, up 34.6% y/y owing to strong domestic and international
demand for Indian pharmaceutical products, reflecting
pandemic-related orders.
The food manufacturing sector was also resilient, with output
down just 2.6% y/y while output of chemical products was down just
1.9% y/y.
Many key sectors of manufacturing remained very weak in June,
with auto manufacturing output down 48% y/y, and manufacturing of
computers, electronic, and optical products down 24.8% y/y.
June data continued to show a considerable decline in output of
capital goods, which fell by 36.9% y/y, while output of
infrastructure/construction goods fell by 21.3% y/y, reflecting
severe weakness in domestic investment due to the pandemic and
recessionary conditions.
Output of consumer non-durables showed strong positive growth
of 14% y/y in June, as the easing of lockdown restrictions on
consumers since early May helped to boost demand for essential
goods.
Demand for big ticket items remained weak, with output of
consumer durable goods contracting by 35.5% y/y.
The contraction in electricity production narrowed to a decline
of just 10% y/y in June, while mining output recorded a contraction
of 19.8% y/y.
Indian pharmaceutical company Cipla has announced plans to
scale-up manufacturing capacity for remdesivir amid rising demand
for the drug to treat COVID-19. Cipla, along with Jubilant (India),
Hetero (India), and the Indian subsidiary of Mylan (US), was one of
the companies that originally signed a non-exclusive licensing
agreement with Gilead (US) for bioequivalent versions of Veklury
(remdesivir) for distribution in 127 low- and middle-income
countries as a treatment for COVID-19 (see India: 13 May 2020:
Gilead signs non-exclusive licensing deals for remdesivir with five
generic companies in India and Pakistan). Dr Reddy's (India) later
also agreed a non-exclusive licensing deal for remdesivir under the
same terms. Local news source Live Mint now reports that Cipla is
planning to start the manufacture of remdesivir at its plant in
Goa. Cipla had earlier contracted production of the drug to
Daman-based Sovereign Pharma, which had capacity to supply 50,000
to 95,000 vials per month. Cipla's chief financial officer Kedar
Upadhye stated that, "Demand continues to outstrip supply
significantly". However, Upadhye added that he expects the supply
gap to narrow as more Indian companies launch their licensed
generic versions of the medicine. (IHS Markit Life Sciences' Sacha
Baggili)
China's new aggregate financing, the widest measure of net new
financing to the real economy, increased CNY1.7 trillion in July
2020, up CNY402.8 billion from a year ago while halving new
financing in the previous month, according to a release from the
People's Bank of China. The growth of stock TSF continued to rise
from 12.8% year on year in June to 12.9% y/y this month. (IHS
Markit Economist Yating Xu)
Bank loans injected to the real economy increased CNY968
billion, up CNY181 billion from a year ago.
New bank loans at CNY992.7 billion was lower than the level a
year ago, the first year-on-year decline since the start of the
pandemic, largely because of the decline in corporates' short-term
borrowing, possibly reflecting the withdrawal of some temporary
stimulus.
Borrowing from households and long- and medium-term loans of
corporates continued to rise, with sustained economic growth and
financial support for major projects.
Off-balance sheet financing, including entrusted loans, trust
loans, and undiscounted bankers' acceptance declined by CNY88
billion in July, compared with a CNY622 billion reduction a year
ago.
Government bonds and corporate bonds issuance declined by
CNY56.1 billion and CNY96.8 billion respectively from a year ago,
which was the main contributor to the lower than expected new TSF
in July.
Broad money supply (M2) growth slowed to 10.7% year on year in
July from 11.1% year on year in the previous three months.
Households' deposits posted the largest reduction over the past
three years, corporates' deposits registered a record decline in
July, while deposits of non-banking deposit institutions rose
sharply at the same time, suggesting that the move of deposits from
banking system to stock market drove the index rally in July.
Record flooding through June-July has mostly caused damages in
Mainland China's rural areas, therefore helping reduce direct
disruptions in industrial and services sector; potential
post-disaster reconstruction could generate growth tailwinds. (IHS
Markit Economists Yating Xu and Lei Yi)
Direct economic losses from floods have totaled CNY149.05
billion through the end of July, according to the estimates by the
Ministry of Emergency Management (MEM).
Losses of CNY109.74 billion, or nearly 74% were incurred in
July. Cumulatively, flood-incurred cost from 1 June (the start of
main flooding season) to 22 July is down 5% compared with the
2015-19 average.
Record-setting floods in July have impacted around 38.17
million people nationwide and displaced nearly 3 million, up by
62.5% and 88.6% compared with the average of same-period values in
the past five years respectively. Nonetheless, such evacuation
efforts have helped to reduce casualties by over 50% compared with
past five-year average.
Emergency response of flood control has been lowered from third
to the lowest fourth level on 7 Aug, as flooding started to recede
towards the end of July.
Thanks to the nation's expanding economic scale and flood
control efforts, direct economic cost of flood disasters as a share
of GDP has been declining over the past years. Flood-incurred
losses reached 3% of nominal GDP in 1998, 1% in 2010, and 0.5% in
2006. This year, direct economic cost through July approximates
merely 0.15% of mainland China's nominal GDP in 2019.
Tesla sold 11,041 vehicles in China during July, according to
data from the China Passenger Car Association (CPCA). The data do
not include a breakdown by individual model, but the majority of
Tesla's July sales are likely to have come from the locally made
Model 3. Tesla does not report sales results for individual markets
as of this reporting. Tesla's July sales results indicate that
demand for its electric vehicles (EVs) remains strong in the
Chinese market. Compared with June, the automaker's deliveries fell
by 26.2% in July from 14,954 to 11,041 units, but the US
manufacturer still outsold an array of local rivals, including
strong startup contestants, to become the top seller in the
new-energy vehicle segment. In comparison, NIO delivered 3,533
vehicles in July, while Li Auto sold 2,516 vehicles during the
month. (IHS Markit AutoIntelligence's Abby Chun Tu)
Hyundai Autoever, a subsidiary of Hyundai Motor Group, will
build 5G-based vehicle-to-everything (V2X) infrastructure in the
South Korean city Daegu. V2X technology enables vehicles to
communicate directly with other vehicles, pedestrians, devices, and
roadside infrastructure, and facilitates the operations of
automated vehicles. This project is scheduled for completion at the
beginning of next year. Yoo-seok, CEO of Hyundai Autoever, said,
"Through experience in Cooperative Intelligent Transport Systems
(C-ITS) projects such as building a self-driving test bed, K-City,
and C-ITS on expressways, we intend to contribute to becoming a
leading autonomous driving city in Daegu. As a provider of future
transportation solutions based on autonomous vehicles, Hyundai
Autoever is striving to complete the 'Autonomous Driving Support
Convergence Technology Platform' in line with its business
expansion". (IHS Markit Automotive Mobility's Surabhi Rajpal)
Kyanite Investment Holdings, Temasek's wholly owned subsidiary,
has withdrawn its USD 3 billion (SGD 4.1 billion) bid for Keppel
Corporation after invoking the material adverse change clause. This
came after the USD 490 million (SGD 697 million) Q2 net loss
reported by Keppel Corporation. The clause in Temasek's offer
states that Keppel's net profit must not fall by more than 20%, or
about USD 405 million (SGD 557 million), over the cumulative four
quarters from the third quarter ended September 2019. The group's
recent results have breached the precondition. This move may
negatively influence the widely speculated merger between Keppel
O&M and Sembcorp Marine. Back in June 2020, Temasek has backed
a USD 1.5 billion (SGD 2.1 billion) rights issue by Sembcorp Marine
and its demerging from Sembcorp Industries. (IHS Markit Upstream
Costs and Technology's Jessica Goh)
Posted 12 August 2020 by Chris Fenske, Head of Capital Markets Research, Global Markets Group, S&P Global Market Intelligence
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