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All major European equity indices closed higher, APAC was mixed,
and US markets were sharply lower on a much higher than expected
CPI release. US and benchmark European government bonds closed
lower, with 10yr Bunds closing at the highest yield since May 2019.
European iTraxx and CDX-NA credit indices closed wider across IG
and high yield. The US dollar, oil, and natural gas closed higher,
while gold, silver, and copper were lower on the day.
Please note that we are now including a link to the profiles of
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Americas
All major US equity indices closed lower for a third
consecutive day; DJIA -2.0%, S&P 500 -2.1%, Nasdaq -2.7%, and
Russell 2000 -3.3%.
Energy was the only major sector in the S&P 500 that closed
higher on the day.
10yr US govt bonds closed +8bps/1.70% yield and 30yr bonds
+6bps/2.41% yield.
CDX-NAIG closed +1bp/54bps and CDX-NAHY +7bps/301bps.
IHS Markit's AAA Tax-Exempt Municipal Analytics Curve (MAC)
sold-off 3bps across the curve today.
DXY US dollar index closed +0.6%/90.71. The US dollar rallied
0.4% on the CPI release, but then switched course 4 minutes later
to decline 0.5% between 8:34am-9:16am ET.
Gold closed -0.7%/$1,823 per troy oz, silver -1.5%/$27.24 per
troy oz, and copper -0.5%/$4.74 per pound.
Crude oil closed +1.2%/$66.08 per barrel and natural gas closed
+0.5%/$2.97 per mmbtu.
The US consumer price index (CPI) rose 0.8% in April, the
largest monthly increase since June 2009. This followed a 0.6%
increase in March. The core CPI, which excludes the direct effects
of movements in food and energy prices, rose 0.9%, the largest
monthly increase since April 1982. (IHS Markit Economists Ken
Matheny and Juan
Turcios)
The rise in consumer prices in April was broad based,
reflecting increased consumer demand with the reopening of the
economy. Among the indices that posted substantial price increases
were new vehicles (0.5%), motor vehicle insurance (2.5%), airline
fares (10.2%), and used cars and trucks (10.0%). The 10.0% increase
in the used cars and trucks index was the largest monthly increase
in the series history and accounted for nearly a third of the rise
in the all items index in April. Supply-chain issues in the new car
market, primarily stemming from semiconductor shortages, are
increasing demand in the used car market.
Today's report is not just about "base-effects." Following
sharp declines over March and April of last year, the core CPI had
largely recovered to the previous trend by September 2020. Since
September, the core CPI has advanced at a lofty 2.9% average annual
rate.
Total US household debt rose in the first quarter by $85
billion (0.6%). The four-quarter change in total household debt
fell 0.5 percentage point to 2.4%. Outstanding household debt
totaled $14.64 trillion. (IHS Markit Economist David
Deull)
Mortgages, the largest category of debt, were also the main
source of increase in the first quarter, rising $117 billion for a
four-quarter increase of 4.6% (down from 5.1% in the fourth quarter
of 2020).
Mortgage originations, which include refinances, slipped from
their record high to a still extraordinary $1,138 billion. From
2010 to 2019, the quarterly average rate of mortgage originations
was $447 billion.
Nonhousing debt fell by $18 billion in the first quarter as
credit card balances fell $49 billion, the fourth decrease in five
quarters as stimulus payments and unemployment insurance have
supplemented incomes, allowing consumers to pay down debts. Credit
card debt was 13.8% below its year-earlier level, the largest
four-quarter decline on record.
Auto loans rose by $8 billion (0.6%), while student loans added
$29 billion (1.9%). Four-quarter growth for these categories was
2.7% and 3.2%, respectively.
The overall delinquency rate (the share of balances delinquent
by 30 days or more) saw a sixth consecutive decline, falling by 0.1
percentage point to 3.1%, from a recent peak of 4.8% in the third
quarter of 2019. These declines reflect forbearances, which
insulate credit records from notations of skipped or deferred
payments.
Bankruptcy notations were added to about 114,000 consumers'
credit reports in the first quarter, a record low.
Eli Lilly (US) has announced that it has entered into a global
research collaboration with UK biotech MiNA Therapeutics to develop
novel drug candidates using the latter's proprietary small
activating RNA (saRNA) technology platform. Under the agreement,
MiNA will utilize the platform to research up to five targets
selected by Lilly that focus on the US company's priority disease
areas. Lilly will be responsible for preclinical and clinical
development of candidates, and will retain exclusive
commercialization rights for any products resulting from the
collaboration. MiNA will receive a USD25-million upfront payment
and is eligible to receive potential development and
commercialization milestones up to a total of USD245 million per
target, as well as tiered royalties from the low-single to
low-double digits on product sales resulting from the
collaboration. (IHS Markit Life Sciences' Milena
Izmirlieva)
The General Motors (GM) and LG Energy Solution joint venture
(JV), Ultium Cells LLC, has announced an agreement to work with
Li-Cycle to recycle battery material scrap created during battery
cell manufacturing. According to a joint statement from Ultium
Cells and Li-Cycle, the process will allow Ultium Cells to recycle
up to 100% of the material scrap including cobalt, nickel, lithium,
graphite, copper, manganese and aluminum, created during battery
cell manufacturing, and that 95% of the materials can then be used
in production of new batteries or for adjacent industries. The
partners indicate that the process for recycling the materials also
emits 30% less greenhouse gas than a traditional process. (IHS
Markit AutoIntelligence's Stephanie
Brinley)
TuSimple, in partnership with Navistar, has received 6,775
reservations for a new line of trucks that are capable of Level 4
autonomous operations, according to a company statement. These
trucks are purpose-built International LT Series, which are
deployed with TuSimple's autonomous system and will be manufactured
by Navistar beginning in 2024. Penske Truck Leasing, Schneider, and
U.S. Xpress are among the first customers to place reservations for
these autonomous trucks. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Chinese digital freight-matching platform Full Truck Alliance
is planning an initial public offering (IPO) in New York (US) that
will value the company at more than USD20 billion, reports Reuters.
The company aims to raise about USD1.5 billion from its IPO and
could file for listing as early as this week. Full Truck Alliance
was created with the merger of Huochebang and Yunmanman in 2017 to
offer an on-demand platform that connects cargo shippers with truck
drivers, resembling an Uber service for trucks. The company has
more than 10 million registered truck drivers and more than 5
million truck owners on its platform. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
Europe/Middle East/Africa
European equity indices closed higher; UK +0.8%, Italy +0.2%,
Spain +0.2%, Germany +0.2%, and France +0.2%.
10yr European govt bonds closed lower; Spain +2bps,
France/Italy +3bps, Germany +4bps, and UK +5bps. 10yr German Bunds
closed at a -0.13% yield, which is the highest close since May
2019.
iTraxx-Europe closed +1bp/52bps and iTraxx-Xover
+5bps/261bps.
Brent crude closed +1.1%/$69.32 per barrel.
The UK's Office for National Statistics (ONS) reports that GDP
in volume terms shrank by 1.5% quarter on quarter (q/q) in the
first quarter. This compares with upwardly revised gains of 1.3%
q/q and 16.9% q/q in the fourth and third quarters of 2020,
respectively. (IHS Markit Economist Raj
Badiani)
In annual terms, the economy contracted by 6.1% year on year
(y/y) during the first quarter, after a 9.8% drop in the full year
2020.
In addition, GDP in the first quarter was 3.0% smaller than it
was at the end of 2019, the pre-COVID-19 level.
GDP fared better than expected during the third lockdown in
England in the first quarter for the following reasons:
Many businesses continued to display innovation to survive the
restrictions, with the ONS reporting the increasing use of "click
and collect" as well as a move online.
Supermarkets increased their product ranges to take advantage
of the closure of non-essential shops.
A notable rise in government spending on COVID-19-related
medical goods and services occurred in the latter stages of 2020
and early 2021.
Service-sector output shrank by 2.0% q/q in the first quarter
and is 8.7% below the pre-COVID-19 level.
The largest drag was from the education sector, with output
here falling by 11.8% q/q because of the closure of schools during
January and February as part of the government's COVID-19
restrictions
Germany's final April inflation data based on national
methodology from the Federal Statistical Office (FSO) confirm the
"flash" data release of 29 April, showing rates of 0.7% month on
month (m/m) and 2.0% year on year (y/y), the latter increasing from
1.7% in March. This exceeds average inflation of 1.4% in 2019 and
0.5% in 2020. (IHS Markit Economist Timo
Klein)
Mercedes-Benz Trucks has launched a collaboration with Shell to
trial automatic digital fuel payments for trucks at its German
stations, according to a company statement. The system has already
been successfully used to make automatic digital payments using
Mercedes-Benz Actros trucks fitted with a new prototype of
Mercedes-Benz Trucks' previously presented digital Truck-ID. This
is combined with a digital fuel card prototype that uses Shell
SmartPay API technology. The Truck-ID works like an integrated ID
card, so the transactions are uniquely assigned to the vehicle and
automatically signed by the vehicle itself. (IHS Markit
AutoIntelligence's Tim Urquhart)
Lanxess says its first-quarter net profits were flat year on
year (YOY) at €64.0 million ($77.6 million) on a 0.6% YOY slip in
sales, to €1.69 billion. Volumes were up 5.0% YOY with growing
demand from the automotive sector driving the increase, but lower
selling prices despite higher raw material costs, negative currency
effects, and weather-related production shutdowns in the US offset
the growth in volume, the company says. EBITDA pre exceptionals
decreased by 1.2% YOY, to €242.0 million, but beat analysts'
consensus estimate of €234.8 million provided by Vara Research
(Frankfurt, Germany). EBIT was 5.8% lower YOY, at €98 million. The
company, meanwhile, has raised its full-year forecast. (IHS Markit
Chemical Advisory)
The company's advanced intermediates business recorded a 1.2%
YOY increase in sales, to €489 million, and EBITDA pre exceptionals
declined 6.1% YOY, to €77 million.
The Lanxess specialty additives business was also hampered by
the production shutdowns in the US as well as continued weak demand
from the aviation industry that led to lower volumes, the company
says.
Sales of Lanxess's consumer protection business were up 3.9%
YOY, to €290 million, despite lower selling prices, the company
says. EBITDA pre exceptionals rose 3.0% YOY, to €69 million. The
performance was driven by the continued strong agricultural
chemical business of the Saltigo subsidiary and good demand for
disinfectants at the material protection products segment.
The Lanxess engineering materials business reported an 8.6% YOY
increase in sales, to €377 million, boosted by increasingly strong
demand from the automotive industry that drove volumes higher, the
company says. EBITDA pre exceptionals was up 20.4% YOY, to €59
million, despite higher freight and energy costs, Lanxess
says.
A second estimate shows French EU-harmonised prices rising by
1.6% year on year (y/y) in April. This is slightly below a "flash"
estimate of 1.7% released in late April. (IHS Markit Economist Diego
Iscaro)
April's inflation rate was the highest since February 2020,
when it had also stood at 1.6%.
Core inflation, which is not released with the flash figures,
accelerated from 0.8% in March to 1.0% in April, a three-month
high.
Service price inflation also accelerated in April, but only
slightly. Service prices went up by 1.2% y/y in April (+1.1% y/y in
March), boosted by higher communication costs (+4.2% y/y) and
prices of "other services" (+1.3% y/y).
Prices of manufactured goods declined by 0.2% y/y in April,
unchanged from March. The fall in prices of clothing and footwear
moderated (-2.3% y/y, following a fall of 2.7% y/y in March), while
prices of furniture and furnishings accelerated from +3.2% y/y to
+3.6% y/y.
Italian automotive supplier Marelli and powertrain and
driveline supplier Punch have agreed to form a joint venture (JV)
on 'focused e-axle solutions', according to a company statement.
The companies will combine their extensive expertise in the area of
electric powertrains to offer integrated systems for electric
vehicles (EVs). The JV will be majority-owned by Marelli and will
be focused on creating an e-axle technology for multiple OEMs, with
the target markets being focused on the European and Americas. The
new enterprise, Marelli Electric Powertrain Strasbourg (France)
SAS, will be headquartered at Punch's site in Strasbourg, France,
in proximity to major European vehicle makers. (IHS Markit
AutoIntelligence's Tim Urquhart)
A pair of European energy companies are looking to use Norway's
offshore oil production experience as a starting point for its
emerging floating offshore wind sector. Norway's state-controlled
Equinor and Vårgrønn, a joint venture of Italy's Eni with Norwegian
equity firm HitecVision, plan to develop floating offshore wind off
Utsira and Haugalandet in Norwegian waters, according to a 6 May .
Norway relies on hydropower for 95% of its electricity needs, and
it also had 2.2 GW of onshore wind power capacity at the end of
2019, according to IHS Markit data. It does not yet have any
operational offshore wind farms. Deep, rough waters, and an uneven
seabed make Norwegian waters less friendly than those of other
European nations for bottom-fixed wind turbines, but the floating
wind sector may grow in cost-competitiveness as the technology
develops, according to a report on offshore wind commissioned by
Norway's Ministry of Oil and Energy. (IHS Markit Climate and
Sustainability News' Cristina Brooks)
In March, Turkish industrial production expanded by 0.7% month
on month (m/m) in seasonally and calendar adjusted data. Following
the March-April 2020 plunge in production triggered by the onset of
lockdown measures to combat the first wave of COVID-19 infections,
industrial output has steadily grown for 11 consecutive months.
Total output as of March 2021 was 9.5% higher than it had been
immediately preceding the pandemic. (IHS Markit Economist Andrew
Birch)
Steady industrial gains - buoyed by the resilient European
production cycle driving export demand - have returned employment
levels to above pre-pandemic levels as well. There was a
particularly sharp year-on-year (y/y) surge in employment in March
due to the base effects caused by the onset of the pandemic in
March 2020.
Greater employment and sustained, strong credit growth have
continued to fuel increased retail trade. In March, the total
volume of retail trade increased by 5.1% m/m in seasonally and
calendar adjusted data. Total retail trade expanded m/m in each of
the first three months of 2021 despite increasing lockdown measures
implemented in the face of renewed COVID-19 infections.
Turkey posted a current-account deficit of USD7.8 billion in
the first quarter of 2021, down by USD1.1 billion year on year
(y/y), but still large as a share of GDP. Vigorous merchandise
export growth reduced the trade gap, which was responsible for the
narrowing of the headline current-account imbalance. (IHS Markit
Economist Andrew
Birch)
On the other hand, the failure of tourism or other service
exports to recover from COVID-19 in the first quarter - total
service exports dropped by nearly 19% y/y - led to a sharp
narrowing of the services balances. This worsening offset much of
the positive impact of the smaller merchandise-trade deficit on the
headline current-account balance.
Turkey also recorded a massive, record-setting net outflow of
portfolio investment in March 2020, totaling USD5.7 billion. Given
the sharp plunge in the lira during March following the replacement
of the central bank governor, the report of the strong net
portfolio investment was not a surprise. The sheer size of the lost
investment, however, reflects the deep market distrust of the new
leadership.
Asia-Pacific
APAC equity markets closed mixed; Hong Kong +0.8%, Mainland
China +0.6%, Australia -0.7%, India -1.0%, South Korea -1.5%, and
Japan -1.6%.
China's population topped 1.41 billion at the end of 2020,
increasing by 5.38% from 2010, according to the 7th National
Population Census report released by the National Bureau of
Statistics (NBS) on 11 May. The annual average growth rate for the
past decade, at 0.53%, is lower than the 0.57% average annual
growth rate for the 2000-10 decade. (IHS Markit Economist Yating
Xu)
China's elderly population continues to grow, with the
percentage of people aged above 65 increasing by 4.6 points to
13.5% during 2010-20. Moreover, there are significant differences
in the level of aging between rural and urban areas, with the
proportion of people aged over 65 in rural areas standing at 17.7%,
significantly higher than the national level.
The percentage of children aged below 14 years only increased
1.35 points, and the share of the working-age population
(comprising those aged between 15 and 59) fell by 6.8 points. The
average age of China's population is 38.8 years, which is higher
than the United States' average population age of 38 years.
The birth rate in China declined to a low level, registering
1.2 million newborn babies in 2020, representing a 18% decline from
the 2019 level. This reflects the significant decline in China's
total fertility rate and decrease in the number of women of
child-bearing age. The NBS attributed the drop in the number of
child-bearing-aged women to the impact of the COVID-19 crisis,
which increased concerns over giving birth, and the fading effects
of the two-child policy, which was first rolled out in 2016.
The total fertility rate declined to 1.3, far below the
expected rate of 1.8 laid out in the National Demographic
Development Plan (2016-30), and also lower than Japan's 2019
fertility rate of 1.38.
According to media reports, Tesla has reconsidered plans to
purchase more land near its Shanghai plant, being considered for
increasing capacity. Reuters, citing unnamed sources, says that
Tesla has halted plans to buy land across from the current plant,
on an eventual plan to use China as an export base. Reuters reports
that Tesla refrained from bidding on a specific land parcel in
March 2021 as it no longer plans to boost China output
significantly. Reportedly, the reason for the change of heart is
concerns over US-China trade, as exports to the US were considered.
The US has not pulled back its tariff of 25% on vehicles imported
from China. Reuters also quotes a Tesla spokesperson as saying that
Shanghai is progressing "as planned," and not commenting on the
potential for buying new land. The report also has land with the
current plant currently being used for parking, which could be used
to expand capacity. Reuters reports that the Shanghai facility has
capacity for 500,000 units per year, a figure Tesla reported with
its first-quarter 2021 financial reporting as well, but that the
company is building at a 450,000-unit pace today. The company is,
however, reportedly building facilities in Shanghai for repairing
and reproducing electric motors and battery cells, as well as
planning to build electric vehicle (EV) chargers at the plant. (IHS
Markit AutoIntelligence's Stephanie
Brinley)
Autonomous vehicle (AV) startup Pony.ai's smart logistics
subsidiary has received a freight road transport business permit
from the local authority of China's Nansha district, in Guangzhou.
Following this, the subsidiary will begin commercial operations of
transporting cargo by deploying autonomous trucks in the district,
reports Gasgoo. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
The Japan Automobile Importers Association (JAIA) has reported
that imported vehicle sales in the country increased by 54.5% year
on year (y/y) to 22,082 units in April. (IHS Markit
AutoIntelligence's Isha Sharma)
This figure includes sales of foreign brands' imported
vehicles, which increased 47.8% y/y to 16,501 units last month, and
domestic brands' imported vehicles, which increased by 78.5% y/y to
5,581 units.
By brand, Mercedes-Benz led the imported market with a 14.55%
share during April, its sales coming in at 3,213 units, compared
with 2,288 units in April 2020. It was followed by Nissan with
sales of 2,292 units, equating to a market share of 10.38%; and BMW
with 2,263 units, accounting for a market share of 10.25%.
In the year to date (YTD), imported vehicle sales are up 26.4%
y/y at 123,446 units.
At the US-organized climate summit in April, Japan made one of
the most substantial new GHG emissions reduction commitments,
raising its target to a 46% cut from a 2013 baseline—a goal
that seems aggressive, but achievable, based on the country's track
record over the last six years. Japan's prior commitment was for a
reduction of 26% from 2013 levels, backed by a net-zero commitment
for 2050. Japan's total GHG emissions in FY 2019 were 1,212 million
mt CO2e, a reduction of 2.9% from FY 2018, according to its annual
emissions inventory published in April. This represents a reduction
in emissions of 15% since FY 2013, according to information
submitted to the United Nations on 31 March as an update to Japan's
nationally determined contribution. Previously, its goal for 2030
was 1,042 million mt CO2-equivalent, but the new target will be
about 761 million mt CO2e. "Their target before, relatively
speaking, wasn't incredibly ambitious," said Anna Mosby, IHS Markit
principal research analyst. "The new target is significantly more
ambitious. They can meet this new target if they maintain that
pace," she said. (IHS Markit Climate and Sustainability News' Kevin
Adler)
With stronger-than-expected tax revenues bolstered by higher
commodity prices and a quickly recovering domestic labor market,
Australia's projected deficit for FY 2021-22 is down slightly from
the Mid-Year Economic and Fiscal Outlook (MYEFO) in December 2020,
which projected a shortfall of 5.3% of GDP for the underlying cash
balance. (IHS Markit Economists Hannah Cotillon and Bree
Neff)
According to the Australian Treasury, for FY 2021-22 receipts
(primarily tax receipts) will be up by AUD23.6 billion (USD18.5
billion) versus the MYEFO estimate, although they are still
anticipated to fall by a modest 3.5% for the year. The fiscal
shortfall for the current fiscal year has also been revised down to
7.8% of GDP from 9.9% in the MYEFO, also due to the stronger tax
receipts.
Expenditures in nominal terms are planned to fall 10.9% in FY
2021-22, after surging 20.2% in FY 2020-21, owing to the unwinding
of sizeable programs such as the JobKeeper wage subsidy, and
JobSeeker Coronavirus supplement payments. That said, the December
MYEFO projections called for a reduction in expenditures of closer
to 15.5% for FY 2021-22, indicating that the government's fiscal
consolidation timelines are being pushed out, although there is
also support from a stronger revenue forecast.
The government projects fiscal shortfalls to persist for the
next decade, with the underlying cash balance reaching a projected
deficit worth 1.3% of GDP in FY 2031-32. The government projects
gross public debt to stabilize around 51% of GDP in the latter part
of this decade.
From the sovereign risk perspective, IHS Markit does not have
any strong concerns about the forward projections for Australian
public debt and fiscal deficits. This is because the forward
projections keep central (Commonwealth) government debt around the
50% of GDP mark, and we do not generally consider this to be risky
from a solvency standpoint.
Posted 12 May 2021 by Chris Fenske, Head of Fixed Income Research, Americas
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