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All major equity markets closed lower today except for Japanese
markets ending the session modestly higher, as the rapidly
increasing number of COVID-19 cases and additional restrictions
across the globe continues to cast a shadow on the pace of recovery
from the initial wave. US and benchmark European government bonds
closed higher on the day, while iTraxx and CDX indices closed wider
across IG and high yield. Oil was slightly lower on the day and
gold/silver higher.
Americas
US equity markets closed lower; Russell 2000 -1.6%, DJIA -1.1%,
S&P 500 -1.0%, and Nasdaq -0.7%. The S&P 500 has retraced
most of the gains from Monday's vaccine announcement and is now
only +0.8% versus last Friday's close.
10yr US govt bonds closed -8bps/0.88% yield and 30yr bonds
-9bps/1.64% yield.
CDX-NAIG closed +2bps/55bps and CDX-NAHY +19bps/352bps.
DXY US dollar index closed -0.1%/92.96.
Gold closed +0.2%/$1,873 per ounce and silver +0.2%/$24.31 per
ounce.
Crude oil closed -0.8%/$41.12 per barrel.
Since September, the global fundamental picture for the winter
has become progressively bleaker for oil, making the next planned
supply increase all but impossible for the market to accommodate. A
new surge in COVID-19 cases, and subsequent economic restrictions,
has seen demand forecasts slashed, eradicating hopes of a sustained
sequential recovery in crude demand, especially in the Atlantic
Basin. Add to that the swift rebound of Libyan oil production and a
once promising market tightening trend looks increasingly shaky. We
currently expect global liquids demand to plateau at around 93-94
MMb/d through 1Q2021, roughly flat vs. September 2020 levels. The
locus of much of the downward adjustments in recent months has been
Europe, where raging outbreaks and renewed lockdowns across major
demand markets have pushed us to revise regional demand
expectations downwards. From a balances standpoint, given demand
revisions and Libyan volumes, the oil market in 1Q2021 appears to
barely be able to withstand current OPEC+ production levels, let
alone its planned 2.0 MMb/d increase. As market conditions have
worsened, the OPEC+ debate has shifted from whether or not the
group will be able to go forth with its planned 2.0 MMb/d increase
to how it will deal with renewed demand weakness through the
winter. As things stand, we believe the most likely adjustment
OPEC+ can make is to attempt to offset Libya's 1.0 MMb/d production
increase, allocating the corresponding adjustments across the
group. (IHS Markit Energy Advisory's Roger Diwan, Karim Fawaz,
Justin Jacobs, Edward Moe, and Sean Karst)
The coronavirus pandemic has left business travel and tourism
deeply depressed and ravaged the finances of hotels and resorts
around the world. The effects have ricocheted into financial
markets and hit the nearly $4 billion of hotel mortgages in New
York that are bundled into commercial mortgage-backed securities
particularly hard. Vijay Dandapani, chief executive of the Hotel
Association of New York City, said that if half the city's 640
hotels survive it will be a "great" outcome. Occupancy rates in
September remained 20% lower than for the same month in 2019,
despite recovering from their worst point in April where occupancy
was down more than 60 per cent year on year, according to data from
STR. (FT)
Seasonally adjusted (SA) US initial claims for unemployment
insurance fell by 48,000 to 709,000 in the week ended 7 November.
Despite trending down, initial claims remain at historically high
levels—the high during the Great Recession was 665,000. The not
seasonally adjusted (NSA) tally of initial claims fell by 20,799 to
723,105. (IHS Markit Economist Akshat Goel)
Seasonally adjusted continuing claims (in regular state
programs), which lag initial claims by a week, fell by 436,000 to
6,786,000 in the week ended 31 October. Prior to seasonal
adjustment, continuing claims fell by 402,298 to 6,486,000. The
insured unemployment rate in the week ended 31 October was down 0.3
percentage point to 4.6%.
There were 298,154 unadjusted initial claims for Pandemic
Unemployment Assistance (PUA) in the week ended 7 November. In the
week ended 24 October, continuing claims for PUA rose by 100,517 to
9,433,127.
Pandemic Emergency Unemployment Compensation (PEUC) claims have
been steadily rising as claimants are exhausting their regular
program benefits. In the week ended 24 October, there were
4,143,389 such claims for PEUC benefits.
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 24 October, the unadjusted total fell by 374,179 to
21,157,111.
The Consumer Price Index (CPI) was unchanged (0.0%) in October
following a 0.2% increase in September and increases averaging 0.5%
from June through August. During October, the CPI for energy edged
up 0.1% while the food index rose 0.2%. (IHS Markit Economists Ken
Matheny and Juan Turcios)
The core CPI, which excludes the direct effects of movements in
food and energy prices, was unchanged (0.0%). Both overall and core
CPI inflation were below expectations in October.
The core CPI has partially recovered to its rising pre-pandemic
trend following declines last spring when some components recorded
sharp declines amid plummeting demand due to COVID-19.
The core CPI fell 0.6% (not annualized) during the period from
March to May, then rose 1.4% over the period from June to
September.
In October, the core CPI was unchanged on the month (0.0%). The
12-month change in the core CPI has recovered only a few tenths of
a percentage point of the sharp decline it experienced last spring,
when it fell from 2.4% (in February) to 1.2% (in May and
June).
As of October, the 12-month core CPI inflation rate was 1.6%,
down 0.1 percentage point from September.
Rent inflation has eased in recent months as some landlords
have agreed or been forced to accept lower rents. Rent of primary
residence and owners' equivalent rent each rose 0.2% in October.
Their 12-month rates of change have slowed substantially from 3.8%
and 3.3% in February to 2.7% and 2.5% as of October,
respectively.
Prices for used cars and trucks ticked down 0.1% in October
after surging a cumulative 15.1% from June to September. As of
October, the CPI for used cars and trucks prices was 13.7% higher
than in February 2020. The CPI for new cars and trucks rose 0.4% in
October and is 1.4% above February's level.
The CPI for apparel declined 1.6% over September and October,
leaving it 7.2% below its February level.
Based upon today's (12 November) report, we lowered our
estimate of the 12-month change in the core personal consumption
expenditure (PCE) price index in October by 0.1 percentage point to
1.4%.
Both revenues at small businesses and the count of small
businesses open have been roughly 25% below January averages for
several months, according to the Opportunity Insights Economic
Tracker. While some measures of consumer spending have nearly fully
recovered from lows last spring, small businesses have yet to fully
benefit from that recovery. (IHS Markit Economists Ben Herzon and
Joel Prakken)
USDA this week raised its forecast of China's corn imports for
the 2020/21 marketing year, increasing the forecast to 13 million
tons from a level of 7 million tons they forecast for several
monthly World Agricultural Supply and Demand Estimates (WASDE)
reports. The significance of the increase in the WASDE update
relates to China tariff rate quotas (TRQs) for various grains,
including 7.2 million tons for corn. But through the week ended
November 5, US corn export commitments to China (outstanding sales
plus accumulated exports) totaled 10.763 million tons, well above
the TRQ level. There is some difference on the TRQ data versus the
corn forecasts from USDA in that those are on a marketing year
basis while the TRQs are on a calendar-year basis. Still, the US is
not the only seller of corn to China and many in the trade are well
above the updated 13-million-tonne figure, including IHS Markit
which forecasts China's corn imports at 20 million tons. Chinese
import data through early November suggest corn imports "will far
exceed the tariff-rate quota (TRQ) level of 7.2 million tons in
calendar year 2020," FAS said in its Grains: World Markets and
Trade report. "There have been no public statements that would
indicate that additional quota has been allocated by the National
Development Reform Commission, the authority governing the TRQs."
For coarse grains (corn, barley and sorghum) overall, FAS said
higher Chinese imports have been supported by "strong recovery in
the swine sector, which has been driving feed demand higher." That
demand has in turn pushed imports higher, especially for corn, it
said. Lower coarse grain imports by the European Union (EU), Iran
and Mexico have been offset by the higher trade to China, it
detailed. China has been rebuilding its hog herd after it was
decimated by African swine fever (ASF). Meanwhile, USDA expects
China wheat imports of 8.0 million tons for 2020/21, which would be
the highest level in 25 years. (IHS Markit Food and Agricultural
Policy's Richard Morrison)
Cummins and Navistar have announced a new project to
collaborate on a Class 8 hydrogen fuel-cell powered truck. The
project is being funded through a US Department of Energy (DOE)
Office of Energy Efficiency and Renewable Energy (EERE) award; the
DOE project aims to support development of affordable hydrogen
production, storage, distribution and use. The DOE award
contributes more than USD7 million to the project. Amy Davis,
vice-president of New Power at Cummins said in the statement, "This
vehicle will feature our next generation fuel cell configuration
and provides a springboard for us to advance our hydrogen
technology for line haul trucks. We are also excited to build on
our strong relationship with Navistar, which dates back 80 years,
and work together to lower costs and make hydrogen-powered vehicles
more accessible for fleets to adopt." Cummins says the powertrain
will be integrated into an International RH Series. It will use two
HyPM HD90 power modules. These modules have HD45 fuel cell stacks
connected in a series. Cummins says that instead of a single large
fuel cell operating at inefficient partial load, using two power
modules means they can be turned on and off to provide adequate
power at efficient full load. The new collaboration uses government
support to further research and development. The project seems to
be aimed at furthering Cummins development of the propulsion
system, as well as enabling Navistar to further research into
integration and system development. (IHS Markit AutoIntelligence's
Stephanie Brinley)
Hyundai has provided further details of its plans to increase
its range of electrified models in the United States over the next
year. Hyundai's plan is for its US product range to include seven
electrified sport utility vehicles and three cars, including some
models already available, in 2022. In terms of hybrids, Hyundai's
US models will be the Elantra, Sonata, Tucson, and Santa Fe. The
Tucson and Santa Fe will also both be available with plug-in hybrid
powertrain options. In terms of battery electric vehicles,
Hyundai's US models will be the existing Kona crossover utility
vehicle (CUV), and the automaker plans to add the Ioniq 5 utility
vehicle and the Ioniq 6 car. The planned 10 models are rounded off
by the Nexo fuel-cell electric utility vehicle, which will continue
to be offered. In the company's statement, Hyundai Motor North
America's vice-president of product planning and mobility strategy,
Olabisi Boyle, said, "We're not only developing the vehicles our
customers need now, we're also envisioning smart mobility solutions
for pressing environmental and transportation needs of the future.
Ultimately, this full spectrum of new technologies will promote a
planet-friendly, zero-emission ecosystem as part of our 'Progress
for Humanity' global vision." The Hyundai statement released on 11
November followed a series of announcements earlier in the week
highlighting the company's aggressive new-product cadence for the
next 18 months. The latest statement confirmed the automaker's
powertrain plans for the Santa Fe, involving a hybrid electric
vehicle (EV) and a plug-in hybrid EV. (IHS Markit
AutoIntelligence's Stephanie Brinley)
Europe/Middle East/Africa
European equity markets closed lower across the region; France
-1.5%, Germany -1.2%, Spain -0.9%, Italy -0.8%, and UK -0.7%.
10yr European bonds closed higher; UK -6bps, Italy -5bps, and
France/Spain/Germany -3bps.
iTraxx-Europe closed +2bps/52bps and iTraxx-Xover
+6bps/299bps.
Brent crude closed -0.6%/$43.53 per barrel.
UK GDP in volume terms grew by a record 15.5% quarter on
quarter (q/q) in the third quarter of 2020. The rebound reflected
the reopening of the economy after the national lockdown to contain
the coronavirus disease 2019 (COVID-19) virus in the second
quarter. (IHS Markit Economist Raj Badiani)
Nevertheless, UK GDP was still 9.7% below where it was at the
end of 2019, the pre-COVID-19 level.
The UK endured sharp GDP losses during the first and second
quarters, estimated at 2.5% q/q and 19.8% q/q, respectively, due to
the emergency quarantine and social-distancing measures implemented
to tackle the COVID-19 virus outbreak. Household spending plunged
as non-essential physical shops and consumer-facing services were
ordered to close, while factory and construction output also
retreated dramatically.
In annual terms, the economy contracted by 9.6% year on year
(y/y) during the third quarter, and by 11.0% y/y in the first three
quarters of 2020. This implies that the UK economy has been one of
the most affected economies in the Organisation for Economic
Co-operation and Development (OECD; see chart below). A key reason
for this is that the UK entered into lockdown later than most other
advanced economies, and for longer.
In our October forecast, we had estimated that real GDP grew by
14.8% q/q in the third quarter while contracting by 10.2% y/y.
In monthly terms, the economy grew for the fifth successive
month in September following a record fall of 19.5% month on month
(m/m) in April.
The ONS reports that GDP grew by 1.1% m/m in September,
preceded by m/m gains of 2.2% m/m in August, 6.3% m/m in July, and
9.1% m/m in June. The dominant services sector lost further
momentum in September, with the monthly rate of increase here
slowing to 1.0% from 2.4% in August.
A rebound in consumer spending was the main engine of growth
during the third quarter, accounting for 76.5% of the rise in the
expenditure measure of GDP. The increase resulted from higher
spending on restaurants and hotels and transport. Other
improvements occurred in the sales of clothing and footwear and
furniture and household equipment.
The ONS estimates that spending on services rose by 22.7% q/q
during the third quarter, which lagged behind a gain of 38.6% q/q
in household spending on durable goods.
Our current forecast in the October update assumes that the
economy will contract by 11.0% in 2020. However, it appears that
the UK economy is on course for a sharper fall, with the fresh
national lockdown measures for November triggering a renewed GDP
dip in the final quarter. Therefore, the economy could retreat by
11.5% to 12.0% in 2020.
Final October data based on national methodology from Germany's
Federal Statistical Office (FSO) have confirmed the flash data
released on 29 October, showing a slight month-on-month (m/m)
increase by 0.1% and a steady annual inflation rate at -0.2%. (IHS
Markit Economist Timo Klein)
The European Union (EU)-harmonized CPI measure was a little
softer at flat m/m and -0.5% year on year (y/y), the latter
slipping marginally from September's -0.4%.
Germany's harmonized inflation thus remains below the eurozone
average (-0.3%), owing to July's VAT cut effect. Abstracting from
the latter, German harmonized inflation is in fact around 0.5%
higher than that of the eurozone average at present.
At 0.5% y/y, CPI ex-food and energy as a measure of core
inflation has remained unchanged from September. This is almost a
percentage point below the annual pace measured between mid-2019
and mid-2020, two-thirds of which reflects the VAT cut rather than
the recession triggered by the pandemic.
October's component breakdown reveals that energy prices
increased slightly (0.2% m/m, annual rate up from September's -7.1%
to -6.8%). The largest dampening effects on the annual rate -
compared to y/y rates in September - came from healthcare, followed
by "miscellaneous goods and services" and alcohol/tobacco. The
chief boosting forces were food/beverages, recreation and culture,
and clothing and footwear.
The split between goods and services show that deflation for
the former is letting up a little (y/y rate up from -1.7% in
September to -1.5% in October) whereas service sector inflation has
once again remained steady at 1.0% (see Chart 2 below for details
about the relative influence of key CPI categories).
Average underlying inflation, which had been at around 1.2%
during 2016-17 before firming to the 1.5% area during the last two
years, will remain around 0.5% during November-December but rebound
to 1.0% or slightly higher in early 2021.
German headline inflation will remain modestly negative during
the remainder of 2020 but increase to a range of 0.5-1.0% during
January-June 2021, due to the unwinding of the VAT effect as the
original VAT rates are restored. A further increase to the 1.5-2.0%
region is in the pipeline for the second half of 2021 due to base
effects from the lower VAT rates valid during July-December
2020.
K+S (Kassel, Germany) has reported an adjusted group net loss
of €1.97 billion ($2.33 billion) for the third quarter, plunging
year on year (YOY) from a loss of €41.8 million, due mainly to a
€2.0-billion write-down of the company's potash assets after it
lowered assumptions for long-term global potash prices. (IHS Markit
Chemical Advisory)
The company says its adjusted earnings were "strongly negative"
due to the extraordinary non-cash impairment of its potash assets
and a higher cost of capital rate. EBITDA, however, rose 19% YOY to
€96.0 million for the third quarter despite a 9% decline in sales
to €821.7 million.
K+S says it expects a "slight recovery" in potassium chloride
(KCl) prices for the rest of this year compared with the third
quarter, with prices for fertilizer specialties to remain "largely
stable." It has reaffirmed its full-year guidance for EBITDA of
about €480 million, down from €640 million in 2019. Adjusted net
earnings will fall to a "significantly negative figure" as a result
of the €2.0-billion impairment, it says.
The $3.2-billion sale of the K+S Americas salt business to
Stone Canyon Industries Holdings and affiliates, announced in
October, is expected to complete in the summer of 2021, according
to the company. "With the proceeds from the sale of the American
salt business and the consistent implementation of our package of
measures, we will significantly reduce the company's debt and
secure financing for the coming years," says K+S chairman Burkhard
Lohr. "With the impairment in the third quarter, we have now also
adjusted the balance sheet. All this increases our flexibility for
developing the company further."
The company's Americas operating unit saw increased earnings
contributions in its industry and consumers customer segments,
which together with strict cost discipline almost completely offset
the effects of lower early de-icing salt fills, it says. EBITDA of
€24.4 million for the third quarter was down €1.0 million YOY on
sales almost 9% lower at €257.7 million. A higher KCl price level
could not compensate for lower volumes and an unfavorable exchange
rate, it says.
The Europe operating unit saw operating earnings rise 26% YOY
to €84.8 million despite a decline of more than 9% in revenue to
€562.6 million, mainly attributable to the weaker KCl price as well
as currency effects.
The ongoing restructuring of administrative functions within
K+S in Germany is expected to be completed by the end of this year
and reduce annualized costs by €60.0-140.0 million from 2021, it
says.
SEAT has announced that it is testing using rice husks as a
substitute for plastics. According to a statement, this material is
initially being used within the liner of the boot lid, the boot
floor and the cabin headliner. It added that the current test
program is analyzing how great a proportion of husk can substitute
existing ingredients to achieve the same technical and quality
requirements as the original. SEAT says that the rice husks will
replace polyurethanes and polypropylenes which are typically used
in these components. The rice husks are a byproduct of grain
harvesting and are typically incinerated by the processor. As well
as using up an unwanted byproduct from another industry, the rice
husks are said to be lighter than the materials than they replace.
At present, the tests are seeing whether 20% of the plastic in the
boot floor can be substituted. The company will now see whether it
can meet the rigorous tests it has in place for this component,
including withstanding up to 100kg concentrated on one small area
to check rigidity and strength, as well as thermal tests carried
out in a climatic chamber to confirm its resistance to heat, cold
and humidity. If the tests are successful, SEAT suggests that it
could use up to 12,000 ton of rice husk per year, which would also
cut the amount of global husk waste by 8%. SEAT is not alone in
looking at alternative materials and seeking new ways of using
waste, with the Polestar Precept concept highlighting a range of
areas where materials made from flax and recycled bottles can be
used. (IHS Markit AutoIntelligence's Ian Fletcher)
Eni has set up a new joint venture company named Vårgrønn with
Norwegian energy investor HitecVision, to pursue offshore wind
opportunities in Norway. The new joint venture is part of Eni's
overall strategy for decarbonization. The company has earlier
embarked on a major overhaul of its business as part of its energy
transition plans, where renewable energy plays a key role.
According to Eni, Vårgrønn hopes to play a major role in the
development, construction, operation, and financing of renewable
energy projects in Norway, and has a long-term goal of reaching an
estimated installed capacity of 1 GW by 2030. Eni holds a 69.6%
stake in Vårgrønn, while HitecVision holds the remaining 30.4%.
(IHS Markit Upstream Costs and Technology's Chloe Lee)
According to all measures, on an annual basis Swedish headline
consumer price inflation remained largely flat in October. The
consumer price index (CPI), which is the national definition, came
in at 0.3% year on year (y/y), compared to 0.4% in September.
According to the EU-harmonized measure (HICP), inflation was 0.4%
y/y, down from 0.6% in September. (IHS Markit Economist Daniel
Kral)
CPI at fixed interest rates (CPIF), which is the most closely
watched indicator by the central bank, remained flat at 0.3% y/y in
October, which is 0.15 percentage point (pp) below the Riksbank's
September forecast. CPIF excluding energy came in at 1.1% y/y, up
from 0.9% in September but still 0.25 pp below the Riksbank's
September forecast.
On an annual basis, electricity (-0.5 pp), fuel (-0.3 pp), and
package holidays (-0.2 pp) were the largest negative contributions
to headline CPIF inflation. Conversely, food and alcoholic
beverages (+0.2 pp), rent (+0.2 pp) and housing (+0.2 pp) were the
main positive contributors.
CPIF was flat month on month (m/m). A small drop in the prices
of electricity was offset mainly by higher prices for recreational
and cultural services.
Inflation is likely to remain significantly below the
Riksbank's target in the coming months. The broader deflationary
environment is reinforced by a strong krona, which is currently
trading at more than 10% versus the US dollar and 5% versus the
euro compared to the end of February.
As per IHS Markit's Commodities at Sea, Russian seaborne coal
shipments during October 2020 stood at 15.5mt (up 8% y/y).
Disruption in thermal coal supplies from Colombia as well as
increased demand from Japan, China, Netherlands, Germany, Turkey,
and India increased Russian coal shipments. (IHS Markit Maritime
& Trade's Rahul Kapoor and Pranay Shukla)
In terms of Russian regions, exports from the Far East, Baltic
Sea, Arctic, and the Black Sea ports during the reported period
calculated at 8.3mt (up 10% y/y), 3.6mt (down 18% y/y), 1.8mt (up
11% y/y) and 1.8mt (up 141% y/y), respectively.
For the reported month, shipments increased from Vostochny
(3.1mt, up 28% y/y), Vanino (2.6mt, up 23%), Ust-Luga (2.8mt, up
11%), and Murmansk (1.7mt, up 18%). Export coal from Zhelezny Rog
Port (Taman) continued to remain strong at 1.1mt versus negligible
shipments a year ago.
During Oct 20, Russian coal shipments declined majorly to South
Korea (2mt, down 31% y/y) and Spain (0.2mt, down 57%). While,
shipments increased to Japan (2.4mt, up 27% y/y), China (2.1mt, up
26%), Netherlands (1.4mt, up 12%), Turkey (1.1mt, up 37%), Germany
(0.8mt, up 73%), and India (0.6mt, up 154%).
During the first 10-months of 2020, Russian seaborne coal
shipments totaled 145.5mt (up 4% y/y). Russian shipments from the
Far East, Baltic Sea, Arctic, and the Black Sea ports stood at
81.3mt (up 14% y/y), 34.7mt (down 23%), 14.2mt (down 12%), and
15.4mt (up 120%).
Recent banking-sector data released by authorities in Czechia,
Poland, and Slovakia reveal significant credit growth deceleration
in the third quarter of 2020. The ongoing economic uncertainty and
deteriorating creditworthiness of borrowers likely led to banks
further tightening their credit conditions, while new restrictions
following the recent surge in the number of COVID-19 cases had a
negative impact on credit demand. The results are consistent with
the latest bank lending surveys, where banks indicated rising risks
to economic outlook because of the effects of the COVID-19 virus.
On the other hand, deposit mobilization remained robust, with
deposit growth rates higher than those of credit in all three
countries, leading to improved loan-to-deposit ratios in Czechia
and Slovakia. (IHS Markit Banking Risk's Greta Butaviciute)
Czechia lending eased to 4.1% year on year (y/y) in the third
quarter, compared with a 6.1% increase in June. This slowdown is
partly attributed to the fall in credit to the corporate sector,
which registered just 0.7% y/y growth in September, versus 5.3%
growth in June. Corporate demand for credit likely decreased
because of the fall in fixed investment. On the other hand, credit
to households rebounded to 6.4% y/y growth, likely supported by
renewed demand for mortgages as a result of falling interest
rates.
Out of the three countries mentioned here, Poland experienced
the most dramatic decrease in lending. Credit growth slowed to just
1.1% y/y in the third quarter, down from 3.2% in the previous
quarter. Similar to Czechia, lending was dragged down by
insufficient demand in the corporate sector; lending to the latter
contracted by 3.3% y/y, while credit to households also eased,
modestly rising by 2.8% y/y.
Credit growth slowdown was less severe in Slovakia than in the
other two countries. Lending eased to 4.8% y/y in the third
quarter, compared with 5.4% rate in June. Corporate credit went up
by 10 percentage points to 3.9% y/y, while household lending slowed
but remained relatively high at 7%.
IHS Markit forecasts deposit growth rates to outpace those of
credit in the short term in Czechia, Poland, and Slovakia, leading
to improved loan-to-deposit ratios across the region, stabilizing
the structural liquidity risk profile of banks in the region.
The risk of asset-quality deterioration is high. So far,
increases in non-performing loans (NPLs) have been quite modest
because of moratoriums of various lengths. However, banks face risk
of severe losses after the moratoriums expire. We expect to see
spikes in NPLs and a wave of potential defaults starting in early
2021 and possibly throughout the next year.
The Polish government will pledge PLN5 billion (USD1.3 billion)
to help support the growth of the electric vehicle (EV)
manufacturing industry in the country, according to a Reuters
report. Local supplier PZL Sedziszow, which traditionally
manufactures internal combustion engine (ICE) vehicle components
such as air filters, has begun manufacturing battery packs in
preparation to become one of the country's main suppliers. The
government's pledge to help the local industry move to
electrification comes after state-owned ElectroMobility Poland
unveiled two EV prototypes earlier this year in the form of the
Izera sport utility vehicle (SUV) and hatchback. These models are
aimed at the low-cost vehicle market and are due to go into
production in 2023. This is a bold and forward-thinking attempt by
the Polish government to make the country more attractive as a
manufacturing destination for OEMs and suppliers alike for EVs and
EV components. (IHS Markit AutoIntelligence's Tim Urquhart)
Zambia faces a crucial vote that could see it become the first
African country to default on sovereign debt payments since the
outbreak of the coronavirus was declared a global pandemic almost
eight months ago. Holders of its $3 billion in Eurobonds attending
meetings at a law company in London on Friday are expected to
reject a government request for a payment holiday after the
government last month missed an interest payment on $1 billion of
bonds due 2024. A 30-day grace period expires on Friday, and should
the vote go against Zambia it would put the country in default,
giving investors the right to demand immediate repayment of the
principal. (Bloomberg)
Asia-Pacific
Most APAC equity markets closed lower except for Japan +0.7%;
India/Australia -0.5%, South Korea -0.4%, Hong Kong -0.2%, and
Mainland China -0.1%.
China's new aggregate financing, the widest measure of net new
financing to the real economy, increased CNY1.42 trillion in
October 2020, up CNY552 billion from the amount a year ago,
according to the release of the People's Bank of China (PBOC). The
stock total social financing (TSF) increased 13.7% year on year
(y/y), further accelerating from September rate. (IHS Markit
Economist Yating Xu)
Credit expansion slowed to 12.9% y/y from 13.0% y/y a month
ago. Short of two working days in October 2020 compared with that
of 2019 could be a possible reason for the headline
deceleration.
The increase of new household borrowing contracted from an
average level of CNY200 billion during June to September to CNY12.1
billion this month, probably reflecting the tightening risk
regulation and housing market control.
New corporate's medium to long term loans increased CNY189.7
billion from a year ago, declining month on month, but remaining
the highest level for the same period in history.
The increase in TSF was largely driven by local government
bonds and corporate bonds. Net financing of corporate bonds (issued
minus matured) increased CNY49 billion in October and cumulatively
CNY4.35 trillion in the first 10 months, compared with CNY3.24
trillion in the full-year 2019.
Local government bond issuance declined significantly month on
month (m/m) in October as the issuance has largely finished in
September, but it still went up by CNY306 billion from a year ago.
However, off-balance sheet financing including entrusted loans and
trust loans kept declining, and undiscounted bankers' acceptance
fell following two consecutive months of increase.
Broad money supply (M2) growth fell by 0.4 percentage point to
10.9% y/y in October with broad deceleration in deposits of
household, corporate and non-banking financial institutions. M1
growth continued to rise, further narrowing the gap between M2 and
M1.
TSF increased by CNY29.9 trillion through October, up CNY9.5
trillion from a year ago. New bank loans reaching CNY17.35 trillion
compared with an annual target of CNY20 trillion.
October TSF suggested sustained demand recovery in the economy.
Stable increase in corporate' medium- and long-term loans reflected
improvement in industrial profitability and positive outlook for
future investment.
New vehicle sales on a wholesale basis increased by 12.5% year
on year (y/y) to 2.57 million units in China during last month,
while production rose by 11.0% y/y to 2.55 million units. (IHS
Markit AutoIntelligence's Abby Chun Tu)
Thanks to a rebound in new vehicle demand that began in April,
vehicle sales and production volumes in the year to date (YTD) are
narrowing the gap each month with the equivalent period of last
year.
In the YTD for October, China's new vehicle sales contracted
4.7% y/y to 19.70 million units, while production volumes were down
by 4.6% y/y to 19.52 million units.
Of the total new vehicle sales and production in October,
passenger vehicle (PV) sales increased 9.3% y/y to 2.11 million
units, while PV production rose by 7.3% y/y to 2.08 million units.
The CAAM definition of PVs includes sedans, sport utility vehicles
(SUVs), multi-purpose vehicles (MPVs), and minivans.
In the YTD, sales of PVs were down 9.9% y/y to 15.50 million
units, while production of PVs decreased 10.1% y/y to 15.32 million
units.
Commercial vehicle sales (including medium and heavy vehicles)
remained strong in October. Last month, sales volumes of commercial
vehicles surged by 30.1% y/y to 464,000 units, while commercial
vehicle production increased 30.9% y/y to 468,000 units.
In the YTD, sales of commercial vehicles have risen by 20.9%
y/y to 4.20 million units, while production of commercial vehicles
has increased 22.5% y/y to 4.20 million units.
Demand for new energy vehicles (NEVs) remained buoyant during
October. Sales of NEVs, which include battery electric vehicles
(BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel-cell
vehicles (FCVs), increased 104.5% y/y to 160,000 units in
October.
Last month, NEV production rose by 69.7% y/y to 167,000
units.
Sales of BEVs grew by 115.4% y/y to 133,000 units in October,
while production of BEVs increased 72.4% y/y to 141,000 units.
Sales of PHEVs were 27,000 units, up 63.7% y/y, in October,
while production of PHEVs increased 56.7% y/y to 26,000 units.
In the YTD, sales of NEVs were reported at 901,000 units, down
7.1% y/y, while NEV production volumes were posted at 914,000
units, down 9.2 y/y.
Sales of Chinese brands' PVs totalled 869,000 units in October,
up by 12.4% y/y, and their market share rose to 41.2%, up 1.1
percentage point compared with last October. From January to
October, the combined sales volumes of Chinese brands in the PV
market contracted 14.1% y/y to 5.75 million units.
For the full year 2020, IHS Markit currently expects
light-vehicle sales in mainland China to decline 6.8% to 23.1
million units, followed by a rebound to 5.9% growth in 2021.
SAIC Motor and Great Wall Motor have teamed up to push forward
development of fuel cell technology. SAIC subsidiary Shanghai
Hydrogen Propulsion Technology (SHPT) and Great Wall subsidiary
Weishi Energy Technology (Weishi) signed an agreement on 11
November to collaborate on the research and development (R&D)
of core parts related to fuel cell technologies. The joint
initiative will focus on R&D activities regarding hydrogen
storage systems, fuel cells and the scale production of fuel cell
vehicles (FCVs). Great Wall and SAIC have both recently announced
plans to tap into China's FCV sector. The collaboration between the
two will certainly lead to faster model launches to promote FCVs in
the commercial vehicle sector. SAIC aims to take a market share of
10% in the FCV market by 2025. To achieve this goal, the automaker
said it will roll out at least 10 FCVs by 2025. SAIC's first
fuel-cell multi-purpose vehicle (MPV), the Maxus Euniq 7, started
production in 2020. Great Wall also has ambitious plans to bring a
fuel-cell passenger vehicle to market. Great Wall's first FCV, a
sport utility vehicle, is slated for market debut in 2021. (IHS
Markit AutoIntelligence's Abby Chun Tu)
China expects vehicles with partially autonomous functions to
account for 50% of new vehicle sales by 2025, reports the Nikkei
Asian Review. Under a new plan, new vehicles with Level 2 or Level
3 automation will represent 70% of new vehicle sales by 2030.
Increasing automation capabilities may be ranked on a scale from
Level 0 to 5. At Level 2, the driver is assisted with steering,
acceleration, and braking features, while Level 3 vehicles drive
themselves under certain conditions, such as on highways. The plan
also considers having Level 4 autonomous vehicles (AVs), which
require no human input except in emergencies, available in the
market by 2025 and to account for 20% of new vehicle sales in 2030.
In addition, the report states that China plans to promote
high-level AV technology nationwide by 2035 and deploy these
vehicles in smart cities. China is pushing to commercialize
autonomous smart vehicles, which is a key part of the country's
'Made in China 2025' plan. (IHS Markit Automotive Mobility's
Surabhi Rajpal)
Japan's private machinery orders (excluding volatiles) - a
leading indicator for capital expenditure (capex) - fell by 4.4%
month on month (m/m) in September following two consecutive months
of increases. (IHS Markit Economist Harumi Taguchi)
Private machinery orders (excluding volatiles) fell by 0.1% in
the third quarter of 2020 for the fifth consecutive quarter of
decline. That said, seasonally adjusted figures by industry
groupings rebounded from decreases in the previous month. Private
machinery orders from manufacturing and non-manufacturing
(excluding volatiles) rose by 2.0% m/m and 3.2% m/m,
respectively.
The improvement in private machinery orders from manufacturing
largely reflected rebounds in orders from chemical and chemical
products and shipbuilding, as well as continued increases in orders
from general-purpose and production machinery and electric
machinery.
The improvement in orders from non-manufacturing (excluding
volatiles) was thanks largely to rebounds in orders from
telecommunication, finance and insurance, and wholesale and retail
trade.
The September figures were weaker than IHS Markit had expected,
but orders from some industries have bottomed out in line with
improved industrial production and business activities. However,
the recovery is likely to remain weak and patchy because of slack
demand and sluggish corporate profits.
The industry expects the decline in private machinery orders to
continue in the fourth quarter with a 1.9% quarter-on-quarter (q/q)
slide, signaling that corporations remain cautious about increasing
investment.
Easing social distancing guidelines and government stimulus
measures boosted Japan's Indices of Tertiary Industry Activity
(ITIA) in September, but the resurgence of COVID-19 could weigh on
recovery. (IHS Markit Economist Harumi Taguchi)
Japan's ITIA rose by 1.8% month on month (m/m) in September for
the fourth consecutive month of increase (although the level
remains below the March level) and declined by 9% year on year
(y/y).
The stronger m/m rise in September was largely attributed to
solid increases in living-related, personal, and amusement services
(including eating and drinking services, accommodations, and
domestic travel) and transportation services thanks to easing
social distancing measures and the government's travel
subsidies.
Business-related activity also continued to rise (by 1.3%),
largely reflecting improved exports and private consumption that
lifted a wide range of wholesale trade. These improvements were
partially offset by declines in real estate and information
services.
The introduction of additional stimulus measures is likely to
support the resumption of spending in personal-related services,
lifting Japan's ITIA in October, as a travel campaign and other
stimulus moves have encouraged consumers to go out from home.
The Economic Watchers Survey (EWS) improved to 54.5 in October
2020, topping 50 for the first time since January 2018. This
highlights a continued rise in personal and business activity in
October 2020.
However, the recent resurgence of COVID-19 could make people
more cautious about going out from home, which could weigh on
recovery in business activity. Although the government does not
intend to halt travel and other subsidies, Hokkaido and some other
local governments have begun asking restaurants and drinking places
to reduce their business hours.
The Indian government has approved a proposal for a new
Production Linked Incentive (PLI) scheme to boost manufacturing in
the country for a total of 10 sectors. According to a report by
CNBCTV18, the automotive and components sector will receive
INR570.42 billion (USD7.6 billion) over the next five years. Final
details of the scheme will be revealed in the next few weeks.
Commenting on the PLI scheme, Finance Minister Nirmala Sitharaman
said, "Over the next five years, this is today estimated, that the
new PLIs that we are bringing in for these 10 identified sectors
will involve an expenditure of about INR2 trillion … We are yet
again proving that the policy that we are taking up even in PLI
through which we want manufacturers to come to India is clearly to
say we want to build on our strength but yet link with the global
value chains." The latest PLI scheme is a welcome move for original
equipment manufacturers (OEMs) and component manufacturers as it
will help to make them more competitive and increase their
production scale. The Indian government has been working to
introduce programs to leverage the country's size and scale to
develop a competitive domestic manufacturing ecosystem. The move is
also expected to translate into more investments from existing
domestic and foreign manufacturers in the automotive sector. (IHS
Markit AutoIntelligence's Isha Sharma)
The South Korean government has tested an unmanned air taxi
service in the capital city, Seoul, reports the Yonhap News Agency.
It has tested six drone taxis in Yeouido, western Seoul. This is
the first time that the government has tested the drone taxi
service in a densely populated city. Similar tests were previously
conducted at designated test sites in Incheon, just west of Seoul,
and Yeongwol, 200 kilometers (km) east of Seoul. The six drones
used in the test were EH216s made by Chinese pilotless air taxi
firm Ehang. They have two seats and weigh 650 kg per drone,
according to the South Korean Ministry of Land, Infrastructure and
Transport (MLIT), which added that the "K-drone traffic management
system" is being developed under a state-financed project.
Furthermore, Hanwha Systems, a defense industry and ICT service
unit of chemical-to-finance conglomerate Hanwha Group, has unveiled
the Butterfly, a mock-up of a personal air vehicle it is developing
with US-based air taxi startup Overair. The company said it is
seeking to establish a "verti-hub," a terminal for the take-off and
landing of air taxis, at Gimpo International Airport in western
Seoul in co-operation with Korea Airports Corporation. Hyundai also
exhibited an aircraft model first introduced at the 2020 CES event
earlier this year. This is being made in co-operation with Uber
Technologies. The latest development is in line with the South
Korean government's aim to commercialize urban air mobility (UAM)
services in 2025 in a bid to overcome the country's worsening
traffic congestion problem (see South Korea: 25 June 2020: South
Korean government launches urban air mobility task force). As
reported earlier, the government expects the UAM market to reach
KRW13 trillion (USD11.7 billion) in 2040 and believes that UAM
services will help to transport passengers faster than buses and
subways. (IHS Markit AutoIntelligence's Jamal Amir)
US-based startup BlueSpace.ai has partnered with LG Uplus to
develop and commercialize an autonomous electric bus by the third
quarter of 2021, reports Aju Business Daily. The two companies will
share their expertise as BlueSpace will provide its autonomous
vehicle (AV) technology and LG Uplus will provide its
vehicle-to-everything (V2X) technology, which allows cars to
communicate with other cars and infrastructure. LG Uplus will also
provide a high-precision dynamic map and real-time kinematic (RTK)
technology, as well as a control system that can monitor the
operations of autonomous buses remotely. The electric bus
technology will be provided by Woojin Industrial Systems and
Metroplus will build the user interface for the vehicle. Cho
Won-seok, senior vice-president of the new business group at LG
Uplus, said, "We hope this business cooperation will greatly
strengthen the competitiveness related to autonomous driving by
gathering the technical skills of leading companies in various
fields at home and abroad." LG Uplus aims to deploy 5G
infrastructure in major South Korean cities. The mobile carrier
will establish 5G mobile communication infrastructure for South
Korea's AV test-bed, K-City. This year, the company partnered with
Chemtronics to demonstrate an autonomous shuttle service in a
residential area in Sejong city. LG Uplus has also partnered with
Hanyang University to demonstrate a 5G-connected AV, named the A1,
capable of Level 4 autonomy. BlueSpace was founded in April 2019
and builds software using high cognitive capabilities that can
accurately identify the surrounding environment. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Farmers in the state of South Australia will be permitted to
plant genetically modified food crops in time for the 2021 grain
season with no councils approved to operate as a GM-free area. The
South Australian state Parliament lifted a moratorium on mainland
South Australia in May through the Genetically Modified Crops
Management (Designated Area) Bill 2019. That also granted local
councils a six-month leave to apply to be a GM crop
cultivation-free area, while the moratorium remained on Kangaroo
Island. Of the 68 local councils, 11 made such an application.
However, the Minister for Primary Industries and Regional
Development, David Basham, has rejected them all. A GM Crop
Advisory Committee advised the State Government after assessing the
economic benefits of remaining GMO-free. "By lifting the GM
moratorium everywhere except Kangaroo Island, we are backing our
farmers and researchers to grow the state's agriculture sector and
create jobs," the Minister said. "Under the legislation councils
had a once-off six-month opportunity to apply to remain GM free but
under the Act passed by Parliament, applications could only be
considered on trade and marketing grounds." The Minister adds that
"so-called premiums" under a GM moratorium in the state were "a
myth and had cost its grain growers some Aus$33 million [US$23.2
million at the current rate] since 2004". (IHS Markit Crop
Science's Robert Birkett)
The Philippine economy suffered another steep, double-digit
contraction during the third quarter as the spike of COVID-19 virus
infections and the reimposition of stricter virus containment
measures in Metro Manila and neighboring provinces during early
August further restrained public movement, disrupted business
operations, and dampened consumer and business sentiment. (IHS
Markit Economist Ling-Wei Chung)
Real GDP dropped 11.5% year on year (y/y) in the third quarter,
although the rate of decline moderated from a revised 16.9% y/y
plunge posted in the second quarter. The second-quarter result
represented the economy's worst slump in history, highlighting the
dire effect of the pandemic.
In seasonally adjusted quarter-on-quarter (q/q) terms, the
economy showed signs of recovery as real GDP expanded 8% from the
previous quarter, reversing a steep plunge of 14.9% in the second
quarter. It also ended two consecutive quarters of q/q
declines.
Despite some improvement, the further collapse in domestic
demand - a key driver of growth before the pandemic - remained as
the main drag on overall economic momentum during the third
quarter. The slump in domestic demand subtracted 17 percentage
points from the third-quarter GDP, although the drag narrowed from
the record 21.5-percentage-point deduction posted in the second
quarter.
Net exports continued to provide positive contribution to
economic performance during the third quarter as the slump in
imports further outpaced the contraction in exports, reflecting
that domestic demand took the brunt of the pandemic and virus
containment measures.
In particular, plunging investment spending continued to drive
the collapse in domestic demand as the business operating
environment remained difficult because of the reimposed quarantine
measures in August that eased later that month. Gross investment
spending slumped further by 41.6% y/y in the third quarter of 2020,
after plunging 53.7% y/y in the second quarter, which marked the
worst contraction since the second quarter of 1985.
Within that, fixed investment tumbled 37.1% y/y in the third
quarter of 2020, after slumping 36.5% y/y in the second quarter. It
was driven by a 43.5% y/y plunge in total construction investment,
which widened from a 31.4% y/y drop in the second quarter as
household-related construction investment tumbled 59.2% y/y and
construction spending of financial and non-financial corporations
contracted 38.7% y/y.
With virus containment measures disrupting the all-important
infrastructure projects, coupled with a high base effect, public
construction investment plunged 28% y/y in the third quarter,
accelerating from a mere 0.9% y/y fall in the second quarter.
Combined with the continued slump in business spending on durable
equipment, down 34.4% y/y, gross investment subtracted 11.1
percentage points from the third-quarter GDP.
Household consumption slumped further in the third quarter but
at a slower pace. Accounting for about 70% of real GDP, household
consumption dropped 9.3% y/y in the third quarter, although it
moderated noticeably from the record 15.3% y/y slump in the second
quarter.
The result for the third quarter came in line with IHS Markit
projections, reinforcing our view for a slow recovery in the
economy, after hitting the bottom in the second quarter. It
suggests that our annual forecast of an 8.4% contraction for 2020 -
a record slump and followed by a 7.8% expansion for 2021 - could be
maintained. Nonetheless, risks to the near-term economic prospects
remain on the downside amid the fallout from the pandemic locally
and globally and the authorities' ability to carry out fiscal
spending plans.
The Republic of Philippines 5yr CDS closed at 35bps today,
which is slightly more than 2bps wider than the tightest closing
level of the year of 32.90bps set on 20 January.
Vehicle production in the Philippines declined 21.8% year on
year (y/y) during September to 7,457 units, according to data
released by the ASEAN Automotive Federation (AAF). During
January-September, total vehicle production in the country plunged
31.4% y/y to 46,628 units. Meanwhile, new vehicle sales in the
country fell 22.9% y/y in September to 24,523 units and were down
by 44.6% y/y to 148,012 units during the first nine months of the
year. The plunge in Philippine new vehicle production during the
first nine months of 2020 can be attributed to the fact that the
country was in a state of public health emergency and that the
government imposed an enhanced community quarantine (ECQ) order
from the second half of March owing to the COVID-19 virus pandemic.
Vehicle manufacturers in the country, including Hino, Hyundai,
Isuzu, Mitsubishi, Nissan, and Toyota, initially announced
production suspensions at their plants from 16 March to 12 April.
(IHS Markit AutoIntelligence's Jamal Amir)
Posted 12 November 2020 by Chris Fenske, Head of Fixed Income Research, Americas
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