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APAC equity markets closed mixed today, while Europe was lower
across the region and US markets were close-to-unchanged despite
the flurry of economic reports. Benchmark government bonds were
slightly better across Europe and the US, except for US 30yr bonds
which closed even lower after an already challenging week. iTraxx
and CDX indices closed wider across IG and high yield, with oil,
gold, and silver also lower on the day. US retail sales improved in
July, but came in lower than expected, and US consumer sentiment
appears to be in a concerning holding pattern that is only slightly
above April's nadir.
Americas
US equity markets closed mixed; Nasdaq -0.2%, Russell 2000
-0.1%, S&P 500 flat, and DJIA +0.1%. There was a sudden, but
modest, rally across the US equity markets that began at 3:50pm
EST, with the S&P 500 increasing +0.3% from its lowest point of
the day during those final 10 minutes of the trading session.
10yr US govt bonds closed -1bp/0.71% yield and 30yr bonds
+2bps/1.45% yield, which is +14bps and +21bps week-over-week,
respectively.
CDX-NAIG closed +1bp/68bps and CDX-NAHY +5bps/406bps, which is
+3bps and +18bps week-over-week, respectively.
Crude oil closed -0.5%/$42.01 per barrel.
Gold closed -1.0%/$1,949 per ounce and silver -5.9%/$26.09 per
ounce.
Total US retail trade and food services sales increased 1.2% in
July, following an upwardly revised surge of 8.4% in June. (IHS
Markit Economists James Bohnaker and David Deull)
Core retail sales through July were stronger than expected,
suggesting more real PCE in the third quarter. We revised up our
forecast for third-quarter real PCE growth by 7.6 percentage points
to 37.9%. Data revisions show that core retail sales initially
breached their pre-pandemic February level in June before improving
to 2.3% above that mark in July.
In July, business restrictions were targeted toward restaurants
and bars, which still managed a 5.0% increase in sales but remained
19.7% below the February level. Retail sales at food and beverage
stores increased 0.2% in July from an already-elevated level and
were 11.5% above February.
Pandemic-induced shopping trends are firmly in place elsewhere
in the retail industry. Relative to the pre-pandemic February
levels, nonstore retailers (+21.9%), sporting goods and hobby
stores (+17.6%), and building material and garden supply dealers
(+8.7%) are all benefitting from social distancing as consumers
divert spending from services to home and recreational goods.
Auto dealers (+3.4%) are also seeing stronger sales as
Americans avoid air travel and public transportation.
Retail sales generally improved in July but at a slower pace,
as some states paused or rolled back reopening plans.
High-frequency credit- and debit-card data show that spending
stalled throughout the month, setting up for a potentially soft
next couple months, as questions remain about additional stimulus
and income support from the federal government.
The University of Michigan US Consumer Sentiment Index edged up
0.3 point (0.4%) to 72.8 in the preliminary August reading,
remaining effectively unchanged a mere 1.0 point above its April
trough. The reading is consistent with our expectation for slowing
growth in consumer spending. (IHS Markit Economists David Deull and
James Bohnaker)
The current conditions index fell 0.3 point in early August to
82.5, while the expectations index increased 0.6 point to 66.5.
Relative to April, views on current conditions were notably (8.2
points) higher in early August, but the index of expectations was
3.6 points lower, having worsened in May.
Despite the relative prevalence of COVID-19 cases, the South
maintained the highest level of consumer sentiment at 77.6, while
sentiment for the Northeast, North Central, and Western regions
were clustered within two points of the 70.0 mark.
Consumer sentiment rose 3.1 points to 70.3 among households
earning less than $75,000 a year but fell 1.5 points to 74.4 among
households with earnings above that threshold.
Perceptions of buying conditions barely changed in early
August. The index of buying conditions for large household durable
goods increased 1 point to 107, while that for vehicles fell 2
points to 122 and for homes was unchanged at 133, just shy of the
2019 average.
The expected one-year inflation rate was unchanged at 3.0%,
while expected five-year inflation ticked up 0.1 percentage point
to 2.7%.
As congressional gridlock became apparent, the net percent of
respondents approving of the government's economic policies fell in
early August to -21%, the lowest since January 2016.
Despite a partial recovery in consumer spending since the
depths of the COVID-19 shutdowns, consumer sentiment has remained
stubbornly depressed and may not recover until there is a
fundamental shift in the dynamics of the disease or an effective
vaccine becomes widely available.
Total US industrial production (IP) rose 3.0% in July, the
third monthly increase following sharp declines over March and
April. The level of IP in July, though, remains 8.4% below the
pre-pandemic (February) level. (IHS Markit Economists Ben Herzon
and Lawrence Nelson)
The details in this report that bear on our GDP tracking added
0.1 percentage point to our forecast of third-quarter GDP growth,
which now stands at 26.1%.
July is usually the month that automakers shut down for a week
or so for retooling; the seasonal factor expects this and boosts
NSA auto output in July to smooth it out. This is part of the
reason July auto IP, seasonally adjusted, was so strong, as
automakers generally were ramping up rather than retooling.
Bearing this in mind, seasonally adjusted vehicle assemblies
and IP of motor vehicles and parts each posted healthy increases in
July, and each have regained their pre-pandemic levels.
The pace of NSA auto assemblies was roughly 4% above industry
production schedules issued earlier this month, the pace we assumed
in our base forecast. As a result, we responded to this report by
raising our forecast of third-quarter motor vehicle output and
inventory investment.
Outside of motor vehicles and parts, nearly every major
industry posted a gain in July.
IP of electric and gas utilities rose 3.3% in July, while
mining IP rose 0.8%. The latter was the first increase since
January 2020. IP of electric and gas utilities rose 4.2% in June,
reflecting increases in both electric power (4.6%) and natural gas
(2.1%).
US productivity (output per hour in the nonfarm business
sector) rose at a 7.3% annual rate in the second quarter. Hours
worked fell at a 43.0% annual rate while compensation per hour
surged at a 20.4% pace. (IHS Markit Economists Ken Matheny and
Lawrence Nelson)
The large second-quarter swings in productivity, hours, and
compensation per hour were in the vicinity of our estimates. Unit
labor costs rose at a 12.2% pace in the second quarter, 1.8
percentage points less than we estimated.
For the first quarter, productivity growth and compensation per
hour were each revised up. Hours were revised to show a slightly
larger decline.
First-quarter growth in unit labor costs was revised up 4.7
percentage points, more than accounted for by the upward revision
to compensation per hour.
The reference period for the source data the Bureau of Labor
Statistics used in estimating first-quarter productivity predated
most COVID-19-related job losses, which surged beginning in the
week ending 21 March. To capture these losses, adjustments were
made to March employment based on non-seasonally adjusted data for
initial claims from the second half of March. There were no such
adjustments made for BLS's preliminary estimate of second-quarter
productivity. Further information is contained here.
Data on productivity and costs have been severely impacted by
the fallout from the COVID-19 pandemic, so the implications of the
latest quarterly data for longer-run trends are unclear.
Productivity growth had been firming prior to the onset of the
COVID-19 pandemic. During 2019, productivity rose 1.9%, up from
1.2% over the three years through 2018. Over the first two quarters
of 2020, productivity rose at a 3.4% annual rate. We expect
productivity growth to ease in coming quarters.
During 2019, compensation per hour rose at a moderate pace of
3.3%, up from 2.6% during 2018. Over the first two quarters of
2020, it surged at 14.8% rate.
We anticipate that growth in compensation per hour will
moderate as employment recovers in lower-wage occupations over the
next few years. This will support a moderation in growth of unit
labor costs.
The US state of Michigan plans to establish a 40-mile corridor
between the cities of Detroit and Ann Arbor that will be dedicated
to connected and autonomous vehicles, reports Bloomberg. The
project will be led by Cavnue, a subsidiary of Sidewalk
Infrastructure Partners, working with partners including Ford,
General Motors (GM), Argo AI, Arrival, BMW, Honda, Toyota,
TuSimple, and Waymo. Michigan Governor Gretchen Whitmer said, "We
are taking the initial steps to build the infrastructure to help us
test and deploy the cars of the future". In the first phase of the
project, the companies will focus on testing technology and
exploring the viability of a highway dedicated to such vehicles
that is expected to last about two years. The goal would be to
create a corridor "that allows for a mix of connected and
autonomous vehicles, traditional transit vehicles, shared mobility
and freight and personal vehicles". (IHS Markit Automotive
Mobility's Surabhi Rajpal)
Locomation has completed an eight-day trial of autonomously
transporting commercial freight in partnership with Wilson
Logistics, reports VentureBeat. During these trials, Locomation
deployed its autonomous relay convoy (ARC) technology in the
trucks, which enables one driver to pilot a lead truck while the
following truck operates in tandem. This allows the driver in the
following truck to log off and rest. The pilot scheme was conducted
on a 420-mile route from Portland, Oregon to Nampa, Idaho, along
the I-84 highway. The trucks covered approximately 3,400 miles and
operated autonomously roughly half of the time, delivering 14
commercial loads. Dr Cetin Mericli, CEO and co-founder of
Locomation, said, "The successful kickoff of this commercial
agreement with Wilson Logistics is a significant milestone for our
teams. Despite the threat of COVID-19, we delivered real world
results for the most advanced, efficient, and safest solution to
make commercial autonomous trucking a reality. Most importantly,
the pilot strongly proved that our autonomous technology can be
integrated seamlessly and deployed within a real trucking operation
in a sustained fashion." Locomation was founded in 2018 by experts
in autonomous technology from the National Robotics Engineering
Center of the Robotics Institute at Carnegie Mellon University. The
company expects full commercialization of its technology by 2022.
The company says that its technology can reduce the operating cost
per mile by 33% and fuel costs by 8%. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
The University of Tennessee is investigating the microbiome of
cattle and its influence on feed efficiency. As part of a new
three-year project, researchers will aim to determine the microbes
and microbial interactions in the rumen of Angus cattle. The
scientists will also look at how these microbes affect the
conversion of low-quality feedstuffs into usable energy. In
addition, the experts will work to estimate the heritability of the
rumen microbes and their features and identify host genomic markers
that ensure heritability. Phillip Myer - lead investigator,
assistant professor and microbiologist in the university's
department of animal science - said: "The overarching hypothesis of
this project is that host beef cattle genetics are associated with
the variation of microbes in the rumen, producing an individualized
rumen microbiota among animals." He believes if certain rumen
microbes play a key role in feed efficiency, disease resistance and
other traits in cattle, they have significant potential to rapidly
improve beef cattle nutrition and influence growth. The research
has been awarded $0.5 million by the USDA's National Institute of
Food and Agriculture. It is one of 23 projects focused on animal
nutrition, growth and lactation to receive funding. (IHS Markit
Animal Health's Sian Lazell)
Europe/Middle East/ Africa
European equity markets closed lower across the region for the
second consecutive day; France/UK -1.6%, Spain -1.3%, Italy -1.1%,
and Germany -0.7%.
10yr European govt bonds closed mixed; France/UK flat, Italy
-3bps, and Germany/Spain -1bp.
iTraxx-Europe closed +1bp/55bps and iTraxx-Xover +9bps/345bps,
ending almost flat and +5bps week-over-week, respectively.
Brent crude closed -0.4%/$44.80 per barrel.
Eurostat has published its "second flash" GDP estimate for the
second quarter. It is still based on the data of 16 of 19 member
states, covering 93% of eurozone GDP, and reports that seasonally
adjusted GDP decreased by 12.1% quarter on quarter (q/q) in the
second quarter, unchanged from the first release. We believe that
private consumption, business investment, and exports crashed
during the quarter. (IHS Markit Economist Raj Badiani)
This implies that the region was in technical recession
(defined as two successive quarters of q/q decline) for the first
time since early 2013, after the economy shrank by 3.6% q/q in the
first quarter of 2020.
On a year-on-year (y/y) basis, GDP dropped by 15.0% in the
second quarter following a decline of 3.1% in the first.
The unprecedented circumstances of the COVID-19 virus pandemic
point to future GDP revisions, with the next update being a
breakdown by expenditure component of second-quarter GDP on 8
September.
Meanwhile, Eurostat also reports that eurozone employment
shrank for a second straight quarter in the second quarter, falling
by 2.8% q/q, the sharpest decline since the time series started in
1995. This came after employment fell by 0.2% q/q in the first
quarter, the first decline since the second quarter of 2013.
In annual terms, employment in the second quarter was 2.9%
lower than a year earlier.
Sharp employment losses during the second quarter are not fully
reflected in the latest unemployment rate developments. The
eurozone seasonally adjusted unemployment rate was a surprisingly
low 7.8% in June, up from 7.7% in May 2020 and 7.5% in June
2019.
The lower-than-expected unemployment rate during the height of
the COVID-19 virus-related lockdowns is partly because of the
rising inactivity rate in some member countries, with an increasing
number of people neither working nor looking for work. Many
laid-off workers stopped looking for jobs during the national
lockdowns, and were classified as inactive rather than
unemployed.
There has been a marked upward shift in growth momentum
recently in line with the steady easing of the COVID-19
virus-related restrictions, signaled by healthier surveys and
reviving "hard" data. This spells the end of the eurozone's
technical recession.
A second "flash" estimate released by Statistics Portugal shows
GDP declining by 13.9% q/q during the second quarter, revised from
a previous estimate of -14.1% q/q. (IHS Markit Economist Diego
Iscaro)
Portuguese output had waned by 3.8% quarter on quarter (q/q)
during the first three months of 2020.
On a year-on-year (y/y) basis, GDP is now estimated to have
fallen by 16.3% during the second quarter. As a reference, the
largest y/y decline in GDP during the financial and sovereign debt
crises was 4.5% during the fourth quarter of 2012.
The economy has now declined by 17.3% during the first half of
2020, and output levels during the second quarter were the lowest
since the first quarter of 1999.
The statistics office did not release a full breakdown
alongside the second "flash" figures (this will be published with
the detailed release on 31 August). However, its media statement
mentions that domestic demand was the main drag on activity in the
quarter, shredding 10.7 percentage points from the total change in
demand. Next, external trade made a sizeable, but smaller, negative
contribution of 3.2 percentage points.
This is in line with high-frequency indicators, which suggest
that private consumption was the main factor behind the large
decline in activity, while investment spending is also likely to
have fallen substantially. While exports are also expected to have
contracted markedly, declining imports are also likely to have
moderated the negative contribution of net foreign trade to the
change in demand.
Denmark's economy is among the best performers in Western
Europe in Q2 according to "flash" estimate, despite record
contraction. (IHS Markit Economist Daniel Kral)
The Danish statistics office (Statistics Denmark) released the
first estimate for GDP growth in the second quarter of 2020. It
points to a contraction of 7.4% quarter on quarter (q/q), the
largest on record, which implies a contraction of 8.5% year on year
(y/y).
Despite the record contraction, Denmark's economy performed
better than most of its peers. This is consistent with relative
outperformance in retail sales and industrial production, following
a rebound in the latter half of the second quarter.
There is no detailed breakdown available, but Statistics
Denmark notes that large negative contributions came from the
private production of services, especially trade, transport, hotels
and restaurants, as well as culture and leisure. On the other hand,
agriculture, raw material extraction, finance and construction have
been less affected.
"Flash" estimates of Danish GDP are subject to significant
revisions even during normal times. In the context of the COVID-19
virus pandemic, Statistics Denmark notes considerable uncertainty
regarding its estimate, since many of the usual sources of data,
such as VAT returns, have not been available. It is also not
straightforward to construct the relationship between revenue and
value added, as production inputs have diverged from output, due to
closures.
The Volkswagen (VW) Group's Financial Services unit has posted
a 9.8% year-on-year (y/y) decline in operating profit in the first
half of the year to EUR1.16 billion (USD1.37 billion), according to
a company statement. (IHS Markit AutoIntelligence's Tim Urquhart)
The unit incurred a COVID-19 virus-related decline in
first-half new financing contracts of 17.4% y/y to 3.4 million
units.
The overall number of contracts under management rose by 1.8%
y/y to 21.3 million. CFO of VW Financial Services Frank Fielder
said, "As a result of the COVID-19 pandemic, we have had to accept
a substantial drop in new contracts during the first half of the
year. In addition, the operating result is adversely impacted by
higher risk costs for credit and residual value risks, which are
affecting the entire portfolio."
The unit announced this week that it was making extra
provisions of EUR500 million in order to take into account the
decline of the book value of its assets and contract defaults.
Slovenia's current-account surplus shrank in the first half of
2020 as compared to the same period of 2019, by just over EUR100
million. (IHS Markit Economist Andrew Birch)
In January-June 2020, the services surplus plunged by EUR400
million year on year (y/y), brought low by a sharp drop-off of
service exports. In the first half of the year, travel service
exports plunged by EUR685 million y/y and transport service exports
dropped by EUR157 million y/y, as the Europe-wide restrictions to
counter the spread of the COVID-19 virus deeply disrupted movement
across the continent.
The merchandise trade, income, and transfers balances all
improved in January-June 2020 as compared to a year earlier. While
the loss of merchandise exports undermined demand for domestic
productive output, it did not reduce the trade surplus because of
an even greater drop-off of merchandise imports.
After serving as a safe haven for capital as a member of the
eurozone in March and April, portfolio capital flowed back outward
in June as global markets have shifted back towards searching for
higher yields.
On 12 August, the Russian Ministry of Finance (MOF) said that
federal budget deficit had reached USD20.7 billion over
January-July 2020, with the July deficit rising 85% month on month.
(IHS Markit Country Risk's Alex Kokcharov)
According to MOF data, between January and July the federal
budgets expenditures reached 60.6% of the amount budgeted for the
full-year 2020, while revenues only reached 50.5% of the full-year
target.
Tax revenue amounted to USD84.8 billion in January-July or
47.2% of the target for 2020, while custom duty revenues reached
USD32.6 billion or 43.6% of the annual target.
On 2 July Deputy Finance Minister Vladimir Kolychev said the
total budget deficit in 2020 could reach 5% of GDP, versus a
federal budget surplus of 1.8% of GDP in 2019.
Russia's worsening budgetary position was triggered by the
triple shock from sharply lower global crude oil demand, a 23% oil
production reduction under the OPEC+ deal, and deep declines in
private consumption and fixed investment reflecting the COVID-19
virus pandemic and associated lockdowns, which restricted economic
activity.
According to IHS Markit economics, the combined impact of these
developments will lead to an 8.5% contraction of Russian real GDP
in 2020. IHS Markit assesses that the growing budget deficit in
2020 is likely to lead to revision of state contracts in 2021-22,
and efforts to improve tax collection.
Moneyweb reported on 14 August that South Africa's FirstRand
and Absa Bank have warned the market of expected earning declines
for the end of June. FirstRand and Absa expect earnings to decline
by up to 45% and 85%, respectively. It follows an announcement from
Standard Bank (the country's biggest bank by assets) in July,
noting that it expected earnings to reduce by up to 50%, compared
with the same period. The main reason cited by banks for the
decline in earnings is the increase in impairments because of the
challenging macroeconomic conditions. In addition, banks have had
to restructure loans, grant temporary holiday payments, and provide
other debt-relief measures to support borrowers; the low interest
rate environment has put pressure on the sector's earnings.
Standard Bank, FirstRand, and Absa are the three biggest banks in
South Africa, accounting for about 67% of the sector's total
assets. (IHS Markit Banking Risk's Banking Risk)
Asia-Pacific
APAC equity markets closed mixed; South Korea -1.2%, India
-1.1%, Hong Kong -0.2%, Japan +0.2%, Australia +0.6%, and Mainland
China +1.2%.
China's industrial value-added grew 4.8% year on year in July,
unchanged from the reading in June. Meanwhile, the month-on-month
growth softened to 0.98%, the second consecutive month of slowdown.
The year-to-date contraction at 0.4% y/y narrowed by 0.9 percentage
points from a month ago. (IHS Markit Economist Yating Xu)
Of the surveyed sectors, 25 out of 41 surveyed sectors
year-on-year production growth in July, compared to 26 reported in
June.
Manufacturing growth picked up, while utilities moderated and
mining slip into contraction partially due to the disruption by
flooding.
Auto, equipment and high-tech manufacturing led the headline
growth, with year-on-year expansion of 21.6%, 13.0% and 9.8%
respectively.
Consumer goods production remained weak as agricultural
products and food production stayed in contraction and textile
production growth moderating.
By products, auto and infrastructure-related products such as
construction machinery, crude steel and iron ore gained continuous
improvement.
Auto production rose 26.8% year on year, up 6.4 percentage
points from June. However, power generation growth slowed by 4.6
points to 1.9% in July.
All ownerships reported slower industrial value-added growth
from a month ago, except an acceleration in foreign-invested firms,
reflecting the recovery in exports.
Service production index rose 1.2 percentage points to 3.5% in
July, while the year-to-date index remained in 4.7% y/y
contraction. The headline services growth was entirely driven by
strong growth in information, financial and real estate sectors.
However, wholesale and retail, catering and accommodation remained
in contraction.
The year-to-date fixed asset investment (FAI) declined 1.6%
year on year in July, narrowing by 1.5 percentage points from June.
M/m FAI growth continued to slow to 4.9% in July from a 5.9% m/m
expansion in June. The estimated de-cumulative FAI growth
accelerated to 6.1% y/y.
Thanks to the ongoing credit expansion, housing sales market
regained strength in July. Decline in the floor space of commercial
housing sold continued to soften to 5.0 % year on year through July
and the estimated de-cumulative figure recovered to a 9.8%
year-on-year expansion.
Nominal retail sales contracted by 1.1% y/y in July, up 0.7
percentage points from June. Catering sales improved but remained
in double-digit contraction while good retail sales improved to
expansion.
Consumption softened in all commodities except auto and
jewelry. Auto sales jumped from an 8.2% year-on-year contraction in
June to 12.3% year-on-year expansion in July.
Retail sales excluding auto declined 2.4% year on year,
deteriorating from a 1.0% year-on-year contraction a month
ago.
Clothes, furniture, and oil products sales declined further,
food sales growth slowed despite rising consumer price index (CPI),
and home appliance and construction materials deteriorated from
expansion to contraction.
Online retail sales growth accelerated to 9.0% year on year
through July, accounting for 30% of total retail sales.
Surveyed unemployment rate reported at 5.7%, unchanged from a
month ago. It is worth noting that surveyed unemployment for youth
rose, suggesting continuous pressure for the 8.74 million graduates
this year.
Tesla has established an insurance brokerage in China with a
registered capital of CNY50 million (USD7.2 million), reports China
Daily, citing the National Enterprise Credit Information Publicity
System. The company was registered in Lingang New Area of the China
(Shanghai) Pilot Free Trade Zone, where Tesla's Shanghai
Gigafactory is located. Tesla is expected to soon expand its
services in China to cover insurance-related services. The
establishment of an insurance brokerage will allow Tesla to design
an insurance product that better suits the needs of electric
vehicle (EV) drivers. In September 2019, the US EV maker has begun
offering an insurance product in the United States, initially only
available to owners in California. According to the automaker, the
insurance it offers in the US market is designed to provide Tesla
vehicle owners with rates that are up to 20% lower, and in some
cases as much as 30%. (IHS Markit AutoIntelligence's Abby Chun
Tu)
According to China's General Administration of Customs (5
August 2020), Gansu province shipped its first ton of olive oil to
South Korea. This is important as China is an important net
importer of olive oil. It is reported that Gansu's Longnan City has
the most suitable climate to cultivate olive for crushing in the
whole country. The quality of the oil is said to be comparable to
Italian and Greek imports. The planted area is 20,000 hectares. It
is an important revenue stream for the local poor farmers. In the
year to June 2020, China imported 19,895 tons of olive oil (HS
codes 15099000 and 15091000), down by 2% compared with the year
before, at an average price of USD3,149 per ton cif, down by 16%.
Virgin olive oil accounted for 72% of total volume. Shipments from
Chile rose by 322% to reach 380 tons, at an average price of
USD3,075/ton, down by 23%. Olive oil from Australia, Portugal,
Cyprus and the UK also increased significantly. In the same period,
the export volume halved from last year to 14 tons. South Korea is
the key destination, at an average price of USD5,730/ton, down by
14% compared with last year. (IHS Markit Food and Agricultural
Commodities' Hope Lee)
Malaysian GDP contracted by 16.5% quarter on quarter in
second-quarter 2020, as the impact of the protracted Movement
Control Order (MCO) hit industrial production and consumer
expenditure. (IHS Markit Economist Rajiv Biswas)
On an industry sector basis, only agriculture recorded positive
growth, increasing 1% y/y in second-quarter 2020.
The construction sector was the worst-affected, with output
falling by 44.5% y/y in second-quarter 2020, as almost all
construction activity ceased during April, and then only gradually
restarted during May as the MCO was eased.
The services sector recorded a 16.2% decline y/y in output
during second-quarter 2020, as most retail outlets remained closed
during April, although conditions improved during May and June as
the MCO was eased. The tourism and commercial aviation sectors were
very badly hit during second-quarter 2020 by the impact of domestic
and international travel restrictions.
Manufacturing output also fell sharply, down 18.3% y/y in
second-quarter 2020, as the lockdown measures resulted in the
shutdown of many plants and factories during April. Mining output
also showed a large decline, with output down 20% y/y in
second-quarter 2020 as production of oil and gas fell sharply owing
to the impact of the MCO on operations.
Domestic demand declined by 18.7% y/y in second-quarter 2020,
as private consumption spending fell 18.5% y/y owing to the impact
of the MCO on retail activity. Gross fixed capital formation
declined by 28.9% y/y, with private investment falling by 26.4%
y/y.
Medical device manufacturer Medtronic (US/Ireland) has
reportedly entered into a collaboration agreement with Vingroup
(Vietnam), whereby the latter will produce components for use in
ventilator equipment manufactured and assembled mainly in Europe
and the US. The collaboration agreement aims to take advantage of
the benefits of a free trade agreement between the European Union
and Vietnam. The deal is one of the first substantial European
investment projects in Vietnam's medical device manufacturing
sector following the ratification of the European Union-Vietnam
Free Trade Agreement (EVFTA) by the European Parliament at the
start of 2020, followed by Vietnam's National Assembly later in the
year. This should build confidence in Vietnam's strategy of
developing an alternative manufacturing hub for the European and US
markets and away from a dependency on China. In the long term, this
is likely to help increase Vietnam's importance in the global
supply chain system for medical equipment in the long term. (IHS
Markit Life Sciences' Eóin Ryan)
Posted 14 August 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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