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All major US equity indices and most European markets closed
higher, while most APAC markets were lower. US government bonds
closed lower and benchmark European bonds were mixed. European
iTraxx and CDX-NA credit indices closed tighter across IG and high
yield. The US dollar continued to sell-off, while oil, gold,
silver, and copper were higher. Investors will continue to focus on
the ongoing US congressional stimulus bill negotiations for any
signs that some form of a bill will pass before the recess and on
tomorrow's statement from the final scheduled FOMC meeting of the
year.
Americas
US equity market closed higher; Russell 2000 +2.4%,
Nasdaq/S&P 500 +1.3%, and DJIA +1.1%.
10yr US govt bonds closed +1bp/0.91% yield and 30yr bonds
closed +3bps/1.66% yield.
CDX-NAIG closed -2bps/53bps and CDX-NAHY -6bps/298bps.
DXY US dollar index closed -0.3%/90.47, which is the lowest
close since April 2018.
Gold closed +1.3%/$1,855 per ounce, silver +2.5%/$24.64 per
ounce, and copper +0.3%/$3.54 per pound.
Crude oil closed +1.3%/$47.62 per barrel, which is the highest
close since 26 February.
The index of US import prices inched up 0.1% month on month
(m/m) in November following a 0.1% decline in October. The index's
12-month growth rate was unchanged at -1.0%. (IHS Markit Economist
Gordon Greer)
Among imported fuel price categories, natural gas price growth
came in at a booming 49.1% m/m after falling 14.7% m/m in October,
while imported petroleum price growth registered at 2.1% m/m.
Excluding petroleum, monthly import price growth was flat in
November.
Excluding fuels, imported goods prices declined 0.3% m/m in
November, while 12-month growth came in at 1.6%. Industrial
supplies and materials price growth came in at 1.1% m/m. Prices of
automotive goods declined 0.1% m/m while those of capital goods
inched up 0.1% m/m.
The value of the US nominal trade-weighted dollar dropped 1.5%
m/m in November and has given up all the appreciation seen starting
in March during the initial response to COVID-19, yet it remains
elevated in historical context, which will continue to weigh on
import price growth. The import price index excludes tariffs.
The index of exported goods prices increased in November, with
the index's m/m change registering at 0.6%. The increase in this
index was driven by growth in both agricultural and nonagricultural
commodities prices.
Agricultural prices growth came in at 3.7% m/m and marked a
4.4% 12-month increase, while nonagricultural commodities growth
came in at 0.3% month on month and was down -1.7% versus November
in the prior year. Industrial supplies and materials export prices
jumped 1.3% m/m.
Capital goods prices decreased 0.2% m/m, consumer goods prices
dropped 0.8% m/m, and automotive goods prices rose 0.2% m/m.
Total US industrial production (IP) rose 0.4% in November,
reflecting increases in manufacturing (0.8%) and mining (2.3%)
activity that were partially offset by a decline in utilities IP
(4.3%). (IHS Markit Economists Ben Herzon and Lawrence Nelson)
The details in this report that feed into our GDP tracking
were, on balance, weaker than we had assumed and lowered our
forecast of fourth-quarter GDP growth by 0.1 percentage point to
5.5%.
The increase in manufacturing IP was several tenths of a
percentage point above both our estimate and consensus
expectations. The increase in November was in line with the average
monthly increase over the prior three months (August through
October) of 0.9% per month.
This rate of increase, in turn, is considerably below the 5.2%
average per month over the prior three months (May through July),
as the recovery in manufacturing appears to have proceeded in two
distinct phases: a phase of rapid improvement as the economy was
"reopening," and phase of slower improvement since.
Over the seven months through November, manufacturing output
had reversed 82% of the two-month contraction through April. The
level of manufacturing IP in November was still 3.7% below
February.
The sharp drop in utilities IP in November reflected a decline
in demand for heating, as temperatures switched from unusually cool
in October to unusually warm in November.
The increase in mining activity in November was broadly based,
reflecting increases in, among other industries, oil and gas
extraction and coal mining.
The US Food and Drug Administration (FDA) has approved a pig
that has been genetically engineered not to produce a certain sugar
that can trigger a food allergy to red meat and other mammal
products, clearing the animal for food and medical uses.
Revivicor's GalSafe pig is the first intentional genomic alteration
(IGA) in an animal approved by FDA for both human food consumption
and human therapeutics, a decision FDA Commissioner Stephen Hahn
touted as a "tremendous milestone for scientific innovation." Prior
IGAs in animals include GE goats, chickens and rabbits developed
for medical purposes and AquaBounty's GE salmon, which was approved
for food consumption in 2015. While undeniably a landmark
announcement for FDA - and Virginia-based Revivicor - the impacts
of the decision for ag interests keen to see more GE animals come
to market is far from clear. The GalSafe pig appears more geared
toward the biomedical field, not the agriculture industry, and use
of the animal for food may be largely a secondary issue. The pigs
have been genetically engineered to eliminate alpha-gal sugar on
the surface of the animals' cells. Individuals with Alpha-gal
syndrome (AGS) - most often caused by the bite of a Lone Star tick
- have mild to severe allergic reactions to alpha-gal sugar found
in pork, beef and lamb. Recent estimates find some 5,000 people
worldwide may have AGS. FDA says GalSafe pigs may potentially
provide a source of porcine-based materials to produce human
medical products, such as the blood-thinning drug heparin, that are
free of detectable alpha-gal sugar. In addition, tissues and organs
from the pigs could potentially address the worry of immune
rejection in patients receiving xenotransplants. The specific
therapeutic uses of the GalSafe pigs will still need further FDA
approval. (IHS Markit Food and Agricultural Commodities' JR
Pegg)
Amazon's Zoox has unveiled an electric autonomous robotaxi that
can transport four people at speeds of up to 75 miles per hour. The
vehicle employs bidirectional driving capabilities allowing it to
change direction without the need to reverse. This feature,
combined with four-wheel steering functionality, allows the vehicle
to maneuver through compact spaces, making it fit for dense urban
environments. The vehicle is compact, just 3.6 meters long, and is
equipped with a 133 kilowatt-hour battery that allows it to operate
for up to 16 hours on a single charge. The vehicle has an airbag
system for bidirectional vehicles and carriage seating that
envelops passengers. The vehicle deploys cameras, radar and LiDAR
that gives it a 270-degree field of view on all four corners of the
vehicle, thereby helping to eliminate blind spots and detect
objects around it. Aicha Evans, CEO of Zoox, said, "We are
transforming the rider experience to provide superior
mobility-as-a-service for cities. And as we see the alarming
statistics around carbon emissions and traffic accidents, it's more
important than ever that we build a sustainable, safe solution that
allows riders to get from point A to point B." Zoox, an autonomous
vehicle (AV) technology startup that was acquired by Amazon this
year, plans to develop fleets of small, on-demand AVs that do not
have a steering wheel or interior controls. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
Electric vehicle (EV) maker Rivian is planning to create a
network of charging stations near recreational sites as well as
along interstate routes, using charging technology developed
in-house, reports Techcrunch.com. Rivian CEO RJ Scaringe confirmed
the plans for the charging stations near recreational sites during
an interview with Techcrunch.com, according to the report. Scaringe
reportedly said work on the charging stations has begun. Rivian
plans the charging network to include fast-charging stations along
interstate routes, but also EV chargers at adventure activity
destinations. The executive did not indicate how many charging
stations the company plans in 2020, but the report states that
Rivian is planning to build dozens of charging stations in the
United States in 2021, with each station having an average of six
charging connectors. Scaringe said that, by 2023 or 2024, Rivian
planned to have a dense coverage of stations. Scaringe reportedly
said, "We're excited about the opportunity to create Rivian
charging locations that aren't on the interstate, that help draw
you or enable you to go to places that normally are not the kinds
of places that invite or welcome electric vehicles because of
charging infrastructure. We've spent a lot of time thinking about
how you can essentially create these curated drives where,
depending on your point of interest, you can pick different paths.
If you want to stop midway through the trip for a one-mile,
two-mile or five-mile hike, you know, here's a route that you want
to take and here's a charging location right next to it." The plan
is based on a two-tier set-up, with fast-charging stations on
highways and "destination chargers" at locations where a fast
charge is less important; for example, at the start of a hiking
trail. Scaringe reportedly called the process of assessing the best
places to locate charging stations along particular routes as a
"really interesting and challenging real estate" problem. The
report states that Rivian has also developed the charging
technology in-house, including the high-speed DC charger, and that
the platform and hardware for the charging stations is being
developed with fleet customers in mind. (IHS Markit
AutoIntelligence's Stephanie Brinley)
GM released a statement on the opening of a new Additive
Industrialization Center on 14 December. The 15,000-square-foot
facility is a ground-up facility "exclusively dedicated to
productionizing 3D printing technology in the automotive industry,"
GM said. The facility includes 24 3D printers creating polymer and
metal solutions. Processes at the facility include laser sintering,
selective laser melting, Multi-Jet Fusion and fused deposition
modeling. GM has increased use of 3D printed functional prototypes,
building on history with 3D-printed rapid prototypes designed to
check form and fit. The functional prototypes can be used in
testing just as a conventional part, and eliminate early expensive
tooling costs, GM says. GM is also using 3D printed tools for
assembling vehicles, and says that it saved more than two months of
tooling construction during the launch of the company's all-new
full-size SUVs. As GM also recently announced, the Cadillac CT4-V
Blackwing and CT5-V Blackwing will be the first production GM
vehicles to have 3D-printed parts. Relative to the new Additive
Industrialization Center, GM did not outlay a specific investment
amount. The facility is supported in part by GM Research and
Development as well as GM Ventures, the company's start-up
investment fund. (IHS Markit AutoIntelligence's Stephanie
Brinley)
US nutrition firm White Dog Labs (WDL) has gained investment
from a group of venture capitalists based in Oman. The start-up has
developed a fermentation technology that produces a variety of
nutritional products for humans and animals. The investment will
help WDL repurpose a recently purchased biorefinery in Minnesota
for the production of high-quality animal-free protein. The company
will use this protein to produce a line of dairy and meat
substitute products, with production scheduled to begin in the
second half of 2021. At full capacity, the biorefinery could
produce protein equivalent to one billion burgers per year. The
retrofit will commence "soon". New Castle, Delaware-headquartered
WDL is initially targeting the US market but "is also looking for
international production and distribution partners". Founded in
2011, WDL has been applying expertise in anaerobic microbiology,
microbiomes and fermentation to address challenges related to food
sustainability and climate change. Sustainable Investments led the
consortium of backers. Financial terms of the investment were not
disclosed. WDL initially bought the Minnesota plant earlier this
year to produce its ProTyton sustainable premium protein for
aquaculture and MiruTyton - a naturally produced butyrate animal
feed additive. Bryan Tracy - the firm's founder and chief executive
- told IHS Markit Animal Health the facility will continue to
produce ProTyton, MiruTyton and the WDL's human protein
ingredients. The company has an off-take agreement with Cargill for
ProTyton. WDL is also currently negotiating a MiruTyton off-take
deal with an undisclosed "major feed additive company". Mr Tracy
added: "This investment helps us continue our drive to introduce
the most nutritious, delicious and versatile animal-free protein
that is packed with 80% protein and all the essential amino acids.
It is also non-allergenic and formulates well with other
ingredients." Mohab Ali Al-Hinai - co-founder of Muscat-based
Sustainable Investments - remarked: "Food security is an ongoing
concern in the gulf countries, so a sustainable, alternative
protein has been of great interest to us. We have selected WDL
because it has developed a premium alternative protein that is
price competitive with plant-based protein and it can be produced
in existing infrastructure throughout the world." (IHS Markit
Animal Health's Joseph Harvey)
In November, Canada's housing starts reached 246,033 units, for
an increase of 14.4% month on month (m/m). (IHS Markit Economist
Jeannine Cataldi)
Urban starts were higher by 15% m/m, reaching 233,106 units.
Gains were driven by the multifamily segment, which increased 22.5%
m/m to 177,661 units. These gains follow two months of
declines.
Rural housing starts also increased over the previous month, up
3.5% m/m to 12,927 units in November after decreasing for two
months.
On a year-to-date basis, housing starts are 2.9% higher than in
2019 with both multifamily and single-family starts growing. This
growth is led by Saskatchewan, Ontario, and Quebec along with the
Atlantic provinces of Nova Scotia and New Brunswick. All other
areas are lower year-to-date.
Housing continues to lead the recovery; however, there are
downside risks as renewed restrictions limit activity across the
country as the year ends.
Urban multifamily starts were the main driver this month as
Alberta was the only province to see a decline in the multifamily
segment, with starts lower by 30.6% m/m.
Urban single-family starts declined by 3.8% m/m to 55,445 units
following two months of gains. Nova Scotia and Alberta were the
only provinces to record m/m growth in November, up 16.3% and 1.2%,
respectively. Declines were largest in Quebec and Manitoba, both of
which turned down after two months of growth.
Home building in the last quarter is coming in stronger than
estimated in the December forecast. This puts more upward pressure
on the residential investment and real GDP outlooks. A low-interest
rate environment will continue to support this segment as it moves
into 2021. However, housing starts will begin to pull back from
these higher levels with weakening population growth.
Mexican bankers on 14 December met with the Treasury Committee
of the House of Representatives, seeking to block proposals
obliging the Bank of Mexico (Banco de México: Banxico) to purchase
from banks US dollars whose origins have not been verified. This
will prevent their conversion through commercial banks, which apply
anti-money laundering (AML) controls that require details regarding
the source of funds. The bill has already been approved by the
Senate and will be enacted if approved by the lower house, with a
vote on approval expected later today (15 December). Bankers say
that the bill risks triggering AML sanctions against Banxico, would
damage Mexico's overall AML standing, and threatens the central
bank's independence. (IHS Markit Banking Risk's Alejandro
Duran-Carrete)
The bill was introduced by Senator Ricardo Monreal, a member of
the left-wing ruling party National Regeneration Movement
(Movimiento de Regeneración Nacional: MORENA), who has been the
main exponent of change to banking legislation within Congress (see
Mexico: 25 November 2020: Mexican banks to further reduce fees as
response to government pressure, impact to profitability likely to
be moderate). He stated that that the purpose of the bill is to
resolve the lack of access to financial institutions faced by
multiple beneficiaries of remittances, who are unable to prove the
remittances' origin. Banxico denies that this is a generalised
problem in the sector and has suggested that such problems apply
primarily to a single financial institution (with sources citing
Banco Azteca).
Banco Azteca is the ninth-largest bank by assets in the
country, owning 2% of total assets in the banking sector, and has
expressed favourable opinions regarding the relevant bill.
According to Banxico, between January and September, Banco Azteca
accumulated USD10 million in unconverted dollars.
While the proposed legislation aims to help lower income groups
who receive remittances, IHS Markit shares the view that the
obligation for Banxico to accept and convert such funds would
reduce its independence; accepting funds without seeking
information about their origin would also represent significant
weakening in Mexico's anti-money laundering/combating the financing
of terrorism (AML/CFT) controls.
The obligation for Banxico to purchase US dollars without due
review of their origin would encourage the use of Mexico as a
systematic money-laundering hub. This would generate a high risk of
Banxico, or the broader banking sector in Mexico, facing
significant sanctions from the United States and being singled out
by the Financial Action Task Force (FATF) for its inadequate AML
regime, implying the threat of wider sanctions. Major banks would
face pressure to tighten their own AML procedures, seeking to limit
the scope of potential sanctions, with the sector also facing
increased regulatory and reputational uncertainty.
According to the Central Bank of Paraguay (Banco Central del
Paraguay: BCP), the seasonally adjusted monthly index of economic
activity recorded 1.4% month-on-month (m/m) and -0.9% year-on-year
(y/y) growth in October. (IHS Markit Economist Jeremy Smith)
Paraguay's rapid economic rebound in May and June expanded to a
0.3% m/m increase on average from July to October. As of October,
economic activity was 0.9% below 2019 levels and 3.3% below the
historical peak in February this year.
Owing to weakness in restaurants and hotels, wholesale and
retail sales, and transportation, the service sector continues to
be the worst performing area of the economy. The BCP also noted
declines in agricultural production and hydroelectric output from
Paraguay's binational dams; excluding these two sectors, economic
activity was only 0.1% below that of October 2019.
Notable bright spots include construction, bolstered by ongoing
public and private projects, and telecommunications, driven by
remote work and education.
These trends are further reflected in the monthly index of
business sales. Although sales in large stores declined by 12.3%
y/y in October, purchases of construction materials and mobile
phone services rose by 13.0% y/y and 7.5% y/y, respectively. The
index, as a whole, nearly equaled the -0.2% y/y level recorded in
2019.
The state of the COVID-19-virus pandemic in Paraguay, along
with the country's ability to secure a vaccine, will be key
determinants of the recovery path.
Overall, Paraguay has mounted a comparatively successful
response to the COVID-19-virus outbreak; however, recent increases
in infections may cause concern. On 27 November, Minister of Health
Julio Mazzoleni announced a delay in reopening the country's
economy through the end of the year.
To date, Paraguay has not signed a bilateral advanced
purchasing agreement for a COVID-19 vaccine, and officials have
stated that the country's storage and distribution capabilities may
not be suitable for early vaccine candidates that require
ultra-cold refrigeration. Paraguay participates in the COVAX
Facility and the Pan American Health Organization expects
immunization roll-out to begin in the second half of 2021.
Although the recent COVID-19-virus developments pose a downside
risk to the outlook, the Paraguayan economy continues to beat
expectations overall. IHS Markit forecasts -1.9% GDP growth in 2020
- a shallower contraction compared with the rest of the region -
and 3.6% growth in 2021.
Europe/Middle East/Africa
Most European equity markets closed higher except for UK -0.3%;
Germany +1.1%, Italy +0.8%, Spain +0.1%, and France flat.
10yr European govt bonds closed mixed; Italy -3bps, Spain
-2bps, France flat, Germany +1bp, and UK +4bps.
iTraxx-Europe closed -1bp/49bps and iTraxx-Xover
-11bps/249bps.
Brent crude closed +0.9%/$50.76 per barrel.
According to the UK's Office for National Statistics (ONS), the
early estimate for November suggests that the number of workers on
payroll plunged by 781,000 over the 12-month period to 28.2
million. It fell for the ninth straight month on a monthly basis,
falling by 0.1% month on month (m/m) during the month, equivalent
to 28,000 people. (IHS Markit Economist Raj Badiani)
The new release is based on the experimental data of the number
of employees on payroll using the HM Revenue and Customs' Pay As
You Earn Real Time.
The claimant count, which measures the number of people
claiming benefit principally for being unemployed, increased
slightly to 2.7 million in November but still represented an
increase of 114.8%, or 1.4 million, since March. The claimant count
also includes the increasing number of people becoming eligible for
unemployment-related benefit support despite still being
employed.
The ONS also published its traditional headline employment and
unemployment data for the three months to October.
According to the ONS, total UK employment (all aged 16 plus)
shrunk by 144,000 to 32.522 million in the three months to October
compared with the three months to July.
In annual terms, the number of employed people in the three
months to October was 0.9% lower compared with a year earlier.
The number of unemployed people based on the Labour Force
Survey (LFS) or the International Labour Organization (ILO) measure
increased by 241,000 in the three months to October, standing at
1.692 million.
The unemployment rate increased to 4.9% in the three months to
October, up from 4.2% in May-July. In addition, the ONS estimates
the unemployment rate was above 5% during most of October.
The unemployment rate among young people (aged 18-24) was far
higher, standing at 13.2% in the three months to October,
reflecting the high incidence of young workers in the hospitality
and retail sectors.
The pace of job losses is accelerating. Specifically, the
number of redundancies increased by a record 217,000 to an all-time
high of 370,000 in August-October compared with the three months to
July (see chart).
The ONS's director of economic statistics confirms that the
hospitality sector has been the hardest hit by the COVID-19 virus
containment measures, saying, "If you look at the number of people
losing their jobs, the number of people on furlough and the
vacancies available for people looking for jobs in the hospitality
sector, all that adds up to a very difficult time for that
industry."
The ONS reports that the hospitality and retail sectors have
shed 456,837 out of the 819,000 jobs lost during the pandemic.
Meanwhile, the health and social care sector has added 74,342
jobs.
More encouragingly, the number of job vacancies continued to
recover after falling sharply during the lockdown. Specifically, it
rose by 230,000 to 547,000 in the three months to November compared
with the record low in April-June. However, it had stood at 818,000
in the three months to February.
Nominal- and real-wage developments were stronger. Average
annual weekly earnings (total pay including bonuses) growth
accelerated sharply to 2.7% in the three months to October. In
addition, regular pay (which excludes bonus payments) growth rose
for the fourth time in 12 months and at a quicker pace, standing at
2.8% year on year (y/y) in the three months to October.
Furthermore, total pay in real terms rose by 1.9% y/y in the
three months to October, which was the second gain since
March.
We continue to anticipate tougher labor market conditions in
the next few quarters.
France's EU-harmonised price index rose by 0.2% year on year
(y/y) in November. Prices had increased by 0.1% y/y in October and
stagnated in September. (IHS Markit Economist Diego Iscaro)
Excluding July, when inflation rose to 0.9% as a result of the
change in the timing of the summer sales, inflation has stood
between 0% and 0.4% since March.
Food price inflation accelerated from 1.5% in October to 2.0%
in November, a five-month high, boosted by higher prices of fresh
vegetables (+20.1% y/y) and fruits (+9.7%).
Service price inflation also accelerated in November from 0.4%
to 0.7%, a three-month high. The decline in transport prices
moderated from -5.4% in October to 3.7% in November, while
communication costs, which had fallen by 1.6% in October, rose by
1.1% in November.
On the other hand, the prices of manufactured goods declined by
0.3% in November, following a fall of 0.1% in October. The prices
of clothing and footwear fell by 1.8% (-1.5% in October), while the
prices of manufacturing products classified as 'other' rose by just
0.3% (+0.6% in October).
Energy prices continued to be a major drag on inflation,
declining by 7.8% (unchanged from October).
Core inflation, meanwhile, edged upwards from 0.3% to 0.4%.
Core inflation had ranged between 0.3% and 0.7% in the three months
to July.
IHS Markit expects food price inflation to continue driving a
very gradual increase in headline inflation over the coming months.
The drag from oil prices will also become less intense, and oil
prices are likely to start growing on a y/y basis from February
2021.
Nevertheless, we also expect labor market conditions to worsen,
keeping underlying inflation extremely low, while a strong euro
should also help to limit inflation at the start of 2021.
Portugal's consumer price index (based on the EU-harmonised
definition) fell by 0.4% year on year (y/y) in November. It had
declined by 0.6% y/y in October and 0.8% y/y in September. (IHS
Markit Economist Diego Iscaro)
The moderation in the pace of deflation was triggered by higher
prices in restaurants/hotels (+0.5% y/y, following a fall of 0.4%
y/y in October) and higher health-related costs (+2.3% y/y,
following a rise of 1.4% y/y). On the other hand, food price
inflation moderated from 2.5% to 2.1%, while transport prices
declined by 3.2% y/y (-2.9% y/y in October).
Core inflation was also in negative territory in November. It
declined by 0.2% y/y, slightly below a fall of 0.1% in October.
Underlying inflation had been below 1.0% y/y since early 2018 and
negative during the last four months (see chart).
The November figure was within expectations and will not drive
a revision of IHS Markit's estimates for 2020 and 2021.
Oil prices, which have been a major drag on inflation in 2020,
should start putting upward pressure on the headline inflation
rate, particularly from February 2021.
Nevertheless, underlying inflation is expected to remain well
below headline inflation in 2021, limited by difficult labor market
conditions.
After Hungary's robust third-quarter rebound, rising infections
and tighter social restrictions will weigh on the fourth quarter
but should be partially offset by manufacturing remaining
operational. Sluggish activity and elevated COVID-19 virus-related
restrictions will erode the first-quarter 2021 outlook. (IHS Markit
Economist Dragana Ignjatovic)
The Central Statistical Office (KSH) has published detailed
data for economic activity in the third quarter of 2020. Real GDP
fell by 4.6% year on year (y/y), 0.1% stronger than the flash
estimate released in November indicated. This brings the average
decline in the first nine months of 2020 to 5.4% y/y. This is the
second consecutive quarter of economic contraction in annual terms.
In quarter-on-quarter (q/q) terms, real GDP soared by 11.4%, the
strongest quarterly growth ever recorded.
Domestic demand has helped lead the quarterly revival, with
private consumption rising by nearly 8% q/q boosted by the easing
of COVID-19-related restrictions and pent-up demand in the third
quarter. This was, however, offset by a 2% q/q fall in government
spending as pandemic support measures for households and businesses
were rolled back. Furthermore, gross capital formation fell 1.8%
q/q, reflecting ongoing investor wariness since the start of the
year as the pandemic spread from Asia to Europe as well as reduced
absorption of EU funds.
Meanwhile, despite soaring quarterly performance, net exports
made no contribution to headline growth. Exports jumped 29% q/q in
the third quarter while imports were up by an equally robust 19%
q/q. This reflected the reopening of borders, supply chains and
factories following the easing of the most stringent lockdown
requirements. In addition, pent up consumer demand has helped boost
demand for Hungarian good in key European markets.
Across sectors, the easing of COVID-19 virus-related
restrictions is also clearly visible, with growth driven by
industry which jumped 24% q/q as factories reopened. Within
industry, manufacturing jumped 27% q/q, with the revival of the
automotive sector key to the resurgence. The service sector also
noted a strong rebound, rising by 10% q/q as the easing of social
restrictions allowed for the reopening of non-essential shops and
the hospitality sector. These positive developments were offset by
the ongoing fall in construction, which was down 4% q/q a
reflection of falling investment.
In a separate release, Hungary's unemployment rate dipped to
4.4% in the third quarter, 0.2 percentage points down compared with
April-June 2020. The improvement reflects the easing of economic
pressures as COVID-19-related lockdown measures were loosened.
The outlook, however, remains challenging for Hungary and
Europe as a whole. The fourth quarter of 2020 is likely to be
dragged down by restrictive domestic measures reintroduced in
November to stem the second wave of COVID-19 infections, which will
weigh heavily on already fragile domestic demand and service-sector
activity. However, the impact is likely to be more limited than in
the second quarter of 2020, since manufacturing has avoided a
shutdown. This will also help support exports, since manufacturing
has remained online throughout Europe despite the increased social
restrictions resulting in more contained supply chain disruption
than earlier in the year.
The weakness of the fourth quarter is likely to carry over into
the start of 2021, with the increased social interactions of the
festive season to result in an increase in infections and therefore
restrictions through the first quarter. Base effects and the
arrival of a COVID-19 vaccination program have led IHS Markit to
forecast real GDP growth of 4.8% in 2021, however risks are weighed
to the downside, with investment likely to remain sluggish,
particularly amid ongoing tensions with the EU, and elevated
unemployment eroding fragile confidence.
Daimler is investing HUF50 billion (USD171 million) in its
plant in Kecskemet (Hungary) to prepare the facility to manufacture
the EQB battery electric vehicle (BEV), according to an MTI daily
bulletin report. The investment was announced by Hungarian Minister
of Foreign Affairs and Trade Peter Szijjarto after Daimler
confirmed the EQB will be manufactured in Hungary. He said that the
Hungarian government will support the investment, which will
"cement the future of more than 4,400 jobs", with a HUF15-billion
grant. (IHS Markit AutoIntelligence's Tim Urquhart)
Russia's wheat is facing strong pressure ahead, as the state
grain export quotas are due to come into effect early next year. A
unified EUR25 per ton export duty on wheat is to operate from 15
February to 30 June and will be accompanied by a 17.5 million-ton
grain export quota, according to SovEcon. This was officially
confirmed on 14 December by the country's agriculture and economy
ministries. Quotas and duties are introduced to lower domestic
grain prices and reduce food inflation, but SovEcon believes the
Russian wheat market will come under pressure from this policy
change. The duty will be primarily absorbed by grain sellers and
only partially mitigated by slight growth in export quotations,
which have grown USD2-4/ton since the middle of last week. Average
prices EXW (European part of Russia) for 3rd class wheat fell by
RUB225 to RUB15,725/ton last week; 4th class - by RUB200 to
RUB15,700/ton; 5th class - by RUB50 to RUB14,925/ton (excluding
VAT.) The downside potential for ruble prices is estimated at about
10% from the current levels. The weakening of prices for barley and
corn, which are not subject to export quotas, is likely to be less
pronounced. (IHS Markit Food and Agricultural Commodities' Jana
Sutenko)
El Nasr Automotive Manufacturing Company is in the process of
signing a partnership contract with Dongfeng in December, reports
Zawya citing CEO and Managing Director of El Nasr, Hany El Kholy.
According to the agreement, the manufacturing company will produce
25,000 electric vehicles (EVs) at an estimated cost of EGP2.5
billion (USD158.7 million). According to the source, El Nasr is
preparing the manufacturing facility to install production lines in
the second quarter of 2021. Hany El Kholy said, "Egypt's Ministry
of Public Business Sector is financially participating in this
national project with up to 50%." He also urged the private sector
as well as banks and businessmen to be part of the project adding
that "the experimental production phase will last for up to eight
months." In December, Chinese automaker Dongfeng announced the
signing of a memorandum of understanding (MoU) to study the
manufacturing of electric vehicles (EVs) in Egypt. The negotiations
were restarted in March 2020 after they were halted due to the
coronavirus disease 2019 (COVID-19) pandemic, which hit China at
the very start of the year. The Egyptian government has stepped up
efforts to attract automakers to build vehicles in the country. It
has been a hub for vehicle exports to other Middle Eastern and
African countries in recent years. Recently announced projects
including Mercedes-Benz's planned new assembly center in Egypt, and
a deal between Chinese automaker Foton Motor and Egypt's Ministry
of Military Production to manufacture electric buses in Egypt. The
co-operation between Dongfeng and El Nasr will help bring back
production and jobs to the troubled Egyptian automaker. El Nasr
Automotive Manufacturing Company is one of the oldest companies in
the country's automotive industry, but production has been
suspended since 2009 under a liquidation decision. (IHS Markit
AutoIntelligence's Tarun Thakur)
Asia-Pacific
Most APAC equity markets closed lower on the day; Hong Kong
-0.7%, Australia -0.4%, Japan/South Korea -0.2%, Mainland China
-0.1%, and India flat.
Index provider MSCI said it would drop seven companies that the
US government has labelled as having ties to the Chinese military
from its indices, after Donald Trump barred US investors from
holding stakes in such businesses. MSCI said the seven companies
— which included SMIC, China's biggest chipmaker — would be
removed from its global equity indices at the end of the trading
day on January 5. The businesses will be dropped from MSCI's
popular emerging markets indices. (FT)
Chinese economic data continues to show signs of recovery and
posted gains during November 2020 in both industrial production (up
7% y/y) and consumption (retail sales up 5% y/y). According to data
released by the China Association of Automobile Manufacturers
(CAAM), new vehicle sales in mainland China for the reported month
on a wholesale basis increased by 12.6% y/y, while production rose
by 9.6% y/y. The auto market of mainland China expanded eight
months straight in November 2020. Amidst economic recovery as well
as increased seasonal demand due to the arrival of winters the
appetite for fuel in the country is increasing. Lately, the North
Asian LNG prices rally gained pace on unplanned supply disruptions
from the liquefaction side as well as colder weather in the region.
JKM spot prices rallied above $12/MMBtu and now at levels seen way
back in September 2018. In terms of solid fuel, imported thermal
coal prices delivered in China continued to rise, fueled by
deepening domestic coal shortages as well as surging coal
consumption due to falling temperatures and robust industrial
activities. On the Zhengzhou Commodity Exchange (ZCE), January 2021
futures contract traded at RMB760.5/t ($116.28/t) despite all
government efforts to cool down super-heated domestic coal prices.
As per IHS Markit's Coal, Metal and Mining database, Indonesian
low-rank 4200 GAR material spiked to $43.00/t CFR, up 24% surge
from a month ago, when the release of extra quotas allowed import
bookings to resume. As per IHS Markit's Commodities at Sea, total
coal imports into China (Mainland) during November 2020 continued
to remain under pressure and only marginally increased to 11.1mt
(up 3% m/m and down 42% y/y). In terms of Chinese regions, arrivals
into North, East, and South China stood at 5.9mt (up 33% y/y),
3.3mt (down 53%), and 1.8mt (down 76% y/y). (IHS Markit Maritime
and Trade's Pranay Shukla)
Figures from the Chinese Commerce Ministry show average
wholesale prices for pork rising by 6% w/w to reach CNY41.98 per kg
(USD6.02/kg) in the first week of December. Agriculture Ministry
data, which is collated slightly differently, shows prices making
further gains to stand at CNY43.46 on Monday (14 December).
Commerce Ministry figures show wholesale beef prices rising for
four consecutive weeks to reach CNY71.13 per kg in the first week
of December. Agriculture Ministry data shows this spike
accelerating last week, when prices reached CNY76 per kg - up 8% on
year-ago levels. Similar trends are apparent for sheep meat, which
rose for a fourth straight week to reach CNY64.74 per kg in the
first week of December. Again, the spike appears to be gathering
pace with new Agriculture Ministry data showing lamb prices are now
3.5% above year-ago levels. Although China has been rebuilding its
pig herd and ramping up production of other types of meat, the
country still needs to import large volumes to avoid shortfalls -
particularly during peak demand periods. For overseas suppliers,
attention will be focused not on local wholesale prices but on
average export prices in US dollars. New data from Brazil shows a
recovery in prices paid for beef and pork shipped to China in
November. Frozen pork fetched USD2,475 per ton - some USD300 per
ton more than the average in June and July. Frozen beef shipped
from Brazil to China rose by a similar amount to reach USD4,367 per
ton - the highest level since May. In an analysis this week, the
Chinese Agriculture Ministry said higher local pork prices were
mainly due to tighter supplies of live pigs. It said large-scale
farms were selling fewer animals and instead fattening them to
heavier weights because of higher demand for large pigs. Markets
have also been impacted by concerns that imported meat may
contribute to the spread of Covid-19. China now requires all
inbound consignments to be tested for the virus and suspends
suppliers when tests come back positive. This causes congestion at
ports and pushes up costs, while at the same time making some
Chinese consumers wary of imported products. (IHS Markit Food and
Agricultural Commodities' Max Green)
Chinese electric vehicle (EV) startup NIO entered into a
framework agreement yesterday (14 December) with State Grid EV
Service, a wholly owned subsidiary of State Grid, China's
state-owned utility provider. The two companies first announced a
partnership in 2017, which was centered on projects related to
building EV charging infrastructure and energy storage system
development. According to a report by news source Sohu, under the
framework agreement, the two companies will work together to set up
100 charging facilities across China in 2021. The new facilities
will be able to provide fast charging and battery-swapping services
to NIO customers. NIO currently operates 165 battery-swapping
stations and 85 fast-charging stations in China. The newly
announced 100 charging facilities will involve a joint investment
by NIO and State Grid EV Service. NIO began deliveries of its first
model, the ES8 electric sport utility vehicle (SUV), in 2018. The
full-size electric SUV has introduced the NIO brand to the EV
market, but what really drives NIO's sales growth are its two
following models, the ES6, a mid-size electric SUV, and the EC6, a
coupé-style variant based on the ES6. According to NIO's November
sales report, its deliveries soared 109% year on year to 5,291
vehicles last month, the highest monthly delivery results achieved
by the company during 2020. As of the end of November, accumulative
deliveries of NIO's three models reached over 68,600 units. (IHS
Markit AutoIntelligence's Abby Chun Tu)
Lynk & Co, the brand jointly introduced by Geely Auto and
Volvo Cars, has begun pre-production testing of its Zero electric
vehicle (EV). According to a company statement, the new model has
already gone through high validation speed testing at the Yan Cheng
test facility in Jiangsu province (China). The testing will help
engineers to assess the vehicle's performance at high speeds. More
physical testing, including wind tunnel, and cold and hot weather
testing is expected to continue over the rest of 2020 and into
early 2021, with the final model being confirmed for production in
mid-2021. Under the current schedule, the automaker aims to begin
deliveries of the Zero EV in the last quarter of 2021. Geely
unveiled the Lynk & Co Zero EV as a concept vehicle in
September during a media event in Beijing, when it also launched
its SEA architecture for EVs. It seems the automaker is making good
progress in its effort to bring to the market the production
version of the Zero EV Concept. As the first battery electric
vehicle (BEV) based on the SEA architecture, the launch of the Zero
EV in late 2021 will be important for Zhejiang Geely Holding Group
(Geely Group) as the model is designed to showcase the automaker's
latest EV technologies, which will later be applied to brands
across the group. The Zero EV will receive over-the-air (OTA)
updates to software. The vehicle is claimed to have a range of 700
km under the NEDC testing cycle with an 800-volt battery pack. (IHS
Markit AutoIntelligence's Abby Chun Tu)
Automakers present in South Korea plan to add new electric
vehicles (EVs) to their line-up in 2021, reports Maeil Business
Newspaper. Hyundai Motor Group plans to roll out new EVs built on
its electric-global modular platform (E-GMP), a dedicated EV
architecture. It plans to launch the IONIQ 5 in 2021, the first
model under its new IONIQ brand dedicated for EVs. It also plans to
launch the electric version of its G80 sedan, the eG80, and a new
vehicle codenamed JW under its premium Genesis brand. Its affiliate
Kia plans to launch an EV, codenamed CV, based on the E-GMP
architecture (see South Korea: 16 September 2020: Kia to launch
seven new BEVs by 2027). SsangYong also plans to launch its first
EV model, the E100 sport utility vehicle (SUV), based on the
platform of its popular Korando SUV. The report highlights that
more than 10 new EV models, including foreign-imported models, are
likely to be launched in the South Korean market in 2021, allowing
consumers to have 30 options when choosing an EV next year. By
introducing new EV models, automakers aim to capture growing demand
for EVs in South Korea. As reported earlier, EV registrations in
the country had surged by 54.4% year on year (y/y) to 128,258 units
as of the end of October. This growth has come on the back of
positive demand for new models, as well as favorable policies and
infrastructure initiatives by the government. (IHS Markit
AutoIntelligence's Jamal Amir)
Ride-hailing firm Ola has announced plans to invest INR24
billion (USD326 million) in establishing a facility in Tamil Nadu,
India. The facility will manufacture electric scooters with an
initial annual capacity to produce two million of these vehicles.
It will create almost 10,000 jobs as Ola prepares to launch the
first of its range of electric scooters in the coming months. The
facility will build electric vehicles (EVs) for India, as well as
for sale in regions such as Europe, Asia, and Latin America.
Bhavish Aggarwal, chairman and group CEO of Ola, said, "We are
excited to announce our plans to set up the world's largest scooter
factory. This is a significant milestone for Ola and a proud moment
for our country as we rapidly progress towards realizing our vision
of moving the world to sustainable mobility solutions across shared
and owned mobility. This will be one of the most advanced
manufacturing facilities in the world. This factory will showcase
India's skill and talent to produce world class products that will
cater to global markets." Ola already operates a two-wheeler
service, Ola Bike, which is available in 150 Indian cities and
towns. The company announced last year that it intended to grow
this business threefold in the next year. Recently, Ola Electric
acquired Dutch-based electric two-wheeler manufacturer Etergo for
an undisclosed amount. Ola Electric is currently running several
pilot projects to deploy EVs and has set up battery-swapping
stations across several cities in India with a focus on two- and
three-wheelers. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
The Australian government's upcoming plan to increase electric
vehicle (EV) uptake in the country has leaked and online news
source ABC claims to have obtained a copy of the document. As per
the document, the main policies include AUD72 million (USD54.3
million) in funding already announced for co-investing in charging
infrastructure; a two-year trial of an electric car fleet for
COMCAR, which provides cars and drivers for politicians; updating
the 'Green Vehicle Guide' website; and asking energy agencies to
look at options for vehicle-to-home and vehicle-to-grid battery
use. There is, however, no indication of financial help for
customers to switch to electric cars and no target for new electric
car sales. (IHS Markit AutoIntelligence's Nitin Budhiraja)
Posted 15 December 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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