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European and US equity markets closed higher across both
regions, while APAC closed mix. iTraxx and CDX indices were tighter
across IG and high yield, and oil and gold were also higher on the
day. 10yr US government bonds and the dollar closed flat on the
day, but the US Treasury curve did steepen slightly on the long
end. All eyes will be on tomorrow's FOMC meeting statement for more
updates on the Fed's economic projections and asset purchase
programs, as well as the recently announced change in approach for
targeting inflation.
Americas
US equity indexes closed higher, but near the lows of the day;
Nasdaq +1.2%, S&P 500 +0.5%, Russell 2000 +0.1%, and DJIA
flat.
10yr US govt bonds closed flat/0.68% yield and 30yr bonds
+2bps/1.43% yield.
CDX-NAHY closed -1bp/68bps and CDX-NAHY -9bps/343bps.
The below chart compares intraday price dispersion for US
corporate bonds from January-August 2020 versus the VIX, CDX-NAHY
(color of markers), and absolute changes in 10yr US government
bonds (size of markers). The dataset averages the intraday price
ranges divided by the highest price of the day for all trades ≥$1
million, excluding bonds that traded less than five times on a
given day and those with zero price ranges. The chart highlights
the linear relationship between equity and corporate bond price
volatility (R2 = 0.61) in addition to wider CDX-NAHY spreads and
larger government bond yield movements (in both directions) that
further drive price volatility.
DXY US dollar index closed flat/93.09.
Gold closed +0.1%/$1,966 per ounce.
Crude oil closed +2.7%/$38.28 per barrel.
US total industrial production (IP) rose only 0.4% in August
following increases averaging 3.5% per month over the prior three
months. The details in this report that bear on our GDP tracking
raised our forecast of third-quarter GDP growth 0.1 percentage
point to 29.9%. (IHS Markit Economists Ben Herzon and Lawrence
Nelson)
Increases in IP from May through August reversed just over
one-half (57%) of the sharp contraction from February through
April, leaving a substantial portion of recovery for future
months.
Hurricane Laura and Tropical Storm Marco caused sharp declines
in oil gas extraction and well drilling in the Gulf of Mexico,
contributing to a 2.5% decline in mining IP.
Utilities IP was down only slightly, as (population-weighted)
temperatures were elevated relative to recent historical norms in
both July and August.
Manufacturing IP rose 1.0% in August, down from increases
averaging 5.1% per month over the prior three months. While up
substantially from a low reached in April, manufacturing IP is
still 7.6% below the pre-pandemic (February) level.
Within manufacturing, both the auto sector and computers and
electronics have fully recovered. Outside of autos and high-tech,
manufacturing IP has reversed only 52% of the contraction from
February to April.
US import price growth rose at a solid rate in August even as
fuel price growth continued to cool down after a torrid three-month
period, increasing 0.9% month on month (m/m) after a 1.2% m/m rise
in July. (IHS Markit Economist Gordon Greer)
Among fuel price categories, natural gas price growth
outweighed a decline in petroleum prices, while import prices rose
0.7% m/m excluding petroleum.
Petroleum price growth slowed to a 2.9% m/m rate in August
after a strong 16.5% showing in July, while natural gas price
growth swung back into the green, rising 12.2% in August following
a 9.1% decrease the month prior.
Excluding fuels, imported goods prices increased 0.7% in
August, while 12-month growth came in at 0.8%.
Industrial supplies and materials price growth registered at
3.5% m/m. Prices of automotive goods and capital goods both ticked
up 0.1% m/m.
The value of the US nominal trade-weighted dollar slipped 1.4%
m/m in August and as of 14 September had given up practically all
the appreciation seen starting in March during the initial response
to COVID-19. Still, in historical context it remains elevated,
which will continue to weigh on import price growth. The import
price index excludes tariffs.
The index of exported goods prices increased in August, with
the index's month-on-month change falling back to 0.5%. The
increase in this index was driven by nonagricultural commodities
prices.
Agricultural export prices growth came in at -2.2% m/m and
marked a 2.9% 12-month decrease, while nonagricultural commodities
growth registered at 0.8% m/m and was -2.8% versus August in the
prior year.
Industrial supplies and materials export prices increased 2.2%
m/m. Capital goods prices increased 0.1% m/m, consumer goods prices
rose 0.3% m/m, and automotive goods prices were flat.
Merck & Co (US) and Seattle Genetics have announced two new
strategic oncology collaborations, one for ladiratuzumab vedotin -
an investigational antibody-drug conjugate (ADC) targeting LIV-1 -
and the other for tyrosine kinase inhibitor Tukysa (tucatinib).
Under the terms of the agreement, Merck has entered into a joint
development program for mid-stage candidate ladiratuzumab vedotin
as a monotherapy and in combination with Keytruda (pembrolizumab)
in triple-negative breast cancer (TNBC), hormone receptor-positive
(HR+) breast cancer (BC), and other LIV-1-expressing solid tumors.
Seattle will receive a USD600-million payment upfront, and Merck
will purchase five million shares of the company at a price of
USD200 per share for a USD1-billion equity stake in Seattle.
Furthermore, Seattle will be eligible to receive up to USD2.6
billion in milestone payments, including USD850 million for
development achievements and USD1.85 billion in sales milestones.
Both companies will share global development costs for
ladiratuzumab vedotin and other LIV-1-targeting ADCs, as well as
jointly commercializing the product, and will share future costs
and profits equally. Seattle will record sales in the United
States, Canada, and Europe, while Merck will record sales in all
other regions. Separately, the companies signed a license agreement
that grants Merck exclusive commercialization rights for
HER2-positive cancer treatment Tukysa (tucatinib) in Asia, the
Middle East, and Latin America, as well as other regions outside
the US, Canada, and Europe. Seattle will receive USD125 million
upfront for the license agreement, and potentially up to USD56
million in milestone payments. Merck will co-fund part of Tukysa's
global development, including several trials in HER-positive
cancers (such as breast, colorectal, and gastric cancers, among
others), including an USD85-million research payment. Seattle will
also be eligible for tiered royalties on Tukysa's sales in Merck's
territories. The strategic collaborations will notably strengthen
and diversify Merck's oncology portfolio, while leveraging the
company's development and commercialization expertise to maximize
their market potential. Furthermore, for Seattle the deal will
provide notable financial support for its ongoing pipeline, with
the company eligible to receive up to USD4.2 billion in upfront,
milestone, and investment proceeds from the ladiratuzumab vedotin
deal alone. (IHS Markit Life Sciences' Margaret Labban)
Based on the swift increase in demand recorded during the
pandemic lock-down, the US blueberry industry does not expect a
consumers' U-turn. Sales are projected to remain high through the
end of the year and into 2021. "We have seen strong increase in
demand for all frozen blueberries (wild and cultivated)," Kasey
Cronquist, president of the US Highbush Blueberry Council (USHBC)
and North American Blueberry Council (NABC), told IHS Markit "For
March through June (weeks ending 03/07 through 06/27) Nielsen
reports that frozen blueberry volume sales increased 44% relative
to the same period year ago. Dollar sales of frozen blueberries
were up +49% during the same period. Given that US consumers
increased consumption of food at home, and a refocus on healthy
eating we expect strong growth for fresh and frozen blueberries
through the end of the year and into 2021." The harvest is over in
Mississippi, Georgia, Florida, California, New Jersey and Indiana.
In Washington state, the USA's largest producer of frozen
cultivated blueberries, harvesting continues. In a report released
by NABC on 2 September, the industry reported that between the end
of August and the beginning of September little was harvested in
eastern Washington, with the exception for a small amount of
Rabbiteyes for the fresh production. In western Washington growers
were on the last pick of Liberty, on the second or third pick of
Legacy and in the middle of picking Elliots. Most harvested fruit
is for the processed market but growers with Elliots are trying to
harvest for the fresh sector, chasing the current high prices.
Overall quality was average to above average, the report read. The
USDA reported 5.91 million pounds of conventional and 17.64 million
pounds of organic for a total of 23.55 million pounds shipped so
far this season. (IHS Markit Food and Agricultural Commodities'
Cristina Nanni)
The Central Bank of Paraguay (Banco Central del Paraguay: BCP)
has released its latest report on key banking sector figures,
covering July. (IHS Markit Banking Risk's Alejandro Duran-Carrete)
Credit grew by 10% year on year (y/y), mostly driven by local
currency loans increasing by 11% y/y.
Most of the recent growth stems from corporate loans guaranteed
by the state through the Guarantee Fund of Paraguay (Fondo de
Garantía del Paraguay: FOGAPY).
Foreign currency loans decreased by 6% y/y in US dollar terms,
but this was largely offset by the depreciation of the guarani when
measured in local currency.
Impairments remain contained, with the non-performing-loan
(NPL) ratio standing at 3.0% (versus 3.1% in July 2019), with a
coverage ratio of 125%.
The capital adequacy ratio and the tier-1 capital ratio stood
at 19.5% and 14.9%, respectively, a stronger position than the
18.4% and 13.9% reported in July 2019.
Liquidity indicators have improved slightly: the
loan-to-deposit ratio stood at 86% (versus 93% displayed a year
previously), and liquid assets were at 42.7% of deposits and at
22.1% of total assets.
Europe/Middle East/Africa
European equity markets closed higher across the region; UK
+1.3%, Spain +1.2%, Italy +0.8%, France +0.3%, and Germany
+0.2%.
10yr European govt bonds closed mixed; Italy -3bps,
France/Spain -1bp, Germany flat, and UK +2bps.
iTraxx-Europe closed -1bp/54bps and iTraxx-Xover
-14bps/306bps.
Brent crude closed +2.3%/$40.53 per barrel.
Eurozone manufacturing output rose 4.7% m/m in July, according
to the latest official statistics from Eurostat, building on prior
expansions seen in both May and June. The recent gains have pushed
output in the latest three months 0.9% higher than the prior three
months, representing the first increase on this measure since April
2019. The July level of production was also some 16.1% above the
average seen in the second quarter, underscoring the likelihood of
the third quarter registering a strong rebound from the 17%
collapse in production which took place during the second quarter.
(IHS Markit Economist Chris Williamson)
Production remains some 7.7% below the pre-pandemic peak seen
in February, and 7.9% below the level of a year ago. Moreover, the
4.7% gain seen in July was far weaker than the 13.4% and 10.3%
gains seen in May and June respectively.
Historical comparisons indicate that, at 55.7 in August, the
latest PMI output index is broadly indicative of output rising at a
quarterly rate of 1.0%, which is only modestly higher than the 0.9%
gain (correctly) indicated in advance for July. Note that the index
gained merely 0.4 index points in August, signaling only a very
marginal acceleration in growth.
With the initial rebound from the height of the pandemic having
now taken place, further gains in production in coming months are
likely to be modest and to a large extent dependent on the path of
the pandemic.
Further concerns about the sustainability of the recovery are
raised by some of the PMI's sub-indices. Although new order inflows
continued to rise in August, the rate of increase slowed.
Inventories and employment also continued to fall as companies
remained heavily focused on cost cutting.
According to the Office for National Statistics (ONS), the
number of UK workers on payroll plunged by 695,000, or 2.4%,
between March and August (see chart below). The new release is
based on experimental data of the number of employees on payroll
using the HM Revenue and Customs' Pay As You Earn Real Time. (IHS
Markit Economist Raj Badiani)
The claimant count, which measures the number of people
claiming benefit principally for being unemployed, was 2.7 million
in August and represented an increase of 120.8%, or 1.5 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 in the three months to July. According to the
ONS, total UK employment (all aged 16 plus) shrunk by 12,000 to
32.924 million in the three months to July compared with the three
months to April.
In annual terms, the number of employed in the three months to
July was 0.6% higher compared with a year earlier.
The number of unemployed people on the Labour Force Survey
(LFS) or the International Labour Organization (ILO) measure
increased by 62,000 in the three months to July, standing at 1.398
million. The unemployment rate edged up at 4.1%, with a larger rise
expected due to falling payroll employment during the period. The
statistics department argues that lower-than-expected unemployment
rate during the coronavirus disease 2019 (COVID-19) virus crisis is
caused by these factors:
A larger number of people who left their jobs are not currently
looking for a new one and are therefore becoming economically
inactive, rather than unemployed.
The current unemployment rate is lagging, with some information
gathered before the lockdown began.
The highest incidence of rising unemployed was among those aged
16 to 24 years, which increased by 76,000 year on year (y/y) to
563,000. In the three months to July. Other age groups experienced
falls or very little change over the year.
Worryingly, the overall unemployment rate rose more notably to
4.4% in July and to 4.8% in the final week of the month, which is
likely to be the start of a sustained rise in unemployment.
The average annual weekly earnings (total pay including
bonuses) growth stood at -1.0% in the three months to July. In
addition, regular pay (which excludes bonus payments) growth rose
for the first time in 12 months but was at a historical low of 0.2%
y/y in the three months to July.
Total pay in real terms fell by an acute 1.8% y/y in the three
months to June, which was the fourth drop since January 2018.
Overall, IHS Markit expects the unemployment rate to climb
notably in the second half of 2020, probably close to 10.0% during
the latter stages of this year and early 2021, which is equivalent
to over 3.0 million people being unemployed.
The Association of the British Pharmaceutical Industry (ABPI)
has welcomed certain aspects of the recently negotiated UK-Japan
post-Brexit free trade agreement, released on 11 September. A UK
Department for International Trade release on the agreement may be
accessed here. In a separate statement on the deal, the ABPI
particularly highlighted certain crucial sections that incorporate
functions of the existing European Union-Japan mutual recognition
agreement (MRA) for medicines, which should allow acceptance by
both the United Kingdom and Japan of each other's safety testing
and inspection data for medicines intended for export. This should
avoid unnecessary administrative duplications of procedure, and may
help avoid disruption to supply chains or patient access to
medicines traded between the UK and Japan. The ABPI has noted that
this should allow UK pharma companies to trade with Japan "largely
as they do now" after 1 January 2021. (IHS Markit Life Sciences'
Janet Beal)
Fiat Chrysler Automobiles (FCA) and Groupe PSA have announced a
revision to certain terms of their pending merger, as a result of
the impact of the COVID-19 pandemic on economic conditions. The
merger is expected to be completed by the end of the first quarter
of 2021. Although most of the terms of the merger agreement are
unchanged, those relating to an FCA special dividend and PSA's
stake in supplier Faurecia have been revised. According to the
statement, the amendments will "address the liquidity impact on the
automotive industry of the COVID-19 pandemic while preserving the
economic value and fundamental balance of the original Combination
Agreement". The boards of directors of the two companies have
approved the changes, the statement says. In the first version of
the agreement, FCA had planned a special dividend of EUR5.5 billion
(USD6.5 billion); however, this has been reduced to EUR2.9 billion.
In addition, PSA's 46% stake in Faurecia will be distributed to all
shareholders of the new company, Stellantis, rather than PSA
divesting the supplier prior to the merger. The two companies say
that FCA and PSA's respective shareholders will receive an equal
23% stake in Faurecia; their 50:50 stake in Stellantis remains
unchanged by the retention of Faurecia. In addition, the boards of
both companies will consider a potential distribution of EUR500
million to shareholders of each company prior to the merger or of
EUR1 billion to all Stellantis shareholders after the merger;
however, the boards of both companies will need to approve the
distribution when it is appropriate. The distribution will depend
on the "performance and outlook of both companies, market
conditions and performance in the intervening period". In addition,
the companies have increased their estimate of potential run-rate
synergies, and now expect Stellantis to see annual run-rate
synergies of EUR5 billion per year, up from an initial estimate of
EUR3.7 billion. However, the one-time implementation cost to
achieve the synergies has increased from EUR2.8 billion to EUR4
billion. The revisions to the terms of the merger agreement are not
a surprise given the backdrop of the COVID-19 pandemic on economies
and the auto industry, regionally and globally. Because of the
COVID-19 pandemic, both companies have lost production, delayed
program launches, and seen soft sales impact on their financial
results in 2020. (IHS Markit AutoIntelligence's Stephanie
Brinley)
In July 2020, total industrial production in Turkey grew by
8.4% m/m in seasonally adjusted terms. Although total monthly
output has surged by 51.0% since April, total production remained
1.6% lower than it had been in February, immediately before the
ramping up of social-distancing requirements to fight the spread of
the COVID-19 virus. (IHS Markit Economist Andrew Birch)
Leading confidence indices previously suggested that the m/m
recovery for industrial production remained strong through July.
After falling to 33.4 as of April, the IHS Markit Purchasing
Managers' Index (PMI) had rallied to 56.9 as of July. The index had
surpassed 50 - the demarcation of anticipated growing or shrinking
activity - as of June.
Similarly, the easing of restrictions has led to retail trade
activity surging in recent months, with total retail trade 37.6%
higher in July than it had been in April. Nonetheless, total retail
trade activity was still 2.0% lower than in February.
The central bank was encouraging rapid credit growth to
stimulate consumer activity, so as to counter the negative impact
of the COVID-19 virus. The Banking Regulation and Supervision
Agency reported that as of end-July, total annual credit growth had
more than tripled to 34.5% - compared with the 10.8% credit growth
that was reported to have expanded in 2019 as a whole.
The August leading indicators reflect that recovery is cooling
off. The PMI slipped to 54.3, still strong but down from July
nonetheless. Similarly, confidence in the retail trade and
construction sectors has stalled, while consumer confidence slipped
somewhat. The sharp depreciation of the lira throughout the month
is likely to have undermined confidence. Moreover, the central bank
tightened monetary policy modestly to stabilize the currency.
On 11 September, Moody's downgraded its Turkey issuer and
senior unsecured debt ratings by one notch, to B2 (equivalent to
57.5 on the IHS Markit scale of 0-100). With the move, Moody's
sovereign risk rating is one half notch better than that of IHS
Markit's. In March 2020, IHS Markit downgraded its medium-term
sovereign risk rating by one notch. (IHS Markit Economist Andrew
Birch)
In its press release alongside the move, Moody's listed three
primary reasons for the downgrade. The first was a growing
possibility of a balance-of-payments crisis. Throughout 2020,
Turkey's current-account deficit has been rapidly rising (see
Turkey: 14 September 2020: Turkey's current-account deficit
continues rapid growth at beginning of H2).
Meanwhile, net capital inflows have faltered, undermining a key
source of financing for the current-account deficit. Sustained,
expansionary monetary policy from the Central Bank of the Republic
of Turkey (Türkiye Cumhuriyet Merkez Bankası: TCMB) has fuelled
strong credit growth and negative real interest rates, providing
little incentive for portfolio investment. Through the first seven
months of 2020, Turkey suffered almost USD12.5 billion of net
portfolio investment outflows.
The growing balance-of-payments vulnerability undermined the
value of the lira, which has faltered particularly badly since late
July. The TCMB's defense of the lira has severely depleted its
foreign-currency reserves. The bank has attempted to rebuild these
reserves through a rapid escalation of the use of short-term
forward swaps with domestic banks. Although this has raised
headline reserve levels, it has done so at the expense of
short-term debt.
Depleted foreign-currency reserves severely compromise Turkey's
ability to finance its external obligations. Lost tourism revenues
during the third quarter will only intensify the worsening of the
country's current-account deficit.
The second highlighted reason for the downgrade was the
deterioration of institutional integrity. Since President Recep
Tayyip Erdoğan replaced the TCMB governor in mid-2019, the bank has
acted as an extension of the government, pursuing political goals
of stimulating domestic demand, abandoning its official duties to
stabilize the currency and manage inflation.
South African pharmaceutical firm Aspen Pharmacare Holdings
plans to expand its product portfolio in emerging markets through a
combination of organic growth and acquisitions, according to the
company's deputy chief executive Gus Attridge. Attridge reportedly
told Reuters that, as part of a new strategy, "The focus of the
business is to take it to a significant level in countries where we
are well established with a strong base." Reuters quoted Attridge
saying that "the company preferred exiting from developed markets
where it lacked scale". Specifically, Aspen will seek acquisition
opportunities for its commercial pharmaceuticals business in
countries such as China, South Africa, and in Latin America, as
well as in Australia, according to Reuters. Aspen's emerging-market
expansion plans come after it last week announced an agreement to
sell its European thrombosis business to Mylan (US/Netherlands) for
EUR642 million (USD756 million), while retaining the business unit
in emerging markets. Funds from the sale will be used to ease
Aspen's existing debt levels, although Mylan has said that it will
only make an initial upfront payment of EUR263.2 million upon
completion of the deal in late 2020, while the remainder will be
deferred until mid-2021. (IHS Markit Life Sciences' Sacha
Baggili)
Asia-Pacific
APAC equity markets closed mixed; Japan -0.4%, Australia -0.1%,
Hong Kong +0.4%, Mainland China +0.5%, and India/South Korea
+0.7%.
Mainland China's industrial value-added growth accelerated by
0.8 percentage point to 5.6% year on year (y/y) in August and the
up-to-date growth recovered to expansion for the first since
beginning of the year. Meanwhile, the month on month (m/m) growth
edged up to 1.02%, compared to 0.98% a month ago and notably above
the three-year average of 0.2% in August. (IHS Markit Economist
Yating Xu)
29 out of 41 surveyed sectors reported y/y production growth in
August, up from 25 in July. The headline growth was driven by
acceleration in mining and utilities as the negative impact of
flood fades, while manufacturing growth was unchanged from a month
ago. Equipment and high-tech manufacturing continued to lead the
manufacturing growth, while auto manufacturing growth declined with
high base effect a year ago.
By product, consumption and infrastructure related production
led the acceleration with cement iron ore, non-ferrous metals and
coal all expanding faster and construction machinery such as
excavators and scrapers maintained growth rate above 30% y/y.
Moreover, power generation growth surged to 6.8% y/y from 1.9% y/y
in July. However, auto production growth slowed by 19.2 percentage
points from July to 7.6% y/y in August.
All ownerships reported acceleration in y/y industrial
value-added growth from a month ago, with private sector leading
the growth; eastern area continued to lead the national
growth.
Service production index rose 0.5 percentage points to 4.0% in
August, but it remained far below the three-average level of 7.3%
and the year-to-date index stayed in 3.6% y/y contraction.
By sector, service production index of information and
software, real estate, transportation and post led the headline
acceleration.
Contraction of the year-to-date FAI narrowed by 1.3 percentage
points from July to 0.3% y/y in August and the estimated
de-cumulative FAI growth continued to accelerate to 9.3% year on
year from 8.3% y/y in July. Particularly, private investment
However, the month-on-month FAI growth further slowed to 4.2%.
Real estate and manufacturing were the main drivers to August
investment growth. Year-to-date real estate investment accelerated
to 4.6% year on year and the estimated de-cumulative growth rose to
12.1% year on year, the fastest since May 2019. Although
year-to-date manufacturing investment remained in contraction, the
de-cumulative growth recovered to expansion for the first time in
the year as industrial profits stayed in expansion for two
consecutive months and overseas demand rebounded. Additionally, low
base in the same period last contributed to the recovery.
Electronic equipment and pharmaceutical led the manufacturing.
However, de-cumulative infrastructure investment growth slowed to
4% year on year from 7.9% year on year in July.
Supported by the steady increase in housing price inflation and
decline in mortgage rate, housing sales market continued to
improve. Decline in floor space of commercial housing sold soften
by 2.5 percentage points to 2.5% year on year through August and
housing sales value registered a 4.1% year on year expansion, with
the estimated de-cumulative figures accelerating to 13.7% and 27.1%
respectively, the highest level in three years.
Nominal retail sales increased 0.5% year on year in August from
1.1% year on year contraction in July. Retail sales growth in large
firms improved to 4.0% year on year expansion. However, the figure
remained in 8.6% year on year contraction excluding auto
sales.
Although major indicators of industrial and service production,
investment, consumption, exports, total social financing and
surveyed unemployment rate all accelerated in August in year on
year terms, the overall level remained below the tree-year average
and the month on month momentum moderated. Adding to the low core
inflation, final demand remains weak, which indicates that further
tightening of monetary policy seems unlikely.
Positive factors include an expected rebound in infrastructure
investment with the acceleration of local bond issuance and fiscal
spending and recovery in private investment supported by industrial
profits. Supported by exports and consumption, industrial
production and manufacturing investment may continue to accelerate
over the near term.
IHS Markit expects a continuing but slower recovery to the year
end. The full-year GDP growth for 2020 is likely to be revised up
from the current 1.5% year on year.
Nongfu Spring's high-profile Hong Kong IPO have again raised
investors' interest in China's bottled water market. This special
report discusses the state of the market, providing a snapshot of
competition landscape in the high-end market. Everyday European
bottled water brands such as San Pellegrino, Evian and Perrier
water are marketed as upmarket lifestyle products in China. There
is still growth opportunity for European brands, but competition
from local products is persistent. The country's total production
of soft drinks was around 177.6 million tons in 2019, which
included bottled water, juices, carbonates, RTD coffee and RTD tea,
functional drinks, sports drinks and some other specialty drinks.
Guangdong is the largest producing region, accounting for around
18% of the total output. Retail soft drinks sales were USD82.7
billion, according to Euromonitor's data. Bottled water generated
the most value sales. Functional beverages saw strong growth.
Attracted by high profit margins, an increasing number of companies
in the soft drinks market introduced functional beverages. Even
dairy companies made an inroad into the functional arena.
Uni-President has Gouran brand; Yili has introduced Huanxingyuan
sport drinks. Essentially, high-end bottled water, functional
beverages and NFC juices are the bright spots. The retail channel
saw rapid development of vending machines and e-commerce. However,
bricks & mortar stores continued to account for 90% of the
retail sales. Although the government has set industry standards to
differentiate natural mineral water from other waters such as
purified water and distilled water, consumers are still confused
about the definition. The number of natural mineral water sources
is limited. Acquisition of quality natural water resources give
competitive advantages. Thus, the marketing and story-telling of a
source is an ongoing task. According to Qcc.com, a leading Chinese
company house, there are about 64,000 relevant bottled water
companies (10 September), including 7,300 new registrations in
2019, up 103% compared with 10 years ago. In H1 2020, new entries
grew by 8.5% compared with a year ago. Among these, 71% of the
companies have a registered capital of less than CNY1.0 million.
That means that bottled water has a low entry bar. By geographical
location, Shandong leads the industry with 6,000 companies,
followed by Guangdong and Henan. (IHS Markit Food and Agricultural
Commodities' Hope Lee)
The Chinese city of Shanghai plans to promote intelligent
connected vehicles (ICVs) by expanding the scope of road testing,
reports SHINE News. The city plans to expand the length of roads
for ICV testing to nearly 1,300 kilometers in Jiading district,
covering an area of 464 square kilometers. This will enable
automakers and tech companies to make use of varied scenarios such
as robotaxis, 5G smart heavy trucks carrying cargo, and smart
public transport, as well as urban and tourism scenarios. The city
also plans to co-operate with Jiangsu, Zhejiang, and Anhui
provinces in the Yangtze River Delta region to promote integrated
development of ICVs. Shanghai opened its first road section for
testing of ICVs in March 2018. The city has launched road testing
of these vehicles in Jiading, Lingang, and Fengxian districts, and
the test zones span over 131 km. To date, Shanghai has issued 119
license plates for autonomous car testing to 20 companies.
Recently, AutoX opened a robotaxi service for the public in
Shanghai after conducting trials with signed-up users. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Alibaba Group, the Chinese e-commerce giant, is in talks to
invest USD3 billion in ride-hailing firm Grab by acquiring some
stock currently owned by Uber, reports Bloomberg. The deal may
represent one of Alibaba's biggest investments in Southeast Asia
since its first investment in Lazada in 2016. Alibaba's potential
investment would give access to data of Grab's users and this might
also boost Lazada's user base through integration of Grab's
delivery network. This latest development comes at a time when
ride-hailing services have been hit by the COVID-19 virus pandemic
and demand for digital retail transactions has gone up. This year,
Grab laid off 360 employees, representing 5% of its total
workforce, owing to the pandemic. Since the start of the pandemic,
Grab has added food-delivery and insurance services to its
platform. Recently, the company raised USD200 million in funding
from South Korean private equity firm STIC Investments. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Chinese autonomous vehicle (AV) startup Idriverplus has raised
over CNY100 million (USD14.6 million) in a Series C+ funding round,
reports VentureBeat. The round was led by Xin Ding Capital and
Huaxia Weiming Investment and the proceeds will be used towards
research and development of the startup's AV technology, deploying
robotaxi fleets, and accelerating production of cleaning robots and
other specialised robotics products. In addition, the infused
capital will be used to recruit top talents from the AV domain and
to expand into overseas markets. (IHS Markit Automotive Mobility's
Surabhi Rajpal)
The Indian government has sought parliament's approval to
inject INR200 billion (USD2.8 billion) into state-owned banks,
according to various Indian newspapers. The proposal does not list
which banks will receive the injection and an unnamed government
official noted that although the funding is being sought, the
government has now decided not to 'front-load' the capital into
banks and the injection will depend on the need to satisfy
regulatory requirements towards the end of the year. (IHS Markit
Banking Risk's Angus Lam)
IHS Markit had expected the Indian government to inject capital
into banks after the likelihood of this happening in April 2020 at
the height of the COVID-19-virus lockdown. Although the
INR200-billion injection is at the lower end of the government's
own estimate of INR200-250 billion, this is a departure from the
budget announcement that there will be no capital injection into
banks in FY2020/21 following the bumper injection in the last
several years and ahead of the banking sector merger.
Faced with a loan moratorium that originally ended at the end
of August but has since been extended to end-September after a
Supreme Court ruling in mid-September and also the delayed
implementation of the last tranche of the capital conservation
buffer, banks did not encounter significant capital pressure in
much of 2020. However, when the moratorium ends and the one-off
loan restructuring is implemented, banks are likely to face capital
pressure to provision for loans despite the provisioning standards
already being lower for loan restructuring than those of
classifying the loans as non-performing.
New vehicle sales in the Philippines fell by 39.5% year on year
(y/y) during August to 17,906 units, reports The Philippine Star,
citing data released by the Chamber of Automotive Manufacturers of
the Philippines Incorporated (CAMPI) and the Truck Manufacturers
Association (TMA). (IHS Markit AutoIntelligence's Nitin Budhiraja)
Sales of passenger vehicles (PVs) stood at 5,454 units during
the month, down by 38% y/y, while commercial vehicle (CV) sales
were down by 40% y/y to 12,452 units.
On a year-to-date (YTD) basis, total sales were down by 47.6%
y/y to 123,489 units, comprising 35,523 units of PVs, down by 50%
y/y, and 87,966 units of CVs, down by 47% y/y.
CAMPI president Rommel Gutierrez said, "Spending remains a
challenge, especially for big-ticket items such as cars. Any
restrictive policies such as safeguard duty will only limit the
industry's capability to navigate the current crisis." Gutierrez
expects to achieve a revised sales forecast of 240,000 units in
2020 on the back of aggressive promotions by automakers.
The plunge in the Philippines' new vehicle market during the
first eight months of 2020 can be attributed to the fact that the
country was in a state of public health emergency and that the
government had imposed the enhanced community quarantine (ECQ)
order from the second half of March owing to the COVID-19 virus
pandemic.
Posted 15 September 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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