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Most equity markets closed lower on the day, despite China's Q2
GDP report indicating that it's the first major economy to return
to growth after a significant wave of COVID-19 infections. The
positive GDP announcement included strength in its industrial
sector counterbalanced by weakness in consumption, with the latter
triggering the worst single day sell-off in Chinese equities since
February. iTraxx and CDX indices closed modestly wider across IG
and high yield, while major benchmark government bonds closed
higher. US initial claims for unemployment insurance reported the
first increase in non-seasonally adjusted claims in eight weeks,
which was potentially driven by the business re-closures that began
across several states over the past few weeks.
Americas
US equity markets closed modestly lower today; Nasdaq/Russell
2000 -0.7%, DJIA -0.5%, and S&P 500 -0.3%.
10yr US govt bonds closed -1bp/0.62% yield and 30yr bonds
-2bps/1.31% yield.
CDX-NAIG closed +1bp/73bps and CDX-NAHY +4bps/482bps.
Crude oil closed -1.1%/$40.75 per barrel.
Offshore drilling contractor Noble Corp., via wholly-owned
subsidiary Noble Holding International Limited, has elected not to
make on the due date the approximately USD15 million interest
payment due with respect to its 7.750% Senior Notes due 2024.There
is a 30-day grace period to make the interest payment before such
non-payment constitutes an "event of default" under 2024 Senior
Notes. Noble is actively engaged in discussions with certain of its
creditors regarding a potential consensual restructuring
transaction. No agreement has been reached as yet and the company
does not guarantee an agreement will be reached. The below Price
Viewer screen is the 12-month price history for the Noble Holding
International Limited 7.75% 1/2024 bond issue, which closed at a
price of 1.86 today. (IHS Markit Upstream Costs and Technology's
Matthew Donovan)
The average rate on a 30-year fixed mortgage fell to 2.98%,
mortgage-finance giant Freddie Mac said Thursday, its lowest level
in almost 50 years of record keeping. It is the third consecutive
week and the seventh time this year that rates on America's most
popular home loan have hit a fresh low. (WSJ)
Seasonally adjusted US initial claims for unemployment
insurance, at 1,300,000 in the week ended 11 July, remained at
historically high levels and double the highest level during the
Great Recession. Initial claims have trended down in recent weeks;
however, as the resurgence of COVID-19 cases slows or reverses some
reopening plans, jobless claims could rise again. (IHS Markit
Economist Akshat Goel)
While the seasonally adjusted number decreased, the
non-seasonally adjusted number of initial claims filed in the week
ended 11 July rose to 1,503,892, an increase of 7.8%. This is the
first time unadjusted initial claims have increased in eight weeks.
The unadjusted numbers might prove to be more reliable as the
seasonal adjustment procedure may not be appropriate for levels of
initial claims that are an order of magnitude higher than the
historical norms because of factors unrelated to seasonality.
The seasonally adjusted number of continuing claims (in regular
state programs), which lags initial claims by a week, fell by
422,000 to 17,338,000 in the week ended 4 July. This is well below
the all-time high of 24,912,000 in the week ended 9 May and
indicates that as businesses reopen, furloughed workers are
returning to work. The insured unemployment rate in the week ended
4 July fell 0.3 percentage point to 11.9%.
There were 928,488 unadjusted initial claims for Pandemic
Unemployment Assistance (PUA) in the week ended 11 July. In the
week ended 27 June, continuing claims for PUA rose by 405,856 to
14,282,999.
In the week ended 27 June, 936,431 individuals were receiving
Pandemic Emergency Unemployment Compensation (PEUC) benefits.
The Department of Labor provides the total number of people
claiming benefits under all its programs with a two-week lag. In
the week ended 27 June, the unadjusted total fell by 433,005 to
32,003,330. Of this total, 51% are from regular state programs and
45% from the PUA program.
US total retail trade and food services sales jumped 7.5% in
June, following an upwardly revised initial surge of 18.2% in May.
The recovery through June brings retail trade and food services
sales within 0.6% of the pre-pandemic February level. (IHS Markit
Economist James Bohnaker and David Deull)
By June, most of the country had greatly relaxed restrictions
on in-person shopping. Furniture and home furnishing stores (up
32.5%), electronics and appliance stores (up 37.4%), and clothing
and accessories stores (up 105.1%) were the leading growth
categories in June, but sales in each remained lower than in
February.
Auto dealers benefited from pent-up demand. Mobility trends
suggest that driving has made a full recovery as most Americans
avoid air travel and public transportation. Sales at auto dealers
were up 4.4% from the February level.
Retail categories that were outperforming took a breather as
activity normalized elsewhere. Building materials and garden supply
stores (down 0.3%), food and beverage stores (down 1.2%), and
nonstore retailer (down 2.4%) sales paused but will remain elevated
until virus concerns dissipate.
Food services sales rebounded by 20% in June yet remain 27.4%
below February. We do not expect a rapid recovery, with several
high-population states backtracking on restaurant and bar
re-openings.
The initial retail rebound has been stronger than expected, but
we remain guarded about the second half of 2020 as COVID-19
infections are rising at a concerning rate.
The US builder confidence headline index jumped 14 points to
72. The report's headline, "Builder Confidence Rallies to
Pre-Pandemic Level in July," says it all. If only this translated
into single-family housing starts. (IHS Markit Economist Patrick
Newport)
The current sales conditions index shot up 16 points to 79, the
index measuring sales prospects over the next six months climbed 7
points to 75, and the traffic of prospective buyers' index rose 15
points to 58—an all-time high.
The Northeast sky-rocketed 22 points to 70—its highest
reading since June 2005.
The other three regions also saw large gains for the second
straight month with the West up 14 points to 80, the Midwest up 18
points to 68, and the South up 10 points to 73.
Housing starts will not bounce back to pre-pandemic levels for
some time. That is mainly because favorable weather elevated
housing starts by about 200,000 units (annual rate) just before the
pandemic hit. Instead, we expect starts to bounce back to about
normal levels, which are below pre-pandemic levels, by the end of
this year.
The report usually lists an issue. This month's: "Lumber prices
are at two-year highs and builders are reporting rising costs for
other building materials while lot and skilled labor availability
issues persist."
The report also suggested that the pandemic could change the
geographic distribution of new homes. More people working from home
is tilting new home demand toward larger houses in small cities,
rural markets, and large metro exurbs.
Navistar and TuSimple have announced a strategic partnership
aimed at bringing SAE Level 4 autonomous trucks into production in
2024. According to a joint company statement, Navistar will also
make an investment in TuSimple, taking a minority stake. In the
statement, Navistar's new CEO, Persio Lisboa, said, "Autonomous
technology is entering our industry and will have a profound impact
on our customers' businesses. Navistar's strategic partnership with
TuSimple positions us to be a leader in developing solutions for
our customers by leveraging our organizations' collective expertise
to integrate our vehicle design and systems integration
capabilities with TuSimple's innovative autonomous technology. This
announcement marks a significant milestone in our development
journey with TuSimple and we look forward to furthering our
relationship in the months to come." The companies aims to have a
fully integrated self-driving engineering solution ready for mass
production using Navistar's production facilities. Customers will
be able to purchase the trucks through Navistar's traditional
dealership network in the United States, Canada, and Mexico.
Although Navistar produces buses as well as trucks, the partnership
with TuSimple is targeting production of Class 8 trucks, and
production at scale. (IHS Markit AutoIntelligence's Stephanie
Brinley)
Uber Technologies is in initial talks with investors to raise
USD500 million in investment for its freight unit, reports
Bloomberg. According to the report, after this deal, the Uber
Freight division will be valued at USD4 billion. However, no
transaction has been finalized and the terms could change. An Uber
spokesperson said, "While it's not unusual for us to receive
interest for investment in Uber Freight, we are not able to comment
on rumours about these discussions." Uber Freight was launched in
May 2017 as a service that matches truckers with companies needing
cargo to be shipped across the United States. In 2018, Uber
announced that it would spin off its long-haul trucking business,
Uber Freight, into a standalone business unit. In 2019, Uber
Freight announced its expansion into Europe and that it was moving
its headquarters to Chicago (US), with plans to nearly double the
unit's workforce. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Transdev, a public transport operator, is partnering with the
Livermore Amador Valley Transit Authority (LAVTA) in the United
States to launch a non-passenger, shared autonomous vehicle (SAV)
project. The project will involve a low-speed autonomous vehicle
(AV) that will operate in mixed traffic with a safety operator on
board. The vehicle will travel on a 1-mile route that includes two
stops and one traffic light. Following this testing, the project
will provide first- and last-mile passenger rides by connecting
them between the Dublin/Pleasanton Bay Area Rapid Transit (BART)
station and nearby locations. The SAV project has received a grant
from the Bay Area Air Quality Management District. Neal Hemenover,
Transdev's vice-president of innovation, said, "We are excited to
begin testing with LAVTA and bring this area's vision for
autonomous vehicles to life. It's important to note that the health
and safety of our employees, passengers and communities is our
highest priority and all EPA [Environmental Protection Agency] and
CDC [Centers for Disease Control] approved social distancing and
cleaning protocols will be in place during testing, as well as when
we start accepting passengers." (IHS Markit Automotive Mobility's
Surabhi Rajpal)
Brazil reported 45,403 new cases of Covid-19 in a 24-hour
period, pushing the number of infections to more than 2 million.
The death toll rose by 1,322 to 76,688. Brazil trails only the U.S.
on both counts. The country has added 1 million cases in less than
a month in a rapidly shifting outbreak. (Bloomberg)
Sumitomo Chemical's Latin American operation is to invest some
R$50 million (US$10 million) in expanding capacity at its
Maracanau, Brazil plant, national media report. The investment is
to meet anticipated company growth in the region of some 50% by
2025, the reports add. The water-based herbicide concentrate plant
will occupy a 2,000 m2 area with a 60,000 litre/day capacity.
Herbicides including Zethapyr (imazethapyr), ZethaMaxx (imazethapyr
+ flumioxazin) and those based on diuron will be produced there. A
new distribution facility will occupy an operation area of 10,0002.
It will improve the company's responsiveness in transporting
products to markets in the north and north east of the country, in
the "Pimatoba" region of the Piaui, Maranha, Tocantins and Bahia
states. In April, Sumitomo Chemical acquired Nufarm's South
American crop protection and seed treatment business. With the
acquisition of formulation facilities in Brazil coupled with the
research and development facility that Sumitomo opened in Brazil in
2016, the company aims to pursue integrated business operations in
the region from development through to formulation and
distribution. (IHS Markit Crop Science's Robert Birkett)
Argentina's consumer price index increased by 2.2% month on
month during June. The increase in consumer prices was more
pronounced in the clothing and apparel, the leisure and culture,
and the home furnishings and maintenance sectors. (IHS Markit
Economist Paula Diosquez-Rice)
Argentina's inflation rate in June was driven by price
increases in the food and beverages category, with significant
price rises for rice, dairy products, bread and cereals, and
tomatoes (fresh and canned), as well as rises in the recreation and
leisure, clothing and apparel, and the home furnishings and
maintenance sectors. The communications, utilities, and education
sectors reported small increases compared with May.
Prices of regulated items increased by 0.7% month on month
(m/m), while prices of seasonal items increased by 4.8% m/m. The
core inflation rate increased by 2.3% m/m. Meanwhile, wholesale
prices climbed by 36.2% year on year (y/y) in May. The annual
consumer inflation rate in June was 42.8%, a slight deceleration
compared with May.
Inflation expectations for the next 12 months declined in June;
Torcuato Di Tella University reported a median of 40% y/y, down
from 50% in the previous two months. The average annual inflation
rate expected is at 44.5%. However, the inflation expectation
survey by the Central Bank of the Argentine Republic (Banco Central
de la República Argentina: BCRA) shows a median of 52.5% in
June.
Europe/Middle East/ Africa
European equity markets closed modestly lower except for Italy
+0.4%; UK -0.7%, France -0.5%, Germany -0.4%, and Spain -0.2%.
10yr European govt bonds closed higher across the region;
Italy/UK -3bps and Spain/France/Germany -2bps.
iTraxx-Europe closed flat/62bps and iTraxx-Xover
+1bp/367bps.
Bank of England (BoE) Governor Andrew Bailey on 13 July
rejected calls for the London Inter-bank Offered Rate (LIBOR)
transition to new reference rates to be delayed further in response
to the COVID-19 virus pandemic. He stated that the volatility
experienced in financial markets during March as a result of the
pandemic "only reinforces the importance of removing …dependence on
LIBOR in a timely way". His views were reinforced by John Williams,
president of the Federal Reserve Bank of New York, speaking at the
same online event, who repeated that entities need to "be prepared
to manage…[the] transition away from LIBOR", urging against delays
that could "make the existing hole we're trying to climb out of
even deeper". The statements by senior representatives of the
Federal Reserve Bank of New York and BoE continue to indicate a
clear regulatory desire to promptly replace LIBOR with more liquid
and representative reference rates. Bailey specifically warned that
all borrowings extending beyond 2021 need to consider the greater
certainty offered by the migration to new reference rates, and that
those continuing to use LIBOR would need to prepare for its
termination. (IHS Markit Economist Brian Lawson)
The European Central Bank's (ECB) statement following its
latest policy meeting did not contain any radical changes. Although
its assessment of the economy reflected some recent signs of
improvement, it remained rather cautious overall. (IHS Markit
Economist Ken Wattret)
By way of example, although incoming information since the
prior policy meeting in early June has signaled a resumption of
economic activity, it remains "well below" the levels prevailing
before the COVID-19 virus pandemic and the outlook remains "highly
uncertain".
The recovery in May and June's high-frequency and survey data
was described as "uneven and partial".
Actual and expected job and income losses and "exceptionally
elevated" uncertainty are expected to continue to weigh down on
consumer spending and business investment.
Headline inflation is being dampened by lower energy prices and
price pressures are expected to remain "very subdued" given the
sharp decline in output and the associated "significant increase"
in economic slack.
Weaker demand will put downward pressure on inflation, which
will be only partially offset by upward pressures related to supply
constraints.
Market-based indicators of longer-term inflation expectations
have continued to increase from the historical lows reached in
mid-March but overall remain at subdued levels.
Against this backdrop, the ECB reiterated the need for ample
monetary stimulus and restated that the Governing Council continues
to stand ready to adjust "all of its instruments, as appropriate",
to ensure that inflation moves towards its aim in a sustained
manner, in line with its commitment to symmetry.
One notable addition to the ECB's statement was a reference to
the "very high take up" in the latest instalment of the third
series of targeted longer-term refinancing operations (TLTRO III).
In addition to highlighting that the ECB is doing its job in
providing substantial cheap funding to banks to keep the flow of
credit to the economy going, the reference might also be aimed at
calming any concerns stemming from one aspect of the recent bank
lending survey (BLS) for the second quarter.
The BLS suggested that banks intend to tighten credit standards
for loans to enterprises in the third quarter, due in part to the
expiry of governments' loan guarantee schemes (see Eurozone: 14
July 2020: Eurozone credit conditions for loans to enterprises
remain relatively loose in Q2, while emergency liquidity needs
continue to surge).
A significant tightening of credit conditions would be a major
concern given the huge demand for loans from businesses currently,
reflected in hard lending data as well as the BLS. Growth in bank
lending to non-financial corporations has surged since March, with
the year-on-year (y/y) rate of increase more than doubling to over
7%.
While acknowledging the slower pace of asset purchases, this
was attributed to the flexibility of the PEPP to respond to market
conditions, while it was made clear that under the baseline
scenario, the ECB would use the full envelope of purchases. Only in
the event of a significant upward surprise in the outlook for the
economy would this not be the case.
French inflation, measured by the EU-harmonized index, eased
from 0.4% in April and May to 0.1% in June, according to a final
estimate released by the French National Institute of Statistics
and Economic Studies (INSEE). June's reading was the lowest since
May 2016. (IHS Markit Economist Diego Iscaro)
Energy prices continued to be the main drag on inflation (see
chart 1). However, they declined at a slower rate compared with May
(by -9.3% compared with 11.0% in June). Given IHS Markit's
oil-price projections (oil prices are highly correlated with energy
prices; see chart 2), it is likely that the decline in oil prices
had peaked in May for this cycle.
Food price inflation continued to outperform the average but
eased from 3.5% to 2.6%, a three-month low. This helps to explain
the fall in the inflation rate vis-à-vis May.
Core inflation fell from 0.6% in May to 0.3% in June. Service
price inflation moderated from 1.2% to 1.1%, as lower communication
costs more than offset large increases in transport prices. The
prices of manufactured goods declined at a slightly stronger pace
in June (by -1.0% y/y following -0.7% y/y). The prices of clothing
and footwear continued to be a major drag, waning by 4.0% y/y.
IHS Markit expects inflation to remain subdued during the
second half of 2020, although June's inflation is likely to be the
cycle's trough.
France's President Emmanuel Macron addressed the French nation
on Bastille Day, 14 July, outlining a plan to support the country's
economic recovery and stating his policy objectives for the second
half of his mandate. New Prime Minister Jean Castex set out his
government's program on 15 July. (IHS Markit Economists Diego
Iscaro and Bibianna Norek)
Economic recovery, unemployment mitigation efforts, support for
the healthcare sector, and climate transition will remain key
policy priorities in the 18-month outlook, following the COVID-19
virus outbreak. President Macron announced the planned allocation
of EUR100 billion (USD114.1 billion) to fund France's economic
recovery, in addition to the EUR460 billion already designated for
this purpose.
A resumption of the pension reform would increase the risk of
trade unions staging disruptive labor strikes and associated
protests in Paris and other French cities.
Supporting the economic recovery is key, but fiscal space is
limited. The sharp fall in France's GDP, currently projected to be
around 10% in 2020, and the large fiscal support needed to
counter-balance the economic impact of the COVID-19 virus pandemic
are expected to cause a fiscal deficit, as a percentage of GDP, of
12.2% in 2020, from 3.0% in 2019. Macron has ruled out tax
increases at this stage, but it is likely that the expected removal
of housing tax for high-earners, currently slated for 2021, is
unlikely to go ahead.
The current post-COVID-19 virus incentive program launched by
the German government has created an environment in which some
electric vehicles (EVs) can be leased almost for nothing, according
to a Bloomberg report. The news agency reports that German
dealership chain Autohaus Koenig has been advertising a lease deal
for the Renault Zoe EV for which subsidies entirely cover the
monthly payment. This includes the impact of the EUR9,000
(USD10,266) government- and OEM-paid subsidy on the initial
purchase price of the leased vehicle from the OEM and other
subsidies and tax breaks for company car users. In addition, online
German automotive trading web startup Carfellows is offering the EV
version of the Smart ForTwo for a fee of just EUR9.90 a month. (IHS
Markit AutoIntelligence's Tim Urquhart)
Lanxess announced today that it is reorganizing its water
treatment portfolio to focus on ion exchange resins, particularly
on high-end market applications. As part of this realignment,
Lanxess is selling its reverse osmosis membranes business to Suez,
a leader in sustainable resource management. The companies signed
the deal on Wednesday and expect the transaction to be completed by
the end of 2020. Financial details were not disclosed. Lanxess
produces reverse osmosis membranes, which play an important role in
the treatment of brackish and seawater, at its site at Bitterfeld,
Germany. Suez will take over this plant and the research facilities
with all the employees. In 2019, the business generated sales in
the low-double-digit million euro range, Lanxess says. At the same
time, Lanxess plans to beef up its ion exchange resins business.
The company plans to invest between €80 million and €120 million to
build a new production facility in the next few years. "We [will]
invest in additional capacities for ion exchange resins in order to
be able to meet the growing global demand. At the same time, we
want to grow especially in promising market segments," said
Matthias Zachert, chairman of the board of Lanxess. Ion exchange
resins are used in cleaning processes in the food and
pharmaceutical industries. In the semiconductor industry, they play
a key role in the production of ultrapure water, which is needed in
microchip production. There is also a high demand for ion exchange
resins in the battery industry due to the trend toward e-mobility.
They are also used to extract lithium, nickel, and cobalt metals,
which are important for battery cell production. Ion exchange
resins are also used in power generation, the chemical industry,
microelectronics, and drinking water treatment.
Finnish industrial output continued to contract in May,
decreasing by 3.8% year on year (y/y) according to
calendar-adjusted data from Statistics Finland. Coming after a
downwardly revised easing of 4.1% y/y in April, this brought the
decline for the January-May period to 1.7% y/y. (IHS Markit
Economist Venla Sipilä)
Seasonally adjusted figures showed a fall of 1.2% month on
month (m/m) in May, after an April decline of 2.7% m/m.
Aided by a base effect, the mining sector switched to annual
growth in May, while among the most important manufacturing
sectors, only the metal branch managed to grow. Along the lines of
April's developments, the chemical industry fared particularly
weakly, contracting by 11.0% y/y and 9.8% m/m.
Finnish Customs reported that goods exports in May collapsed by
30.9% y/y according to preliminary data, while they fell by 17.9%
y/y in January-May. The corresponding decreases for imports were
26.3% y/y and 12.7% y/y.
Consequently, following a temporary surplus in April, the trade
balance in May showed a deficit of EUR280 million (USD320 million),
which compares unfavorably with virtually balanced trade in May
2019, while the January-May deficit of EUR1.5 billion (USD1.7
billion) represents a dramatic widening from a shortfall of just
EUR65 million in the same period a year earlier.
Similar to April, both exports and imports contracted in May,
mainly as a result of significantly falling values for trade of
transport equipment (exports fell 70% y/y) and oil and oil products
(exports decreased 52% y/y). In addition, forestry industry exports
fell significantly, as did exports of machinery and equipment.
Exports to other EU countries declined at an accelerated rate
of 31.7% y/y in May, while the contraction in extra-EU exports
quickened to 30.0% y/y. In particular, exports to Germany collapsed
by nearly 52%, exports to Russia halved, while exports to the
United States dwindled by more than 45% y/y.
Ford Otomotiv Sanayi (Ford Otosan), a joint venture (JV)
between Ford Motor and Koç Holding in Turkey, has announced the
signing of an agreement with the International Finance Corporation
(IFC), a member of the World Bank Group, for a USD150-million loan.
In addition, Ford Otosan has announced the suspension of production
for maintenance at Ford plants in Turkey. The JV, in a filing with
Borsa Istanbul (BIST), said it will use the loan for vehicle
development and production facility investments to improve
efficiency and capacity, and for modernisation of the facility. The
loan has six-year term, and comes with a two-year grace period.
According to the statement, "Principal and interest payments will
be made semiannually. Indicative annual interest rate excluding
bank charges is 2.15% and final rate will be determined at the date
of disbursement which is planned to be before September 2020."
Meanwhile, Ford Otosan also announced the suspension of production
at Ford's Yenikoy and Eskisehir plants in Turkey from 30 July to 13
August and at the Golcuk plant from 30 July to 15 August for
maintenance work. In a statement, the company said, "There will be
a shutdown period in our plants due to scheduled annual vacation.
During this time periodical maintenance will take place in all our
plants." (IHS Markit AutoIntelligence's Tarun Thakur)
As per IHS Markit's Commodities at Sea, during the week 28,
Richards Bay Coal Terminal coal shipments slipped to 1.2mt (5.3mt
on the 30-day basis) versus 1.8mt (7.9mt on the 30-day basis) a
week before. The shipping schedule for RBCT was quite slow during
the reported week. However, in the second half of the month,
significant tonnage is expected to be loaded at the coal terminal.
During the reported week, Transnet railings were calculated at
1.3-1.4mt (vs 1.4-1.5mt a week before), and coal stocks at the
terminal firmed up to 4.1mt from 3.8mt a week before. During 01-14
days of July 2020, RBCT shipped just 2.4mt (5.2mt on the 30-day
basis) with shipments to India, Pakistan, Vietnam, and Korea
(South) at 0.9mt (1.9mt on the 30-day basis), 0.5mt (1.2mt), 0.2mt
(0.4mt) and 0.2mt (0.3mt), respectively. (IHS Markit Maritime and
Trade's Rahul Kapoor and Pranay Shukla)
Asia-Pacific
Most APAC equity markets closed lower, except for India +1.2%;
Shanghai Composite -4.5%, Hong Kong -2.0%, Japan/South Korea -0.8%,
and Australia -0.7%.
China's economy has returned to growth. Real GDP rose 3.2%
year-on-year (y/y) in the second quarter, up from 6.8% y/y decline
in the first quarter. (IHS Markit Economist Todd Lee)
Secondary sector (industry and construction) grew 4.7% y/y in
the second quarter, up from 9.6% contraction in the first
quarter.
Service sector rose 1.9% y/y in the second quarter, compared
with 5.2% y/y decline in the first quarter.
For the first half of 2020, real GDP contracted by 1.6% y/y,
secondary sector declined 1.9% y/y, and service sector fell 1.6%
y/y.
The recovery has remained uneven throughout the second quarter,
with supply outpacing demand and investment outdistancing
consumption. Industrial output grew 4.8% y/y in June, while service
sector output index rose 2.3% y/y.
Fixed asset investment rose 1.1% y/y in June (calculated from
the year-to-date investment spending data), while retail sales
remained in contraction, falling 1.8% y/y.
Exports have been resilient amid extremely negative external
conditions. Goods exports rose 0.1% y/y in the second quarter,
compared with first quarter's 13.3% y/y plunge that was largely
caused by China's COVID shutdown.
The expected export tsunami from the deep world recession has
not materialized so far. Compared with IHS Markit's Global
Composite Purchasing Managers Index (excluding China), the export
orders index of the Caixin China PMI (by IHS Markit) suffered a
much shallower drop. This is a reversal of the Great Financial
Crisis downturn in which China's export orders fell more sharply
than the global PMI. A key factor for the less severe than expected
exports decline in the current downturn is that the COVID world
recession is heavily concentrated in the service sector, which is
much less open to trade.
China's economic recovery should continue in the second half of
2020. Periodic small-scale COVID-19 outbreaks are probably
inevitable. But with China's newly established capacity for large
scale COVID testing and infrastructure for contact tracing, these
outbreaks should be quickly contained and will not impact overall
economic activities. But without a vaccine and effective treatment,
the threat of COVID-19 infection will keep the economic recovery
subdued.
Shenzhen (Guangdong Province) steps up restrictive measures for
local property market in a notice issued by local housing and
construction bureau on 15 July. Last major adjustment in
transaction policies was announced back in 2016. (IHS Markit
Economist Lei Yi)
Adjustments mainly aimed at increasing transaction costs to
cool down the demand of those buying for profit rather than
residential purposes. The move could help stabilize near-term local
housing price growth, though upward pressure persists given the
relative supply shortage
According to the latest policy, home buyers need to have
obtained local residency registration (known as "hukou") and paid
income tax or social security for three consecutive years to be
eligible for making a purchase in Shenzhen. While formerly for
attracting skill workers, Shenzhen used to make newcomers eligible
for buying immediately after getting the local residency
status.
Down payment was raised by 10% for non-first-time buyers trying
to purchase a "luxury" apartment and kept unchanged for non-luxury
purchases. For those with a mortgage record yet no homeownership in
the city, down payment was raised to 60%; for those trying to buy a
second home, down payment now stands at 80%. Housing ownership
before divorcement will also be taken into consideration, making it
no longer possible for couples to exploit the policy loophole.
The definition for "luxury" apartments was modified to
re-include the price element, which was only removed at the end of
2019. The new "luxury" line has been raised and set at CNY7.5
million (USD1.07 million).
For home resale, non-luxury apartments need to be owned by at
least five years to be applicable for capital gain tax exemptions,
up from two years previously.
Shenzhen becomes the fourth city to impose tighter housing
transaction restrictions entering July, following Dongguan
(Guangdong Province), Hangzhou, and Ningbo and appears to be
strictest of all.
Imported vehicle sales in the Philippines plunged by 54.8% year
on year (y/y) to 19,455 units during the first half of 2020,
reports The Philippine Star, citing data released by the
Association of Vehicle Importers and Distributors (AVID). (IHS
Markit AutoIntelligence's Jamal Amir)
Imported passenger vehicle sales totaled 6,111 units during the
first half of the year (down by 60.0% y/y), imported light
commercial vehicle (LCV) sales stood at 13,207 units (down by 51.6%
y/y), and imported medium and heavy commercial vehicle sales fell
by 72.8% y/y to 137 units.
AVID president Ma. Fe Perez-Agudo said "While AVID members and
their partner dealerships have gone to great lengths to COVID-proof
their facilities, strengthen online e-commerce assets, and offer
extraordinary promotions and deals to win back customers and
encourage buying, headwinds remain. These include lower
remittances, weaker demand, and the prospect of a second wave, so
we can't let our guard down."
Subsea 7 has been awarded a renewables contract for work
offshore Taiwan. The contract, valued at between USD50 million and
USD150million, covers installation of a submarine cable system on
an offshore windfarm project for an unnamed client. Project
engineering will begin immediately at Subsea 7's offices in Leer,
Germany, and Taipei, Taiwan. Offshore activities are expected to
begin in 2023. (IHS Markit Upstream Costs and Technology's Mark
Rae)
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