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Today, most major equity markets closed higher across the globe,
with multiple US indices closing at new record highs. Benchmark
European and US government bonds closed mixed, while iTraxx and CDX
closed tighter across IG and high yield. The US dollar was slightly
lower on the day, with oil, gold, and silver all closing
higher.
Americas
US equity markets closed higher today; Russell 2000 +2.4%, DJIA
+1.6%, S&P 500 +1.2%, and Nasdaq +0.8%, with all, but the
Nasdaq, reaching new record high closes.
Today's announcement that Tesla will enter the S&P 500 on
Dec. 21 follows months of speculation, and one temporary setback,
after the stock failed to make the cut during the index's quarterly
rebalancing in early September. The anticipation has helped drive a
nearly fivefold rally in the stock this year, making the Palo Alto,
California-based electric vehicle pioneer the biggest company ever
to be added to the gauge, at nearly $390 billion of market value.
It will also be one of the index's most influential constituents
with a weighting that falls around those of Berkshire Hathaway
Inc., Johnson & Johnson and Procter & Gamble Co.
(Bloomberg)
The below chart gauges changes in COVID-19 sentiment across the
US equity markets by measuring the difference between Nasdaq
Composite and Russell 2000 daily performance. The grey bars
represent Nasdaq minus Russell 2000 daily performance and the green
line is the one-month average of the difference, with a value
greater than zero indicating more affinity to sectors that are
defensive to increases in COVID-19 concerns (ie. technology) and
values below zero indicate perception of improving conditions (ie.
positive vaccine trials) and increased government stimulus that
would particularly benefit smaller companies. The 1mo avg index
reached an almost two year low of -0.43% on 10 November and closed
at -0.32% today.
10yr US govt bonds closed flat/0.90% yield and 30yr bonds
closed +2bps/1.67% yield.
CDX-NAIG closed -2bps/52bps and CDX-NAHY -14bps/327bps.
DXY US dollar index closed -0.2%/92.55.
Gold closed +0.1%/$1,888 per ounce and silver +0.1%/$24.80 per
ounce.
Crude oil closed +3.0%/$41.34 per barrel.
Moderna Inc. said its experimental coronavirus vaccine was
94.5% effective at protecting people from COVID-19 in an early look
at pivotal study results, the second vaccine to hit a key milestone
in U.S. testing. Ninety-five people in the study developed Covid-19
with symptoms; of those, 90 had received a placebo and only five
Moderna's vaccine. The findings, from a 30,000-subject trial that
is still under way, move the vaccine closer to wide use, because
they indicate it is effective at preventing disease that causes
symptoms, including severe cases. (WSJ)
California will put more than 94% of its population in its most
restrictive tier for coronavirus limits after a surge in cases that
is "simply without precedent," Governor Gavin Newsom said Monday.
Effective Tuesday, the state is moving 28 counties into the purple
category in its four-tier system, indicating widespread
transmission and requiring many indoor businesses to close. The
regions affected include most of the San Francisco Bay area, San
Diego and more rural counties. Los Angeles, the epicenter of the
state's outbreak, has always been in the tightest category.
(Bloomberg)
The count of seated diners on the OpenTable platform averaged
over the last seven days was about 47% below the year-ago level.
This was a slight improvement over the prior week's average of 48%
down, but worse than readings around 40% down just one month ago.
(IHS Markit Economists Ben Herzon and Joel Prakken)
The chair of the California Air Resources Board (CARB), Mary
Nichols, has said that emissions targets agreed between the state
and automakers could be a template for future US federal standards.
Reuters quoted her as stating that this "is a good template and
then we should be moving on to the next generation of regulation."
On the question of future CAFE fuel efficiency stands, she said
that they should be increased, but added that they are "not the
most relevant tool for dealing with the future of transportation in
this country or globally… Our future is not with the internal
combustion engine." Nichols, who has been linked as a candidate for
membership of US President-elect Joe Biden's Environmental
Protection Agency (EPA), declined to say whether she was being
vetted for a role, but added, "I have said that I am very
interested but I think I also just need to make clear that I am
interested in volunteering to do anything that is of service to the
new administration." Nichols also suggested that there is "a huge
volume of stuff that needs to be reversed and repudiated" by the
new administration's EPA, but that some of the current policies
could be undone "informally" through "negotiation and good will."
(IHS Markit AutoIntelligence's Ian Fletcher)
Uber Technologies has entered into negotiations to sell its
autonomous vehicle (AV) unit, Uber Advanced Technologies Group
(ATG), to AV startup Aurora Innovation, reports TechCrunch.
According to the report, the companies have been in negotiations
since October. If the deal goes ahead, it will enable Aurora to
triple its headcount and Uber to unload its heavy-cash-burning
division. Uber is now concentrating on profit over growth as it is
under pressure from investors to be profitable. The company is
refocusing on its core businesses, including ride-hailing and food
delivery, since the coronavirus disease (COVID-19) virus pandemic.
Uber's development of AV technology slowed because of a number of
factors, including a fatal pedestrian accident in March 2018 in
Arizona, United States, and a change of the company's leadership
from founder Travis Kalaneck to Dara Khosrowshahi. In 2019, Uber
ATG raised USD1.00 billion, at a valuation of USD7.25 billion, from
Toyota, Denso, and SoftBank Vision Fund. Meanwhile, Aurora is
seeking partnerships with automakers to integrate its AV technology
into vehicle platforms. The company has recently attracted several
clients, including Hyundai Group, Fiat Chrysler Automobiles, and
Volkswagen. Aurora has AV operations in the US cities of Palo Alto,
Pittsburgh, and San Francisco and recently expanded its testing to
the US state of Texas. Aurora has received a three-year permit from
the California Public Utilities Commission to conduct passenger
rides in its fleet of driverless vehicles. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
US consumers bought 32.40 million gallons of orange juice in
the four weeks to 31 October, the first report of the new season.
By value, this represented an increase of 12% over 28.76 million
gallons in the same period last year. Value sales were USD234.47
million, compared with USD202.86 million. The key NFC sector was up
almost 20% by volume to 19.54 million gallons (16.42 million
gallons last season), worth USD168.80 million. Frozen orange juice
has continued its run with an increase in volumes of 11% to 930,000
gallons (840,000 gallons last season) and a value rise of nearly
14% to 5.10 million gallons (4.48 million gallons). Frozen orange
juice was almost extinct before the pandemic but has enjoyed a
renaissance since, even though volumes are small. It is the perfect
long-life juice product. (IHS Markit Food and Agricultural
Commodities' Neil Murray)
Sasol has achieved beneficial operation of the final plant at
its Lake Charles Chemicals Project (LCCP) in Louisiana, bringing
the overall complex to full completion. The startup on 15 November
of the 420,000-metric tons/year low-density polyethylene (LDPE)
unit, which was damaged in a fire during commissioning in January,
is the last of seven plants to be brought into operation. Total
capital expenditure (capex) on the LCCP is forecast to be within
the previously issued guidance of $12.8 billion, Sasol says.
Beneficial operation signals that 100% of total nameplate capacity
of the LCCP is operational, it says. All units at LCCP that were
operating prior to Hurricane Laura have returned to operation, with
no further operational impact from Hurricane Zeta, Sasol adds. Main
power to the site was lost in late August after the arrival of
Hurricane Laura. When Sasol made its original final investment
decision for the LCCP in 2014, capex was estimated at $8.9 billion,
but the figure was increased several times. Sasol entered into a
$2.0-billion JV agreement for LyondellBasell to acquire a 50% stake
in three of the LCCP base chemicals units. (IHS Markit Chemical
Advisory)
Ford is considering making its own battery cells, reports
Reuters. The automaker's CEO, Jim Farley, said at the Reuters
Automotive Summit teleconference that Ford is discussing battery
manufacturing and he believes "that's natural as [electric vehicle,
EV] volume grows". However, he shared no further details on the
topic. Farley appears to have only given a general statement
hinting that the automaker is weighing up whether to invest in its
own battery manufacturing capability. As battery cells represent
the most important and highest-cost components of EVs, automakers'
investment in in-house battery know-how is considered critical in
maintaining leadership in the EV sector. Compared to its US
counterpart General Motors (GM), Ford's currently planned portfolio
of pure EVs is much smaller. Therefore, investment in the field of
battery manufacturing would need to be justified with a product
plan involving scaling up production of EVs. (IHS Markit
AutoIntelligence's Abby Chun Tu)
Ford will launch the E-Transit electric commercial van by the
end of 2021 in the US and early 2022 in Europe. The E-Transit
program leverages Ford's commercial vehicle leadership with
innovative solutions enabled by the EV configuration and the
company's work with telematics and connected vehicle fleet
solutions. Since 2017, Ford has been explaining how it will build
on its strengths in the commercial space and integrate new
technology and propulsion system. The E-Transit reveal reflects
Ford's deep understanding of commercial vehicle needs and provides
tangible evidence that its efforts to create a more innovative
environment is resulting in promising new vehicle solutions. (IHS
Markit AutoIntelligence's Stephanie Brinley)
General Motors (GM) has recalled 68,677 units of its Chevrolet
Bolt electric vehicles (EVs) globally over a potential battery fire
risk, reports Reuters. The recall affects model year (MY) 2017-19
Bolt EVs equipped with high-voltage batteries produced at LG Chem's
Ochang (South Korea) facility. Of the total, the automaker has
recalled 50,932 units in the US, and the rest are in other markets.
GM said the vehicles pose a fire risk when charged to full, or
nearly full capacity. It had developed software that will limit
vehicle charging to 90% of full capacity to mitigate the risk,
while it determines the appropriate final repair. Dealerships will
update the vehicle's battery software beginning next week.
Meanwhile, LG Chem said, "We will cooperate with GM and sincerely
proceed with an investigation to identify the exact cause of fire".
Vehicle recalls have become more frequent in recent years because
of a more proactive approach from automakers following a series of
industry-wide scandals, as well as greater official vigilance. The
recall comes after five fires and two minor injuries have been
reported. (IHS Markit AutoIntelligence's Jamal Amir)
At its monthly monetary policy meeting in November, the Central
Reserve Bank of Peru (Banco Central de Reserva del Perú: BCRP)
opted to hold its benchmark policy rate at 0.25% for the seventh
consecutive month. (IHS Markit Economist Jeremy Smith)
In view of below-target inflation and economic activity levels
below pre-crisis levels, the central bank continues to provide
aggressive monetary stimulus to help sustain the Peruvian economy
through the ongoing crisis. The BCRP lowered the policy interest
rate by a combined 200 basis points in March and April to arrive at
the current level.
Nonetheless, real interest rates have inched further into
negative territory as the bank's continued commitment to
expansionary policy begins to lift inflation expectations closer to
the 2% target rate.
In addition, as of 11 November, the BCRP has injected PEN61.7
billion worth of liquidity into the economy, PEN50.2 billion of
which are government-backed repo operations. These measures boosted
private-sector credit by 14.1% year on year in September, the
largest such increase among major Latin American economies.
The BCRP advises that a stance supportive of strong monetary
expansion may be required for a "prolonged period" while the
effects of the COVID-19 virus continue to exert downward pressure
on inflation. IHS Markit currently forecasts a 1.72% increase in
the consumer price index for 2020 and we expect the policy interest
rate to remain at the current level until late 2021.
At the same time, fiscal support remains strong as the
government implements a USD25-billion stimulus package. In
addition, the government is weighing new proposals to support
households with early withdrawals from private and public pension
funds. If implemented, these measures would add to a fiscal
response that is already among the most ambitious in the region,
although the effects would not directly benefit the large informal
sector. However, the 10 November impeachment of now
former-president Martín Vizcarra has added greater uncertainty to
the policy direction.
Argentina's Minister of Economy Martín Guzmán confirmed on 12
November that the government will not extend COVID-19-virus-related
assistance programs into 2021. These include emergency handouts to
families (Ingreso Familiar de Emergencia: IFE) and financial aid to
help private companies, particularly small and medium-sized
enterprises (SMEs), to pay salaries (Asistencia de Emergencia al
Trabajo y la Producción: ATP). Instead, the government announced
the strengthening of existing non-COVID-19-virus-related social
programs, such as a job promotion scheme and child benefit. The
announcement came while the government is renegotiating a
USD44-billion loan with the International Monetary Fund (IMF). The
umbrella labor union the General Confederation of Labour
(Confederación General del Trabajo: CGT), traditionally an ally of
the ruling Peronist party, criticized the cuts. Strikes and
protests are likely to increase in the coming months while
negotiations with the IMF are ongoing. President Alberto Fernández
has ruled out accepting deep spending cuts or structural reform on
pensions, labor or taxes as conditions of a new IMF deal. However,
gradual spending cuts are likely, with the government proposing a
primary fiscal deficit of 4.5% of GDP in 2021 (down from 6.6%) and
it is likely to accept a slightly lower target. Changes to the way
pensions are calculated are also being discussed and opposed by the
CGT. This increases the likelihood of the CGT calling for a general
strike in the next few months, causing major disruption to
transport, commerce, and government services for 24 to 36 hours,
particularly in Buenos Aires, but also other cities, such as
Córdoba, Rosario, and Santa Fe. Delays at ports in Rosario and
Buenos Aires are also likely. (IHS Markit Country Risk's Carla
Selman)
Europe/Middle East/Africa
European equity markets closed higher across the region; Spain
+2.6%, Italy +2.0%, France/UK +1.7%, and Germany +0.5%.
10yr European govt bonds closed mixed; UK +1bp, Germany/France
-1bp, and Italy/Spain -2bps.
iTraxx-Europe closed -2bps/50bps and iTraxx-Xover
-14bps/285bps.
Brent crude closed +2.4%/$43.82 per barrel.
The UK government is preparing to outline plans to end the sale
of gasoline (petrol) and diesel ICE passenger cars in the country.
According to a report by The Financial Times, the measures will be
announced as part of a wider package of environmental initiatives
in the United Kingdom. Sources told the newspaper that the UK
government intends to pull forward an earlier stated deadline to
2030 as a way of accelerating the market growth of battery electric
vehicles. However, the sources added that hybrids and plug-in
hybrids are set to remain on sale until 2035, according to the
report. An earlier government statement had announced the intention
to end the sale of ICE light vehicles in the UK by 2040. However,
Prime Minister Boris Johnson revealed earlier this year that the
country was planning to pull forward this target to 2035, although
comments and previous reports have suggested that this could take
place even earlier. Having undertaken a consultation on the matter,
the final announcement has been delayed by the COVID-19 virus
pandemic. The report suggests that an announcement could come this
week, although it remains to be seen whether this will be affected
by the current self-isolation of Prime Minister Johnson following
exposure to the COVID-19 virus last week. Although beneficial to
the country's vehicle emissions targets, the banning of the sale of
new passenger cars using ICEs within 15 years raises questions over
what this will mean for the UK Treasury, which raised GBP27.9
billion through duty in the financial year 2017/18, according to
the Office of Budget Responsibility. However, The Times reports
that Chancellor of the Exchequer Rishi Sunak is said to be "very
interested" in the idea of a national road-pricing scheme to make
up for this shortfall. (IHS Markit AutoIntelligence's Ian
Fletcher)
The Volkswagen (VW) Group has outlined enhanced spending plans
for its electric and autonomous vehicle program as part of its
latest corporate planning round, which will commit EUR73 billion in
the next five years, according to a company statement. The plans
will cover electrification, autonomy and digitization, with a
renewed focus on the latter as VW steps up efforts to ensure its
digital platforms and operating systems can be a match for the
likes of Tesla and potential tech disruptors that are eyeing the
automotive and mobility spaces. As a result, investment in
digitization will be doubled over the next five years to EUR27
billion. The other big headline is that the share of investments in
future technologies has been raised to about 50% of the total
EUR150 billion, from 40% in the previous planning round. Out of the
EUR73-billion investment in addition to the EUR27 billion on
digitization, EUR11 billion will be spent on hybridization and
EUR35 billion on electromobility. This planning round assumes that
VW's production of full battery electric vehicles (BEVs) will stand
at 26 million by 2030. Some 19 million of these vehicles will be
based on the Modular Electric Drive Toolkit (MEB), with most of the
remaining 7 million to use the high-performance PPE platform. The
Group estimates production of around 7 million hybrid vehicles over
the same period. (IHS Markit AutoIntelligence's Tim Urquhart)
SGL Carbon SE, which manufactures carbon fibre reinforced
plastic (CFRP) components for BMW Group, is looking to shed 500
jobs as response to diminishing interest in its products, according
to a Bloomberg report. SGL has also been hit hard by the decline in
the aerospace industry during the coronavirus disease 2019
(COVID-19) virus lockdown period, a sector to which it also
supplies a lot of components. The company will book an impairment
of as much as EUR100 million (USD118 million) in the fourth
quarter, while lowering its headcount at the same time. BMW
invested in SGL Carbon in 2011 as it wanted to secure a supply of
CFRB to trim the weight of models such as the i3 electric vehicle
(EV) hatchback and i8 plug-in hybrid (PHEV) sports car. But while
the material is lighter and stronger than steel, it is cost- and
labor-intensive to produce. In 2017, BMW announced that it was
divesting its 49% stake in its joint venture (JV) with SGL Carbon
SE, SGL Automotive Carbon Fibers GmbH & Co. KG (Germany) and
SGL Automotive Carbon Fibers LLC. At the time, BMW was quick to
state that it would remain a customer for SGL for CFRP components,
as its forthcoming iNEXT flagship uses the technology on a
comprehensive basis. However, it appears that the car that the
iNEXT has become, the recently announced iX, will not feature an
extensive use of CFRP in its structure. (IHS Markit
AutoIntelligence's Tim Urquhart)
UCB Pharma (Belgium) has acquired gene therapy development
company Handl Therapeutics (Belgium) for an undisclosed sum. The
purchase marks a major step forward for UCB's planned expansion of
its research and development (R&D) pipeline and existing
programs in the gene therapy field. Handl will bring expertise in
adeno-associated virus (AAV) capsid technology in vivo gene
therapies in neurodegenerative disease areas. In the same vein, UCB
has also announced a new research and licensing collaboration pact
with gene therapy start-up Lacerta Therapeutics (US), with a focus
on AAV-based central nervous system (CNS) gene therapies. The
collaboration deal gives Lacerta responsibility for conducting
preclinical research, as well as early-stage manufacturing
processes development. For its part, UCB will take responsibility
for early-stage studies, a new investigational drug application,
and manufacturing and clinical development. (IHS Markit Life
Sciences' Eóin Ryan)
The "flash" estimate by the Russian Federal State Statistical
Service includes only one figure, while the detailed breakdown of
the expenditure components will not be available until 30 December.
(IHS Markit Economist Lilit Gevorgyan)
However, the available high-frequency data suggests that
recovering consumer spending had a significant contribution to
moderating annual losses in the real GDP.
Specifically, retail sales turnover fell only by 2.5% y/y in
the third quarter, compared to 16.7% y/y decline in the previous
period when the sector felt the brunt of the lockdown to contain
the COVID-19 virus.
Paid services continued their double-digit fall during
July-September, down by 18.8% y/y. However, the contraction was
milder when compared to the fall of 37.3% y/y in the second
quarter.
Service-sector sentiment, captured by the IHS Markit PMI
survey, shows a decisive improvement in the performance of the
index. The index remained in growth territory in the third quarter,
with its quarterly headline figure averaging at 56.8, contrasting
sharp contraction in the previous quarter, when the index averaged
at 31.9.
Conversely, industrial output troubles persisted due to the
implementation of the crude oil production cuts as part of the
OPEC+ deal. The quarterly average fall of the sector in the third
quarter stood at 5.0% y/y, compared to 6.5% y/y fall in the
previous quarter.
Recovering domestic demand helped the Russian manufacturing
sector, which even posted a timid 0.4% y/y growth in August. IHS
Markit Manufacturing PMI index recovery from a quarterly average of
38.9 in the second quarter of 2020 to 49.4 in the third
quarter.
The recovery in the third quarter was stronger than expected,
but the available data suggest that the momentum had not been
sustained at the start of the last quarter of the year.
Despite lost exports of goods and services, Slovenia's
current-account surplus continued to grow sharply against
year-earlier levels throughout the first three quarters of 2020.
External debt rose sharply over the course of the first nine
months, however, even as the current account remained firmly in the
black. (IHS Markit Economist Andrew Birch)
After posting another large surplus in September, the
cumulative surplus through the first three quarters reached
EUR2.480 billion, up by more than EUR400 million year on year
(y/y). In particular, the merchandise-trade surplus has grown
sharply over the course of 2020, up by nearly EUR900 million y/y as
of September.
The surge of the merchandise trade surplus has been a result of
moderating export losses and severe import contraction (see
Slovenia: 11 November 2020: Slovenia's industrial recovery falters
in September, even as export losses continue to moderate). The
current-account surplus has expanded even as the severe loss of
service exports has slashed the services surplus.
After a surge of portfolio investment inflows early in 2020,
Slovenia saw a net outflow of portfolio investments every month
since June. While the country may register a net inflow of
portfolio investment for the year as a whole, these net outflows
are likely to continue through the rest of the year.
Import demand will remain extremely weak through the end of the
year, exacerbated by the recent ramping up of lockdown measures
against the background of a second wave of COVID-19. Even as the
services surplus is severely undermined, IHS Markit anticipates
that the current-account surplus will reach nearly 6% of GDP in
2020, up from the reported 5.6%-of-GDP surplus in 2019.
The Turkish economic recovery continued throughout the third
quarter. Expansionary monetary policy and comparatively lax
anti-pandemic lock-downs contributed to both industrial production
and retail trade gains through September. A growing likelihood of a
sharp tightening of monetary policy in the fourth quarter will
bring these gains to a halt. (IHS Markit Economist Andrew Birch)
In September 2020, Turkish industrial production grew by 1.7%
month on month (m/m) in seasonally and calendar adjusted terms.
After a plunge of output in March-April 2020, industrial production
recovered strongly in May-June, returning total output to
pre-pandemic levels as of July. Since mid-year, m/m industrial
gains have slowed, but total output remains well up from
year-earlier levels.
In the third quarter, a moderation of export losses lowered the
barrier to the recovery of industrial activity. After plunging by
more than 26% year on year (y/y) in nominal dollar terms in the
second quarter, total exports slipped by only 2.4% y/y in the third
quarter.
Without export losses dragging down demand for industrial
activity as strongly, sustained strong domestic demand expansion
provided a strong lift to industrial activity. Domestic credit was
up by nearly 39% y/y as of end-September - rising from around 25%
y/y as of end-June - providing impetus domestic demand for
industrial activity.
Strong credit expansion also fueled the strong retail trade
activity in the third quarter. In seasonally and calendar adjusted
terms, the total volume of retail trade was 25% higher in the third
quarter than it had been in the second quarter. By September, the
volume of total retail trade turnover had returned to pre-pandemic
levels.
Expansionary economic policies have been critical for both
fueling a sharp domestic demand recovery from the global
pandemic-induced downturn in the second quarter. These policies
have also, however, triggered a sharp widening of the
merchandise-trade and current-account deficits.
Zambia became the first country in the sub-Saharan African
region to default on its external debt obligations due to
COVID-19-pandemic-related fiscal pressures. This follows the 30-day
grace period for a USD42.5-million coupon payment on a Zambian bond
that expired on 13 November. (IHS Economist Thea Fourie)
On 20 October, the Zambian authorities approached bondholders
to freeze debt obligations on three Eurobonds. Uncertainty over how
Chinese private creditors will be treated, the release of a
relatively scant 2021 national budget ahead of national elections
scheduled for next year, and lack of a comprehensive International
Monetary Fund (IMF) financially supported program that could result
in debt sustainability over the medium term resulted in an
underwhelming outcome at the bondholders' negotiations.
The latest development will push IHS Markit's medium-term
sovereign risk rating for Zambia to 70/100 (equivalent to CC+ on
the generic scale) immediately, in the Default - Interest Arrears
category. The outlook is likely to remain unchanged at Negative,
increasing the risk of Zambia's debt rating being downgraded to
75/100 (CC), in the Default - Accumulating Interest Arrears
category. An update of the IHS Markit medium-term sovereign
assessment will be made within the next week.
Zambia defaulted on its private creditor debt obligations
shortly after the G20 countries (including China) approved a common
framework for restructuring government debt for low-income
countries on 13 November. Only countries with debt levels deemed
unsustainable will qualify for possible debt reduction of
rescheduling. This debt initiative will be in addition to the
temporary external-debt freeze extension, which will end on 30 June
2021. The G20 will require full debt transparency to make this
initiative successful.
Asia-Pacific
APAC equity markets closed higher; Japan +2.1%, South Korea
+2.0%, Australia +1.2%, Mainland China +1.1%, Hong Kong +0.9%, and
India +0.5%.
Mainland China's industrial value-added growth stayed at 6.9%
year on year (y/y) in October, unchanged from the year-high
recorded a month ago. However, the month-on-month (m/m) growth
moderated to 0.78%. (IHS Markit Economist Yating Xu)
By sector, the headline stabilization was largely supported by
acceleration in mining, likely owing to the rising prices of coal
and steel amid the strong property investment. Manufacturing
moderated marginally with slowdown in auto, computer,
communication, and electronic equipment manufacturing, while
textile, ferrous-metals and non-ferrous metals smelting
rebounded.
By ownership, October industrial production was driven by
acceleration in private sector, while growth in state-owned sector
and foreign firms slowed.
Service production index rose by 2 percentage points to 7.4% in
October, returning back to the three-year average level. The
year-to-date index stayed in a 1.6% y/y contraction.
By sector, real estate and transportation were the main drivers
to services growth, while growth in renting remained weak and hotel
and catering sector stayed in contraction.
Fixed-asset investment (FAI) expanded 1.8% y/y through October,
up 1 percentage point from a month ago and the growth in October
rebounded to 12.2% y/y.
By sector, the headline improvement was largely owing to strong
property investment, with the year-to-date growth accelerated to
6.3% y/y and the estimated de-cumulative growth rose to 12.2% y/y.
Manufacturing investment continued to recover with the estimated
de-cumulative growth rose to 3.7, while the year-to-date figure
remained in contraction. Investment in pharmaceuticals, IT, and
electronic equipment maintained double-digits growth. Supported by
gradual starts of major projects, infrastructure investment
returned to expansion on year-to-date terms and the de-cumulative
growth accelerated to 4.5% y/y.
From the demand side, estimated de-cumulative floor space of
housing sold bounced to 15.3% y/y in October, the fastest rate
since July 2017 and the sales value growth recorded a 23.9% y/y
expansion. From supply side, floor space of new starts and
completion returned to expansion after two consecutive months of
contraction in September and August. However, floor space of land
purchase registered the fourth consecutive months of contraction,
reflecting the rising base and tightened financing
restriction.
As the recovery in housing sales continued to outpace that in
construction, housing inventory declined by 1.48 million in
October, the eighth consecutive months of decline.
Nominal and real retail sales growth increased to 4.4% y/y in
October. Catering sales recorded its first expansion since the
beginning of the year and commodity retail sales growth excluding
auto accelerated to 3.6% y/y. However, retail sales of small firms
deteriorated to contraction following a temporary expansion in
September. Online sales of commodities rose 23.6% y/y supported by
the 'double-11' shopping festival, while retail sales excluding
online sales registered a 4.1% y/y contraction.
Economic recovery is expected to moderate in the last two
months of the year as pent-up demand and production are gradually
digested and stimulus policy eases. M/m industrial production has
been moderating, property market control is tightening, and
regulators could be more cautious of risks amid the recent
corporate credit debt defaults.
Brilliance Automotive Holdings, the Chinese joint venture (JV)
partner of BMW, says its parent company, Huachen Automotive Group,
may undergo restructuring after a creditor filed an application to
a Chinese court, reports Reuters. According to a filing submitted
by Brilliance Auto to the Hong Kong Stock Exchange on 15 November,
Gezhi Automobile Technology Co filed an application to the Shenyang
Intermediate People's Court for the restructuring of Huachen. It
remains uncertain whether the restructuring application will be
accepted by the court. Huachen, owned by the government of Liaoning
province, has long been struggling with the poor performance of
local brands introduced by Brilliance Auto. The automaker's
passenger vehicle brand, Zhonghua, for instance, only recorded
sales of 1,045 units in the first three quarters of 2020. However,
owing to the strong sales performance of the BMW Brilliance JV,
Brilliance Auto still reported a net profit of CNY6,763 million
(USD1,027 million) in 2019. The JV's contribution to Brilliance
Auto's profit is expected to decline significantly from 2022 as BMW
is in the process of increasing its stake in the JV from 50% to
75%. The deal is set to be completed by 2022. (IHS Markit
AutoIntelligence's Abby Chun Tu)
According to a Chinese notice by Baoshang Bank published on the
National Interbank Funding Centre (NIFC)'s website on 13 November,
the bank has written down a CNY6.5-billion (USD980 million) tier-2
bond released in 2015 after the bank had been issued with a
"non-survival trigger event" by the People's Bank of China (PBoC)
and China Banking and Insurance Regulatory Commission (CBIRC) on 11
November, also listed on the NIFC website. The notice states that
interest will cease to be paid. (IHS Markit Banking Risk's Angus
Lam)
Separately, Bloomberg reported on 13 November that banks are
reducing their exposure to corporate bonds. China's big four banks
are reported to be selling debts issued by China's state-owned
enterprises and tightening the procedures and upgrading the
approval requirement when purchasing corporate bonds.
PBoC announced in its semi-annual monetary policy execution
report in August that Baoshang Bank will file for bankruptcy after
its one-year administrative takeover expires and some of its assets
have been taken over by Mengshang Bank. Therefore, the subsequent
announcement regarding the bank's "non-survival trigger event" and
the writing down of its debt instrument is expected.
Although the Shanghai Interbank Offered Rate (SHIBOR) has risen
on both 12 and 13 November, it is unlikely to reflect on Baoshang
Bank's bond situation because Baoshang Bank has long been expected
to file for bankruptcy and SHIBOR takes the average of 18
commercial banks with strong credit risk ratings. The writing down
of Baoshang Bank's bond is unlikely to trigger impact-and-cause
contagion to the rest of the sector as this is part of the
organized winding down of the bank.
Japan's real GDP growth rebounded by 5.0% quarter on quarter
(q/q, or 21.4% q/q annualized) in the third quarter of 2020
following a contraction of 8.2% q/q (or 28.8% q/q annualized,
revised down from a contraction of 7.8% q/q or 28.1% q/q
annualized) in the previous quarter. The greatest q/q growth in the
past 52 years, which followed three consecutive quarters of
declines, was thanks largely to rebounds in private consumption and
exports. (IHS Markit Economist Harumi Taguchi)
Net exports contributed 2.9 percentage points to the q/q rise
in real GDP growth.
Exports of goods rose by 11.0% q/q largely because of improved
exports of autos and other machinery.
Imports of goods dropped by 9.2% q/q on the dropout of positive
effects in the previous quarter from easing supply chain disruption
(due to lockdowns in China) and weaker demand for machinery and
production materials. Export and import services declined sharply
because of border controls to contain the pandemic in Japan and
abroad.
Private consumption rose by 4.7% q/q, reflecting the resumption
of economic activity after the lifting of the state of emergency in
late May.
In addition to the reopening of non-essential stores and longer
business hours, the government's stimulus measures also contributed
to the improvement in spending on all goods and services. In
particular, easing social distancing guidelines and travel
subsidies helped lift spending in services (up 6.6%q/q).
Private consumption remained below the first-quarter level and
the recovery following three consecutive quarters of declines was
rather modest. This was partially due to the resurgence of COVID-19
infections from July to August and only a 0.5% q/q rise in
compensation of employees because of the sluggish recovery in
employment and hours worked.
Public demand also rose by 1.9% in line with the introduction
of various stimulus measures under the two sizeable economic
packages. Government consumption surged by 2.2% q/q, while public
investment continued to increase but softened to 0.4% q/q.
Despite rebounds in private consumption and exports, private
non-residential investment continued to decline, slipping 3.4%
q/q.
Double-digit decreases in corporate profits, low capacity
utilization, and weak outlooks for a recovery suppressed machinery
orders, weighing on capital investment.
Private residential investment also continued to decline (by
7.9% q/q), reflecting pushbacks for housing starts during the state
of emergency and a decline in household income.
The third-quarter results were better than IHS Markit's
projection. We forecast Japan's real GDP to shrink by 5.4% in 2020
and rise by 2.2% in 2021.
While travel campaigns and other stimulus measures continued to
boost personal-related services in October 2020, the upward
momentum of economic activity is likely to soften in the fourth
quarter and also in the first quarter of 2021. Although the
government does not intend to halt its travel campaign, the recent
rise in new confirmed infections could make consumers
cautious.
Weak outlooks for wages could suppress private consumption once
economic activity resumes, particularly when the upside from the
government's stimulus measures eases.
Panasonic is planning to develop the new '4680' cylindrical
battery cell for Tesla, reports Reuters. The cells will be based on
the new tabless cell format unveiled by Tesla at its Battery Day in
September. "We have considerable know-how for that battery. We
started working on it immediately after Tesla's Battery Day and are
also preparing to set up a prototype production line in parallel,"
said Panasonic CFO Hirokazu Umeda. At the Battery Day event, Elon
Musk, cofounder and CEO of Tesla, unveiled a bigger and more
powerful 'tabless' 4680 battery cell. The new cell has a bigger
form factor than the current 2170 cell with a tab. The new cells
replace tabs with a laser-patterned spirally-wound active material
with dozens of connections. According to Tesla, this has reduced
the electrical path length by five times from 250 mm to just 50 mm,
and has resulted in a cell with better power-to-weight ratio
compared to smaller cells. The end result is five times more
energy, six times more power, enabling a 16% higher range, at a 14%
USD/kWh cost reduction. By using innovative battery manufacturing
technology, Tesla claims that it can reduce battery cell costs by
56%. Panasonic is also planning to increase battery production
capacity at Tesla's gigafactory in Nevada (US). The Japanese
company will invest about USD100 million in the new line, which is
expected to increase production capacity by 10% to 39 GWh annually
by 2022. The additional line will take the number of production
lines at the Nevada gigafactory to 14. (IHS Markit
AutoIntelligence's Jamal Amir)
Asian styrene spot price surged to a two-year high last Friday
when it closed at $1,145/mt CFR China, IHS Markit chemical data
showed. Prices have rallied since the Chinese market reopened on 12
Oct after an extended National Day and Mid-Autumn festival spanning
1-9 Oct. The spot price jumped $442.50/mt or 63%, outpacing all
other aromatics. (IHS Markit Chemical Advisory's Sok Peng Chua)
Stable downstream polymer operating rates in China were
credited for styrene's price gain. Last Friday's IHS Markit Global
Aromatics Weekly reported EPS run rate at 70-79%; polystyrene at
80-89% and acrylonitrile-butadiene styrene also at 80-89%.
Low import volumes coupled with regional styrene units
turnaround also contributed to a supply crunch. IHS Markit forecast
that in Q4 China is expected to face a shortfall of 110,000 mt of
styrene. "This situation could extend into Q1 next year as Middle
Eastern styrene producers go into their turnaround season," said
Liqiong Xi, IHS Markit senior research analyst. China imports more
than 30% of its styrene from Saudi Arabia and Kuwait, trade data
showed.
On top of supply/demand fundamentals, speculative play by
industry participants also contributed to Asian styrene's
relentless rally.
On Monday, discussion for prompt SM was between
RMB9,950-10,000/mt or $1,297/mt on import parity basis, up RMB875
or 9.6% from last Friday. The market is sharply backwardated with
January parcels priced between RMB8,240-8,330/mt ($1,075/mt on
import parity basis). Benchmark January styrene futures on Dalian
Commodity Exchange closed Monday at RMB8,299/lot, up RMB602 or
7.82%.
A Shanghai-based trader felt that there is more room for
styrene spot price to rise, based on historical highs achieved in
2015 and 2018. "China's domestic styrene price has yet to peak. The
record high styrene spot price for prompt cargoes was at
RMB14,700/mt in 2015 followed by RMB12,700/mt in 2018," he said.
"Some of the spot transactions were done by short-sellers and
cargoes were changing hands dozens of times without ever reaching
the end-user," he added.
South Korean OEMs Hyundai, Kia, General Motors (GM) Korea,
Renault Samsung, and SsangYong have announced a 4.3% year-on-year
(y/y) decline in their combined domestic output to 336,279 units
during October, reports Yonhap News Agency, citing data released by
the South Korean Ministry of Trade, Industry, and Energy. Vehicle
exports by the South Korean OEMs also fell during the month, by
around 3.2% y/y to 200,666 units, and the total value of their
overseas shipments increased by 5.8% y/y to USD4 billion. The
report highlights that South Korea's vehicle shipments to North
America increased by 12.4% y/y in October, while vehicle exports to
the European Union rose by 17.7% y/y, to Eastern European countries
fell by 9.6% y/y, and to Asian countries declined by 21.2% y/y.
Hyundai, South Korea's biggest automaker, posted a 12.2% y/y
decrease in exports last month, due to rising COVID-19 virus cases
in Europe. However, Hyundai affiliate Kia's overseas shipments
jumped by 15.7% y/y in October, thanks to robust sales of
alternative-powertrain models. Exports by Renault Samsung nosedived
by 93.9% y/y last month, while exports by SsangYong increased 23.7%
y/y. Outbound shipments by GM Korea grew by 2.2% y/y in October, on
the back of the robust sales of sport utility vehicles (SUVs). The
decline in South Korean vehicle production and exports during
October was largely the result of sluggish demand in overseas
markets caused by a contraction in consumer spending amid the
COVID-19 virus pandemic, as well as a production suspension at
Renault Samsung. (IHS Markit AutoIntelligence's Jamal Amir)
South Korea's domestic sales of carbonated soft drinks (CSDs)
and cider totaled KRW271.2 billion and KRW151billion, respectively,
in the first half of 2020. This represents increases of 12% and 4%,
year-on-year. Sales of energy drinks and carbonated water rose by
10% and 9%, y-o-y, to KRW118.4billion and KRW49.4billion, due to
higher demand during lockdown. On the other hand, sales of juice
(-7.4%), bottled water (-2.8%) and RTD coffee (-0.2%) declined.
Lotte Chilsung Beverage, one of the country's major suppliers,
reckons that there are few products that can replace carbonated
drinks at specialty beverage stores, and their low price compared
with functional drinks is the secret to their popularity. Recently,
Lotte Chilsung has been strengthening the marketing of carbonated
beverages and expanding its product range. Trevi, the number one
carbonated water brand, has diversified its capacity from 300ml to
1.2L to satisfy various consumer needs, and Hot6ix, an energy
drink, is expanding its lineup of The King products that
differentiate capacity and calories. (IHS Markit Food and
Agricultural Commodities' Mainbayar Badarch)
Malaysia's real third-quarter GDP increased 18% over the second
quarter. This, however, follows a sharp drop in the second quarter
because of coronavirus disease 2019 (COVID-19) virus
pandemic-related lockdowns; therefore, third-quarter GDP was still
down 2.7% from a year earlier. (IHS Markit Economist Dan Ryan)
The largest contributor to the rebound was private consumption.
This makes sense, since household spending was hard-hit during the
lockdowns, but the spending surge is nevertheless surprisingly
strong given that social distancing and movement control continued
in the third quarter.
The other big growth component was exports, which fits the
pattern of other successful emerging Asian economies. Capital
expenditures also increased substantially, reflecting the
optimistic outlook of exporting firms and their plans for expanding
output.
Imports increased, but not very much considering the rise in
consumption, capex, and exports. This is explained by the drop in
inventory investment, that is firms pulled raw materials and unsold
final goods out of inventory, thereby reducing their need for
imported goods.
From the production side, services were the largest growth
sector. This is unsurprising since this sector was feeding the
surge in private consumption.
Manufacturing was another big gainer, reflecting the rise in
exports. Note that manufacturing is on a value-added basis; so,
this plus a roughly equal amount of inputs yields the much larger
expenditure-measured number for exports.
Construction also rebounded strongly in the third quarter. This
was a welcome sign, since construction was hit much harder than the
overall economy in the second quarter, but the sector remains down
more than 12% from a year ago.
The strong recovery in the third quarter is a good sign. It
shows not just Malaysia's growth potential, but also its
flexibility in bouncing back from a negative demand shock.
The current fourth quarter, however, remains problematic. A
surge in COVID-19 cases has led to increased lockdowns and more
rigid movement controls, making it more likely that GDP will
decline in the fourth quarter.
Posted 16 November 2020 by Chris Fenske, Head of Fixed Income Research, Americas, S&P Global Market Intelligence
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