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All major US equity indices and most APAC markets closed higher,
while Europe was mixed. US government bonds closed lower and
European bonds were mixed. European iTraxx credit indices closed
tighter across IG and high yield, while CDX-NA was close to flat on
the day. The US dollar closed lower and gold, silver, copper, and
oil closed higher.
Americas
US equity market closed higher; Russell 2000 +1.3%, Nasdaq
+0.8%, S&P 500 +0.6%, and DJIA +0.5%.
10yr US govt bonds closed +2bps/0.94% yield and 30yr bonds
+3bps/1.68% yield. 10s and 30s both rallied (10s and 30s -4bps) on
the weaker than expected US initial claims for unemployment
insurance report, but then sold off (10s +5bps and 30s +7bps) after
10:30am EST on apparent progress on the $900 billion US stimulus
bill.
CDX-NAIG closed flat/53bps and CDX-NAHY -4bps/297bps.
DXY US dollar index continued its sell-off closing -0.7%/90.82,
which is 12.6% below this year's peak of 102.82 set on 20
March.
Silver closed +4.5%/$26.18 per ounce, gold +1.7%/$1,890 per
ounce, and copper +1.1%/$3.60 per pound.
Crude oil closed +1.1%/$48.36 per barrel.
Over the past five years, Technology has trounced Energy, with
a 217% cumulative return, compared with Energy's loss of 19%.
However, taking a closer look again at recent performance, we see a
clear rotation out of Technology and into Energy, with an 11.4%
return in November for the former compared with 22.2% for the
latter. Energy's outperformance was supported by an ETF inflow in
October and November at a rate two-and-a-half times that of
Technology. What is more, the spread in monthly returns of the two
funds was the second highest drawdown on record, only outmatched in
April of this year as markets rebounded from the COVID-19-induced
volatility. (IHS Markit Research Signals)
The federal government faces the possibility of a partial
weekend shutdown, the No. 2 Senate Republican, John Thune of South
Dakota, said as top leaders in both parties work to complete a
pandemic-relief deal that will be tied to a massive government
spending measure. The government is operating on stopgap funding
that expires at midnight Friday. With negotiations on the aid
package dragging on, lawmakers were looking to another short-term
measure to buy more time to get it wrapped up and passed by
Congress. (Bloomberg)
Seasonally adjusted (SA) US initial claims for unemployment
insurance rose by 23,000 to 885,000 in the week ended 12 December,
its highest level since early September. The not seasonally
adjusted (NSA) tally of initial claims fell by 21,335 to 935,138.
Seasonally adjusted initial claims have risen for four of the last
five weeks, suggesting a flagging recovery in the labor markets
amid the resurgence of the virus that is forcing some states into
tightening restrictions again. (IHS Markit Economist Akshat Goel)
Seasonally adjusted continuing claims (in regular state
programs), which lag initial claims by a week, fell by 273,000 to
5,508,000 in the week ended 5 December. Prior to seasonal
adjustment, continuing claims fell by 312,357 to 5,492,701. The
insured unemployment rate in the week ended 28 November was down
0.1 percentage point to 3.8%.
There were 455,037 unadjusted initial claims for Pandemic
Unemployment Assistance (PUA)in the week ended 12 December. In the
week ended 28 November, continuing claims for PUA rose by 688,793
to 9,244,556.
In the week ended 28 November, continuing claims for Pandemic
Emergency Unemployment Compensation (PEUC) rose by 268,532 to a new
high of 4,801,408.
The Department of Labor provides the total number of claims for
benefits under all its programs with a two-week lag. In the week
ended 28 November, the unadjusted total rose by 1,603,281 to
20,646,779, the largest increase since mid-August.
US housing starts increased 1.2% (plus or minus 8.6%, not
statistically significant) in November to a 1.547 million rate.
Single-family starts inched up 0.4% (plus or minus 7.9%, not
statistically significant) to a 1.186 million rate, the highest
since April 2007; multifamily starts increased 4.0% to a 361,000
units rate. (IHS Markit Economist Patrick Newport)
Housing starts, particularly single-family starts, are surging
in three regions: the Midwest, where year-to-date (YTD) starts in
November were up 14.4% from 2019, the South (YTD housing starts up
7.6%), and the West (YTD housing starts up 5.4%). YTD housing
starts in the Northeast were down 3.3% from 2019 in November.
Single-family permits, arguably the most important number in
this report, increased 1.3% (plus or minus 0.8%; statistically
significant)—the seventh straight increase—to a 1.143
million rate, which was the highest since March 2007.
Demand for multifamily homes has dropped. Multifamily housing
starts averaged 567,000 annualized units in the three months prior
to the pandemic; they averaged 349,000 units in the three months
ending with November.
Interest rates have played a role in boosting housing demand.
That role has diminished in recent months as rising house prices
and construction costs have more than eroded the cost savings of
lower mortgage rates. It is possible—but hard to prove—that
telework is behind the second-half surge in single-family new
construction.
We believe that housing starts will peak soon, possibly in the
fourth quarter. The current level is too high, given projected
population growth.
Swiss firm Novartis has announced an agreement to acquire US
private biotech Cadent Therapeutics and its clinical-stage pipeline
of small molecules for cognitive, movement, and mood disorders. The
agreement will include two clinical-stage candidates for
schizophrenia (CAD-9303, Phase I for cognitive symptoms for the
condition) and movement disorders (CAD-1883, Phase II), and will
include a buyout of milestones and royalties for the clinical-stage
NMDA receptor modulator MIJ821, which was previously covered by an
exclusive Novartis licence for treatment-resistant depression since
2015. Novartis will acquire all of the outstanding capital stock of
Cadent, in exchange for an upfront payment of USD210 million and
milestone payments of up to USD560 million. The transaction has
been approved by the Cadent board of directors and stockholders,
and Cadent and Novartis expect the transaction to close in the
first quarter of 2021, subject to closing conditions including
Hart-Scott-Rodino antitrust review clearance. This agreement, once
finalised, should help expand Novartis's neuroscience portfolio,
and builds on the company's drive to develop game-changing
medicines for severe and chronic neuropsychiatric conditions. It
follows Novartis's recent acquisition of US ocular gene therapy
firm Vedere Bio in October. Cadent has been positioning CAD-9303
with potential to fill a gap in schizophrenia treatment, addressing
cognitive deficits and the negative symptoms of the disorder such
as emotional suppression and withdrawal - compared with many
current treatments that address positive symptoms such as
hallucinations, delusions, or behavioral changes. Cadent
specializes in NMDA receptor allosteric modulators, including the
positive modulator CAD-9303, and the negative modulator MIJ-821,
and is also developing the SK channel positive allosteric modulator
CAD-1883 for movement disorders. Cadent was formed in 2017,
following the merger of Luc Therapeutics and Ataxion Therapeutics,
and has maintained a focus on small molecules targeting neuronal
ion channels. (IHS Markit Life Sciences Janet Beal)
The US state of Washington has asked the US EPA to grant an
emergency exemption for use of BASF's new insecticide,
broflanilide, to control wireworms in spring wheat. The request is
made under rules allowing emergency use of active ingredients that
are not yet registered in the US. The EPA proposed approval of
broflanilide in November. The Washington State Department of
Agriculture wants to treat sufficient spring wheat seeds to plant
up to 206,000 acres (83,400 ha), for which approximately 1,029 lbs
(4.1 tons) of broflanilide would be needed. The Department states
that currently registered products do not provide adequate control
of wireworms, which are having a severe impact, particularly in the
dryland wheat growing areas of eastern Washington. The EPA invites
comments on the request by December 30th 2020. BASF developed
broflanilide jointly with Japanese company Mitsui Chemicals Agro.
The proposed US approval would cover cereals, maize, tuberous and
corm vegetables, and non-crop areas. (IHS Markit Crop Science's
Jackie Bird)
Velodyne Lidar and May Mobility have entered into a sales
agreement. May Mobility will use Velodyne's long-range Alpha Prime
LiDAR sensors that provide a 360-degree surround view for its fleet
of autonomous shuttles. Alpha Prime LiDAR sensors enable real-time
localization and object-detection functions to support autonomous
operation in urban and highway environments. LiDAR sensors are
necessary for autonomous vehicles (AVs) as they measure distance
via pulses of laser light and generate 3D maps of the world around
them. Edwin Olson, co-founder and CEO of May Mobility, said,
"Velodyne Lidar is a valued partner and we've chosen their
long-range, surround-view LiDAR sensors because they integrate well
with our AV systems. This will allow us to continue to improve the
overall operation and safety of our shuttles, and expand the
capabilities of our vehicles into a wider range of operational
design domains." May Mobility offers low-speed autonomous shuttles,
which are produced through a partnership with Magna and are being
operated in test programs in cities in the United States. (IHS
Markit Automotive Mobility's Surabhi Rajpal)
Motional, a joint venture (JV) between Hyundai Motor and Aptiv,
has partnered with Lyft to launch driverless robotaxi services in
major US cities by 2023. Under this partnership, Motional plans to
deploy fully autonomous vehicles in Lyft's ride-sharing network in
the United States. The robotaxis will be based on the Hyundai
vehicle platform, integrated with sensors, computers, and software
to enable driverless operation and remote vehicle assistance. Karl
Iagnemma, president and CEO of Motional, said, "This agreement is a
testament to our global leadership in driverless technology. We're
at the frontier of transportation innovation, moving robotaxis from
research to road. Our aim is to not only build safe, reliable, and
accessible driverless vehicles, but to deliver them at significant
scale. We're partnering with Lyft to do exactly that." This follows
Motional's recent announcement that it had received approval to
test its autonomous vehicles in the US state of Nevada without a
human safety driver. Aptiv and Lyft have been working together for
three years on an autonomous vehicle pilot program in Las Vegas,
Nevada. Their partnership has provided more than 100,000 paid
robotaxi rides in the city, with 98% of passengers awarding their
rides a five-star rating. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Plans for an integrated propane dehydrogenation (PDH) and
polypropylene (PP) plant in Alberta, Canada, have been "suspended
indefinitely," according to Pembina Pipeline (Calgary). (IHS Markit
Chemical Advisory)
Capital expenditure on the proposed 4.5-billion Canadian dollar
($3.5 billion) development by Canada Kuwait Petrochemical Corp.
(CKPC), a 50/50 joint venture (JV) between Pembina and
Petrochemical Industries Co. (PIC; Kuwait City), was first deferred
in March. Pembina now says in a business update that while it
continues to believe in the strategic rationale of the project, the
"significant risks arising from the ongoing COVID-19 pandemic, most
notably with respect to costs under the lump-sum contract for
construction of the PDH plant, which remains under force majeure
condition, require CKPC to suspend execution of the project
indefinitely."
Pembina and PIC will continue to evaluate the PDH and PP
facilities, each of which are planned to have a nameplate
production capacity of 550,000 metric tons/year, Pembina says.
"CKPC is working through a process to manage, defer, or cancel
existing agreements with, among others, the lump-sum consortium,
lenders, and technology licensers, in order to minimize the need
for additional capital contributions," it says. The JV will
continue to take action to safeguard its existing investment
associated with long-lead equipment and intellectual property, it
adds. Pembina says it will recognize a material financial
impairment on its investment in the JV in the fourth quarter.
In March Pembina said planning, engineering, and regulatory
work done to date on the deferred project adjacent to its Redwater
fractionation complex near Edmonton, Alberta, would allow the
company to quickly resume activity to meet customers' needs when
global energy prices and the broader economic environment support
such action. The deferred project was due to receive approximately
23,000 b/d of propane feedstock and was expected to come into
service in the second half of 2023.
CKPC had signed agreements to use Honeywell UOP's C3 Oleflex
technology for the PDH plant and W.R. Grace's Unipol process for
the PP unit, while a lump-sum engineering, procurement, and
construction (EPC) contract was awarded to Heartland Canada
Partners, a JV of Fluor and Kiewit.
According to data from the Colombian National Administrative
Department of Statistics (Departamento Administrativo Nacional de
Estadística: DANE), industrial production fell by 8.0% year on year
(y/y) in September, while retail sales grew in yearly terms for the
first time since the start of the COVID-19-virus pandemic (3.0%).
(IHS Markit Economist Lindsay Jagla)
Colombia's October 2020 total industrial production remained
8.0% below October 2019 levels, driven primarily by yearly declines
in mining and quarrying (-28.6%). Crude oil and gas extraction
(-14.4%) and coal mining (-61.3%) remain the greatest negative
drivers in this sector.
Despite remaining below 2019 levels, Colombia's industrial
production continues to recover slowly month on month (m/m), from
the significant decline seen in April amid the COVID-19-virus
pandemic and the resulting economic shutdown. This recovery has
been uneven, with initial rebounds in May, June, and July, followed
by a monthly decline in August. October's industrial production
index recorded the greatest monthly increase (4.6% m/m) since
July.
All four industrial sectors experienced month-on-month growth
between September and October, with three of the sectors -
industrial manufacturing, water treatment and distribution, and
electricity and gas management - nearing 2019 levels.
Retail sales showed a more significant improvement, growing by
3.0% above 2019 levels in October. A total of 12 out of 19
merchandise lines grew in annual terms, with food products (5.2%
y/y), personal technology and communication equipment (30.9% y/y),
and household appliances and furniture (28.3% y/y) driving the
growth in retail sales.
Colombia faced severe economic contractions in April and May
because of the lockdown measures implemented to contain the
COVID-19 virus. In the months that followed, the government began
to lift the measures, allowing for economic reactivation and the
resurgence of some normal economic activity.
Europe/Middle East/Africa
European equity markets closed mixed; Germany +0.8%, Spain
+0.2%, Italy +0.1%, France Flat, and UK -0.3%
10yr European govt bonds closed mixed; France/Spain -1bp,
Italy/Germany flat, and UK +1bp.
iTraxx-Europe closed -1bp/47bps and iTraxx-Xover
-7bps/240bps.
Electric vehicle (EV) startup Arrival's founder and CEO, Denis
Sverdlov, has outlined a new approach to vehicle manufacturing,
aiming for profitability more quickly, reports Automotive News.
According to the report, Sverdlov envisions microfactories that
will require about USD50 million in investment, compared with a
typical plant costing about USD1 billion. Sverdlov says about 10
microfactories could produce as many of its vehicles as one
traditional plant, for half the capital outlay, and in about
one-tenth of the site space. Sverdlov reportedly said, "Arrival has
spent the last five years developing our unique model and
proprietary technology and is now laser-focused on delivery. We are
not using metal stamping, welding and paint shops. Instead, we are
using aluminum for chassis, proprietary composites for bodies and
structural adhesive." Sverdlov is reported as saying previously
that Arrival expects to be able to sell its electric vans and buses
for about the same price as diesel equivalents. Sverdlov,
addressing the potential scalability of its production approach,
reportedly said, "There are more than 560 cities in the world which
have a population of over 1 million people, and each of these
cities could have a microfactory producing 10,000 vehicles
specifically tailored Arrival has two microfactories and reportedly
plans to have 31 by 2024. The first two are in London, United
Kingdom, and Rock Hill, South Carolina, United States. Arrival has
been moving quickly towards beginning production and sales. Over
the past year, the company has received orders from UPS, made plans
to test Waymo technology, and has received investment from
BlackRock and Hyundai. (IHS Markit AutoIntelligence's Stephanie
Brinley)
EU member states have been given until 4 July 2021 to withdraw
authorizations for products containing the fungicide mancozeb,
following the European Commission's decision not to renew its EU
approval. Any grace periods granted to use up existing stocks must
expire by 4 January 2022. The non-renewal was based on concerns
over the active ingredient's hazardous properties. Declaring the
publication of the final decision in the EU Official Journal, EU
Commissioner for Health and Food Safety Stella Kyriakides said: "We
cannot accept that pesticides harmful to our health are used in the
EU. Member states should now urgently withdraw all authorizations
for plant protection products containing mancozeb." She also
highlighted that reducing the bloc's dependency on chemical
pesticides is a key pillar of the Farm to Fork Strategy. An
assessment of mancozeb by the European Food Safety Agency (EFSA)
found several health concerns, including a "toxic effect on
reproduction and the protection of the environment" and "endocrine
disrupting properties for humans and animals". But the EU Mancozeb
Task Force (MTF) believes that the EU evaluation process was "
rushed" and that approval of a restricted use of mancozeb would
have been possible. It warns that there are multiple crop/disease
combinations for which no alternative active ingredient exists.
Nevertheless, the MTF notes that the last-minute decision to
lengthen the phase-out period in the EU should allow farmers to use
the fungicide in the 2021 season in most member states. (IHS Markit
Food and Agricultural Policy's Jackie Bird and Pieter Devuyst)
Aker Solutions has signed a contract with Arctic Offshore
Farming, a subsidiary of Norway Royal Salmon (NRS), for the
assembly of two large fish farming facilities. Fish farming has
been identified by Aker Solutions as a market with several
interesting prospects. Aker Solutions has together with Norway
Royal Salmon developed the design for Arctic Offshore Farming's
harsh environment installation. Today's contract means that the
company will now also make its first delivery of such facilities.
The value of the contract is approximately USD5 million (NOK40
million). Arctic Offshore Farming's facilities are currently being
prefabricated as four separate sections at the Fosen Yard in Emden,
Germany. During the first quarter 2021, the modules will be
transported on a barge to Aker Solutions' specialized yard in
Verdal, Norway, where the four sections will be assembled to two
circular fish farming units. The fish farm weighs about 3,800
metric tons and has a diameter of 80 meters. Aker Solutions' scope
includes preparatory activities for the fabrication, receipt of
components, assembly, services to Arctic Offshore Farming and their
suppliers, as well as preparation for sea transport. Each of the
two fish farming units weighs about 3,800 metric tons, has a
diameter of 80 meters and a height of 22 meters. Preparations for
the project start early 2021. The activity will be at its highest
in April and May when around 50 employees will be working on the
project. The fish farming units will be installed at the Arctic
Offshore Farming location outside Tromsø in Northern Norway. (IHS
Markit Upstream Costs and Technology's Helge Qvam)
Aker Solutions has been awarded a contract by Equinor for
delivering the new CO2 receiving facilities Northern Lights outside
Bergen, Norway. The company has also won a contract from Equinor to
deliver the subsea equipment for injecting captured CO2 into a
reservoir for permanent storage. In total, the new contracts have a
value of about USD150 million (NOK1.3 billion). Work will start in
January 2021 and the deliveries will be completed within the first
part of 2024. Northern Lights is part of the Norwegian government's
Longship project for establishing full scale CO2 capture, transport
and storage facilities in line with the country's international
climate agreements. Aker Solutions has previously been engaged as a
subcontractor for the carbon capture and storage technology company
Aker Carbon Capture in early phase work to plan a CO2 capture
facility at Norcem's cement factory in Brevik, Norway. The
intention for the Longship project is that CO2 captured from the
cement manufacturing process in Brevik can be transported by ship
to the new receiving terminal in Øygarden outside Bergen. At the
receiving terminal, CO2 is stored intermittently before being
injected into subsea geological structures via a subsea pipeline.
With the new contract for Equinor, Aker Solutions is involved in
both the carbon capture and the storage part of this value chain.
The USD122 million (NOK1.05 billion) contract for the onshore
facility covers EPC. The engineering will be carried out by Aker
Solutions in Fornebu, Norway. The work at the site in Øygarden will
involve employees from several locations, primarily from Fornebu
and Stord. The pre-fabrication for the onshore facilities will be
done at Aker Solutions' yard at Stord before site installation. The
scope for the onshore facility includes facilities at the jetty for
import of CO2 from ships, storage tanks for intermediate storage of
CO2 and process systems for gas conditioning and subsea injection.
(IHS Markit Upstream Costs and Technology's Helge Qvam)
Estonian-based ride-hailing firm Bolt has raised EUR150 million
(USD182 million) in a Series D funding round, reports Reuters. The
round was led by D1 Capital Partners with the participation of
Darsana Capital Partners. The company plans to use the capital to
enhance the safety of its platform by launching driver face
verification and automatic trip-monitoring systems using predictive
artificial intelligence technology. Bolt CEO Markus Villig said,
"We have almost doubled our number of customers [this year] and
launched our services from ride-hailing to micromobility and food
delivery in 50 new cities." Bolt, previously known as Taxify,
operates a food delivery service and ride-hailing service using
cars, bikes, and scooters. The company is primarily active in
Eastern European and African cities and re-entered the London
(United Kingdom) market last year. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
Russia's RosStat has reported only a 2.6% year-on-year (y/y)
fall in industrial output in November compared to y/y declines of
5.9% in October, 3.6% in September, and 4.2% in August. (IHS Markit
Economist Lilit Gevorgyan)
The breakdown of the index suggests that the return of the
manufacturing sector to growth in November had a positive
contributing factor for the overall growth.
Specifically, the production of pharmaceutical products grew by
35% y/y, metal products (excluding machinery) was up by 19% y/y,
textile and tobacco output up by 16% y/y and 10% y/y
respectively.
Food production fell by 0.3% y/y, while the beverages sector
was down by 4.6% y/y. Production of transport equipment saw the
sharpest decline, down by 10.9% y/y in November.
IHS Markit Manufacturing PMI released on 1 December signaled
some deterioration in the operating environment for Russian
business firms. Seasonally adjusted headline index eased to 46.33
in November, from 46.9 points in October.
The respondents reported continued worsening in demand
conditions. Output and new orders fell, along with employment. At
the same time price pressures rose at fastest rate since February
2015.
The latter was confirmed by a separate data release by RosStat
on 16 December, showing 1.3% y/y increase in producer price index
in November. This ended a period of contraction in producer price
since July 2019.
This notable increase in input costs are a result of the
ruble's recent weakness, leading to import price inflation. The
USD/RUB pair hit 80 earlier in November. The ruble was affected by
geopolitical events such as the uncertainty around the US election
results, and concerns over new sanctions against Russia.
The extractive sector remained a drag on the overall sector in
November shrinking by 7.6% y/y, although the rate of contraction
moderated from annual declines of 9.0% in October, 9.4% in
September and 10.6% in August.
Oil and natural gas extraction fell by 9.6% y/y in November,
slightly moderating from the annual losses of 9.8% in October,
10.7% in September and 11.9% in August.
Russian manufacturers will remain under pressure in the coming
months due to poor demand conditions. Input costs are likely to
moderate as the ruble regains some of its lost ground.
In October, Turkey's current-account deficit narrowed
significantly on the back of a sharp narrowing of the merchandise
trade gap compared with that earlier in the year. The country had a
net inflow of portfolio investment of more than USD400 million for
the first time since November 2019. A tightening of monetary policy
at the end of November could keep the current-account deficit low
and maintain net inflows of portfolio investment heading into 2021.
(IHS Markit Economist Andrew Birch)
In October 2020, merchandise export growth accelerated to 4.3%
year on year (y/y), driving down the monthly merchandise trade
deficit compared with the huge gaps noted throughout the first
three quarters of the year. After averaging USD3.3 billion per
month in January-September, the merchandise trade deficit dropped
to just USD1.3 billion in October because of the recovery of export
growth.
The narrowing of the merchandise trade deficit allowed the
current-account gap to drop to just USD273 million in October after
having averaged over USD3.4 billion through the first three
quarters of the year. The cumulative deficit of USD31.1 billion
through the first 10 months of 2020 nonetheless still represented a
massive turnaround from the USD9.6-billion surplus registered in
the same period of 2019.
Also in October, Turkey attracted significant net inflows of
portfolio investment for the first time since November 2019. After
suffering net outflows of portfolio investment of USD14.8 billion
through the first three quarters of 2020, the country attracted net
inflows of nearly USD2.9 billion in October. A government bond
issue of USD2.5 billion on the international capital markets
provided the basis for the inflow of portfolio investment that
month.
A lower current-account deficit and greater foreign capital
inflows allowed foreign currency reserves to climb from September
to October, by approximately USD3 billion over the course of the
month. Foreign reserves have been severely depleted in 2020, as the
Central Bank of the Republic of Turkey (TCMB) has spent tens of
billions of US dollars and other hard currencies to defend the
lira. Rebuilding these reserves will be critical to meet short-term
obligations of the TCMB.
IHS Markit forecasts that Turkey's current-account deficit will
soar to 5.6% of GDP in 2020 as a whole, its biggest gap since 2013.
Although merchandise exports are growing again, the renewed
lockdowns across Europe are likely to mute these gains over the
final couple of months of the year. Turkey continues to suffer from
substantial service-export losses that have slashed the services
surplus.
The Bank of Uganda (BoU) maintained its benchmark policy rate
at 7% at its monetary policy committee (MPC) meeting on 14
December. The central bank rate (CBR) was lowered from 8.0% to 7.0%
in June 2020. (IHS Markit Economist Alisa Strobel)
The central bank's MPC announced that it would maintain the CBR
at 7% in December amid uncertainty surrounding global macroeconomic
developments. The band on the CBR is also maintained at plus or
minus 2 percentage points, while the margin on the rediscount rate
and bank rate is unchanged at 3 and 4 percentage points on the CBR,
respectively. The rediscount rate and the bank rate were maintained
at 10% and 11%, respectively, at the MPC meeting.
At the meeting, the BoU highlighted that economic growth in
October reached 3.3% following a steep decline of 6% in June. The
MPC continued to be concerned about Uganda's vulnerability to
periodic bouts of global financial volatility. Following the severe
global economic slowdown and remaining downside risks, the
country's economic growth is expected to remain below its potential
up to its 2023/24 fiscal year.
The decision to keep the key interest rate unchanged remains in
line with the central bank's aim of supporting private-sector
growth, while committing to provide liquidity support. IHS Markit
maintains that there is some moderate scope to cut rates further,
particularly with anticipated core inflation easing during the
second half of 2021. However, a depreciating Ugandan shilling
together with increased fiscal pressure would challenge further
rate cuts.
IHS Markit has revised its short-to-medium-term growth outlook
for Uganda, amid demand-side trade disruptions caused by the
COVID-19-virus outbreak. The lower foreign direct investment (FDI)
forecast is expected to hamper growth, with a slow uptick in growth
during the second half of 2021. Furthermore, real GDP has been
lowered to 0.1% in 2020, reflecting an anticipated steep decline in
remittance inflows. However, the government's complementary fiscal
and monetary policy actions have provided a foundation for economic
activity to recover to 3.9% in 2021.
Asia-Pacific
Most APAC equity markets closed higher, except for South Korea
-0.1%; Australia +1.2%, Mainland China +1.1%, Hong Kong +0.8%,
India +0.5%, and Japan +0.2%.
After returning to growth in September, India's industrial
output gained more traction in October, while retail inflation
finally started to ease in November thanks to slower food price
rises. While growth momentum may still slow as pant-up demand
wanes, the economic outlook for India has broadly improved, with
IHS Markit's forecast for FY 2020 revised up to -9.5% from -10.6%.
(IHS Markit Economist Hanna Luchnikava-Schorsch)
Headline consumer price index (CPI) inflation moderated for the
first time in three months - to 6.9% y/y in November from 7.6% y/y
in October - according to data released by the Ministry of
Statistics and Program Implementation (MOSPI).
The moderation was almost entirely driven by the easing
pressures on food prices, with inflation in vegetables group in
particular easing to 15.6% y/y in November from 22.5% y/y in the
previous month. Inflation in the transport and communication group
also eased marginally.
On the other hand, prices remained sticky in some categories of
core inflation, like clothing and personal care as well as health,
education and housing.
Wholesale price index (WPI) inflation also continued to
accelerate, recorded at 1.5% y/y in November, up from 1.3% y/y in
October. Manufactured products inflation, previously considered as
a measure of core inflation, accelerated to 2.1% y/y from 1.6% y/y
in October.
In a separate data release by the MOSPI, the index of
industrial production grew 3.6% y/y in October, a month after it
returned to growth following six months of contraction.
Electricity production jumped by 11.2% y/y, while manufacturing
output finally also turned positive, up by 3.5% y/y. Mining, on the
other hand, contracted by 1.5% y/y in October after a brief
expansion in September.
On a use-based approach, all but primary goods category showed
expansion, with consumer durables goods production, likely boosted
by the seasonal holiday demand, increased by 11.6% y/y, sharply up
from 3.4% y/y in September and double-digit contraction only three
months ago. Capital, as well as infrastructure and construction
output also improved in annual terms, suggesting a gradual revival
in investment activity.
Reported improvements in industrial output and inflation are
good news for the economy that is still in technical recession,
with latest national accounts data showing the real GDP shrinking
for the second quarter in a row in the September quarter, albeit at
a smaller-than-expected rate of 7.5% (see India: 1 December 2020:
Indian economy enters technical recession in September quarter but
contraction is smaller than expected).
As anticipated, inflation has started to ease as supply
disruptions caused by the lockdown are being resolved. We expect
this easing to continue in the first half of 2021. Nevertheless,
headline CPI inflation still remains above the central bank's
target ceiling of 6% and core inflation is still rising, suggesting
that the Reserve Bank of India (RBI) will remain cautious for some
time before it decides to cut rates again.
China Mengniu Dairy, through its subsidiary Inner Mongolia, has
agreed to increase ownership in Shanghai Milkground Food Tech
Company, a cheese manufacturer, for a total value of CNY3 billion
(USD459 million). The transaction will increase Inner Mongolia's
stake in Milkground to 23.8% from the 5% it acquired earlier this
year, becoming the controlling stakeholder. Milkground is involved
in the manufacturing and distribution of dairy products and it
operates five manufacturing facilities across China. According to
the official filing, its cheese business has seen rapid expansion
in recent years and has become a leading enterprise in the cheese
industry in China. Inner Mongolia says the investment is in line
with its development strategies as it recognizes Shanghai's
long-term potential and future prospects. In a statement, Mengniu
Dairy: "The company is optimistic about the future prospects of the
cheese market and recognizes Shanghai Milkground's long term
development potential." (IHS Markit Food and Agricultural
Commodities' Jana Sutenko)
China's vehicle export volumes grew for the third consecutive
month in November, and set a new record for the month. Data from
the China Association of Automobile Manufacturers (CAAM) indicate
that 122,000 vehicles were exported from China in November, up
11.6% compared with October and an increase 46.7% compared with
November last year. In January to November, China's vehicle exports
totaled 850,000 units, down 7.3% year on year (y/y). Of this total,
passenger vehicle exports fell by 0.4% y/y to 644,000 units, while
commercial vehicle exports contracted 23.8% y/y to 207,000 units.
The data indicate passenger vehicles remain the main driver of the
growth in China's vehicle exports. Although the CAAM did not
provide a breakdown of the data by vehicle type, electric vehicles
(EVs) are expected to grow their share of China's vehicle exports
amid automakers' push to ship more EVs to developed markets with
favorable EV policies, especially Europe. The CAAM compiles Chinese
vehicle export data each month from data provided by automakers on
voluntary basis; therefore, the data may not cover all the
manufacturers shipping new vehicles from China to overseas markets.
SAIC Motor, Chery Auto, Geely Auto, SAIC General Motors, and SAIC
General Motors Wuling are leading vehicle exporters in the Chinese
market. The five automakers account for nearly 63% of China's total
passenger vehicle exports, according to the CAAM. (IHS Markit
AutoIntelligence's Abby Chun Tu)
StarRides, a ride-hailing joint venture (JV) between Geely
Technology and Daimler Mobility, is now available in six Chinese
cities. The service was initially launched in Hangzhou in December
2019. Since then, the service has expanded to other cities
including Guangzhou, Chengdu, Xi'an, Beijing, and Shanghai. In
addition, StarRides has announced the launch of an English version
of its ride-hailing app for international users based in China. Liu
Jin Liang, Geely Technology Group president, said, "As the first
strategic cooperation project between Geely Technology Group and
Daimler Mobility AG, StarRides has ensured a win-win cooperation,
provided high-quality of services, and has set -new industry
standards amongst mobility service providers. Together with our
partners, we strive to create more possibilities in the future of
mobility services through synergies and leverage resources through
our network of suppliers." (IHS Markit Automotive Mobility's
Surabhi Rajpal)
Japanese chipmaker Renesas Electronics has established a joint
research center in China with Chinese automaker FAW Group to
develop technologies for electric vehicles (EVs) and autonomous
vehicles, reports Nikkei Asia. The research center, located in
Changchun, Jilin Province, has begun operation in early December.
Renesas will contribute technologies related to its
high-performance automotive processors as well as system chips and
software. Technologies developed by the partnership will first be
used in vehicles introduced by Hongqi, FAW's premium vehicle brand.
Renesas also has a joint venture (JV) center with SAIC Volkswagen
(SAIC VW), VW's joint venture with SAIC Motor. According to the
source, the chipmaker generates half of its revenue from its
automotive business. The new joint research facility it set up with
FAW Group will enable the Chinese automaker to secure critical
electronics component supply for the Hongqi brand. Japanese
electronics component manufacturers are investing heavily to expand
their business in the automotive sector, driven by the automotive
industry's rising demand for electronic components. Toshiba and
Fuji Electric will invest a combined JPY200 billion (USD1.9
billion) to ramp up output of power-saving chips for EVs, according
to a Nikkei report. (IHS Markit AutoIntelligence's Abby Chun
Tu)
Posted 17 December 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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