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APAC and European equity markets closed mixed, while most major
US indices were lower on the day. US and most benchmark European
government bonds closed lower. European iTraxx and CDX-NA closed
slightly wider across IG and high yield. The US dollar closed
lower, and oil, natural gas, gold, silver, and copper were higher
on the day.
Please note that we are now including a link to the profiles of
contributing authors who are available for one-on-one discussions
through our newly launched Experts
by IHS Markit platform.
Americas
Most major US equity indices closed lower except for Russell
2000 +0.1%; DJIA -0.2%, S&P 500 -0.3%, and Nasdaq -0.4%.
10yr US govt bonds closed +2bps/1.65% yield and 30yr bonds
closed +2bp/2.37% yield.
CDX-NAIG closed +1bps/52bps and CDX-NAHY +5bps/293bps.
DXY US dollar index closed -0.2%/90.16.
Gold closed +1.6%/$1,868 per troy oz, silver +3.3%/$28.27 per
troy oz, and copper +1.2%/$4.71 per pound.
Crude oil closed +1.4%/$66.27 per barrel and natural gas closed
+5.0%/$3.11 per mmbtu.
A rapid resurgence of COVID-19 cases and tightening localized
containment measures pose a material threat to India's economic and
fuel demand recovery. While we maintain our expectation for a
robust global liquids demand recovery this year, a severely
disrupted Indian oil product demand recovery would materially
threaten the magnitude of that global recovery, loosening global
balances. Given the size and complexity of the crisis in India, we
have developed three scenarios covering distinct pathways and
estimated the oil demand impact in each scenario. These scenarios
include a base case, an extended lockdown case, and a vaccine-led
recovery case. (IHS Markit Energy Advisory's Roger
Diwan, Saurabh
Dimri, and Gaurav
Gosain)
In the base case, the country's economic recovery is
interrupted but not short-circuited. Current vaccine shortages are
resolved by June 2021 as additional vaccines are granted emergency
approval and localized lockdowns remain in place for an additional
6-8 weeks. In this scenario, total refined product demand expands
by 320,000 b/d year on year in 2021, averaging some 3% below
average 2019 demand.
In the extended lockdown case, current vaccine shortages remain
unresolved until the end of 3Q2021 and approval of additional
vaccines is likewise delayed. Localized lockdowns are extended for
an additional 4-5 months, weighing heavily on the country's
economic recovery pathway. In this scenario, total refined product
demand remains flat on the year, and comes in at around 10% below
average 2019 demand.
In the vaccine-led recovery case, the government's vaccination
campaign accelerates and vaccine shortages are resolved by the end
of May. India continues to use localized lockdowns but for a
shorter period of 2-3 weeks. As a result, business activity
normalizes in short order and the economic recovery picks up by
end-2Q2021. As the economy recovers, the fiscal pressure on the
government eases, improving its ability to introduce stimulus
measures. In this scenario, total refined product demand expands by
nearly 570,000 b/d year on year in 2021, averaging some 2% above
average 2019 demand.
Annual worldwide renewable generation capacity additions are
set to stabilize around 270-280 GW in 2021 and 2022, data released
recently by the International Energy Agency (IEA) show. About 275
GW of renewables were installed in 2020, it said, a 45% increase
compared with 2019 and the fastest rate of increase in two decades.
That "new normal," as the intergovernmental organization calls it,
far surpasses the IEA's expectations of a year earlier, with Europe
and the US compensating for a slowdown in Chinese capacity
installations after 2020 saw record newbuild there. Renewable
generation additions are expected to account for 90% of total
global power capacity increases in both 2021 and 2022, according to
IEA forecasts. (IHS Markit Climate and Sustainability News' Keiron
Greenhalgh)
The count of seated diners on the OpenTable platform has been
firming in recent days, as persons, businesses, and local
authorities respond to new guidance from the Centers for Disease
Control (CDC) on masking and distancing. We expect to see continued
improvement in restaurant activity in coming days and weeks.
However, small-business activity (revenues and the number open)
remained depressed through early May, according to the Opportunity
Insights Economic Tracker. These data suggest that the
small-business sector has yet to participate in the broad recovery.
(IHS Markit Economists Ben
Herzon and Joel
Prakken)
The US headline housing market index remained at a solid 83 in
May. A reading above 50 indicates that more builders view
conditions as good rather than poor. (IHS Markit Economist Patrick
Newport)
The current sales conditions index was also unchanged,
remaining at 88; the index measuring sales prospects over the next
six months inched up a point to 81; the traffic of prospective
buyers' index lost one point to 73.
By region, the West was unchanged at 91, the South rose by two
to 86, the Midwest slipped three points for the third straight
month to a still respectable 72, and the Northeast moved down seven
points to 77.
Builders remain optimistic, just not as optimistic as in last
November when the headline index hit a record high 90. Demand for
homes remains strong, but builders are being squeezed by rising
costs and breakdowns in supply chains.
According to the press release, "first-time and
first-generation home buyers are particularly at risk for losing a
purchase due to cost hikes associated with increasingly scarce
material availability."
Canadian housing starts decreased 19.8% month over month (m/m)
to 268,631 units (annualized) in April. (IHS Markit Economist Chul-Woo
Hong)
Urban single starts edged down 0.1% m/m while multifamily
starts plunged 22.8% m/m. Rural starts plummeted 46.6% m/m.
Regionally, the drop was led by British Columbia (down 46.1%
m/m), Quebec (18.1% m/m), and Ontario (17.7% m/m).
Despite the decrease, April's housing starts level remained at
a firm level, closely in line with our forecast.
Urban single starts inched down as widespread regional gains
were cancelled by large declines in Quebec, British Columbia, and
Nova Scotia. Alberta's single starts continued a 10-month winning
streak, up 5.7% m/m in April. Single starts in Saskatchewan, New
Brunswick, and Manitoba also surged.
Strength in manufacturing and a positive US outlook support
continued progress towards Costa Rica's recovery, but the important
tourism sector remains highly depressed. Precarious public finances
and a resurgence of COVID-19 infections are the most serious
downside risks. (IHS Markit Economist Jeremy Smith)
The MIEA grew by 1.7% on a seasonally adjusted monthly basis,
the best result since December 2020, leaving economic activity 3.2%
below the historical peak in February 2020.
The manufacturing sector led the way in March, growing 3.6%
month on month (m/m) and exceeding February 2020 levels by 3.8%.
Manufacturing is supported by strong US demand for Costa Rican
medical devices, powering total exports to an 11% year-on-year
(y/y) increase in the first quarter.
Sectors closely tied to tourism remain in a deep slump. The
impact is acutely felt in accommodation and food services along
with transportation and storage, which together account for most of
the decline relative to pre-pandemic levels.
International arrivals approached 90,000 in March, a
significant improvement from the first two months of the year yet
still 73.4% below the 2019 level.
Europe/Middle East/Africa
European equity markets closed mixed; Italy +0.4%, Spain +0.1%,
Germany -0.1%, UK -0.2%, and France -0.3%.
Most 10yr European govt bonds closed lower except for UK flat;
Italy +4bps and Spain/France/Germany +2bps.
iTraxx-Europe closed +1bp/51bps and iTraxx-Xover
+2bps/254bps.
Brent crude closed +1.1%/$69.46 per barrel.
UK scientists have warned the British public to be very
cautious as some restrictions on social gatherings and indoor
dining and use of other indoor venues are being lifted today (17
May), the BBC reported. The warnings come from different quarters,
including Joint Committee on Vaccination and Immunisation (JCVI)
member Professor Adam Finn and Health Secretary Matt Hancock, who
suggested that outdoor gatherings are still safer than indoors. The
warnings come amid growing concerns about the spread of the Indian
variant B1.617.2 in the UK. The latest Public Health England (PHE)
data indicate that Indian variant cases increased to 1,313 in the
week ending on 14 May, up from 520 in the previous seven-day
period. Hancock told the BBC that the majority of the 18 people who
are in hospital with COVID-19 complications and have the Indian
variant had not been vaccinated; however, five of them had had one
jab and one person had had both jabs before falling ill. Amid
reports that the Indian variant could be 40-60% more contagious
than the UK variant, Hancock conceded in a Sky News interview that
the Indian variant is likely to become the dominant strain in the
UK. (IHS Markit Life Sciences' Janet
Beal and Milena
Izmirlieva)
Bank of England Governor Andrew Bailey reported on 12 May that
during the period of financial dislocation at the start of the
COVID-19 virus pandemic, there had been a "dash for cash" by
holders of money market funds, which had threatened financial
stability. He noted that over 12-20 March 2020, investors withdrew
GBP25 billion from such funds, some 10% of total holdings.
Highlighting that US money market funds had faced similarly heavy
outflows, he claimed the rapid withdrawals had been an important
driver in the Bank of England's reactivation of its asset
repurchase program and provision of emergency liquidity facilities.
He described this as "an unwelcome reminder" that post 2008-09
financial reforms "did not finish the job", leaving "a dangerous
gap" in "our exposure to the risk of financial instability". Bailey
clearly indicated that further regulation is likely, both in the UK
and globally, stating that regulators "must finish the task this
time". He specified that the Financial Stability Board (FSB) will
consult shortly on regulatory change to address the problem that
money market funds present themselves to investors as "cash-like",
offering instant redemption, but hold a large proportion of
illiquid assets. (IHS Markit Economist Brian
Lawson)
Sports car manufacturer Caterham Cars is planning to develop a
battery electric variant of its Seven as part of plans for the
business. CEO Graham Macdonald told Autocar in an interview that
the vehicle, which is intended to arrive in 2023, would be
developed so that it "rides and handles like a Caterham". With this
in mind, the company will focus on keeping the weight as low as
possible, although suspension geometry and other aspects of the
chassis will be recalibrated to mitigate the weight of the
batteries. It is also expected to forgo certain associated systems,
such as regenerative braking. Macdonald expects the minimalist
approach to the design to be maintained, with acceleration on a par
with the top specification 620R variant. To help bring the vehicle
to production, Caterham is looking to partner with another company
to secure batteries and motors; Macdonald stated, "I think we would
enter into some sort of partnership whereby we can purchase
batteries and get them made to fit our dimensions, rather than buy
a square skateboard that has a body-in-white on top. That loses the
Caterham." (IHS Markit AutoIntelligence's Ian Fletcher)
Ireland's consumer prices, measured by the EU's harmonized
index, rose by 1.1% year on year (y/y) in April. Prices had
stagnated, on a y/y basis, in March and had declined for most of
2020. (IHS Markit Economist Diego
Iscaro)
April's inflation rate was the strongest since February 2020,
when prices also increased by 1.1% y/y.
Inflation was boosted by higher health and energy costs, which
rose by 4.7% y/y and 4.0% y/y, respectively. On the other hand,
prices of clothing/footwear (-3.6% y/y), household durables (-1.0%
y/y), and food/non-alcoholic beverages (-0.8% y/y) contributed to a
decline in April.
Core inflation (i.e., excluding energy and unprocessed food)
stood at 0.6% in April, slightly below a reading of 0.8% for the
eurozone.
Following its policy meeting in March, the ECB announced a
"significantly higher" pace of asset purchases under its Pandemic
Emergency Purchase Programme (PEPP) over the subsequent quarter
(see first chart below), based on a joint assessment of financing
conditions and the inflation outlook. (IHS Markit Economist Ken
Wattret)
The marked pick-up in bond yields prior to the policy meeting
had led to concern about a premature tightening of financing
conditions in the eurozone, which the ECB wanted to push back
against, while the sharp acceleration in inflation early in 2021
was seen as largely being due to "transitory factors" and energy
price effects.
The ECB's communication following its subsequent policy meeting
in April followed broadly similar lines. Net asset purchases under
the PEPP would continue to be conducted at a significantly higher
pace than during the first months of the year, while the pick-up in
inflation was judged to be due primarily to "temporary and
idiosyncratic" factors, which would "fade out" early in 2022.
However, the subsequent release of the account of April's
policy meeting has shed more light on the discussions over the
economic and policy outlook, with upside risks to growth and
inflation now being cited by some members of the Governing
Council.
The European Union (EU) said it is postponing tariff hikes on
US goods scheduled to take effect June 1 as both sides agreed to
talks aimed at resolving the underlying dispute over steel and
aluminum overcapacity and lifting duties previously imposed in the
matter. EU retaliatory duties imposed in response to US Section 232
tariffs on steel and aluminum imports put in place during the Trump
administration were imposed in mid-2018 and targeted just over $3
billion in US goods including whiskey, orange juice and boats. On
June 1, the EU planned to up duties on many of those goods from 25%
to 50% and add several new products to the list of targeted
imports—amounting to around $4 billion in additional duties.
Now, the EU has agreed to hold off on the expansion and increase
for at least six months. (IHS Markit Food and Agricultural Policy's
Richard Morrison)
Germany announced it will further restrict pollution from
sources like energy and fuel after a court found its regulations
shifted emissions reduction burdens to future generations,
violating their rights. On 29 April, the Constitutional Court in
Germany published a decision saying that Germany's government lacks
a plan for emissions reductions after 2031, and ordered it to enact
related provisions by 31 December 2022. The court sided with the
case made by five youths living on German islands at risk of
becoming uninhabitable due to sea level rise, as well as three from
heat-stricken family farms. It based its decision on the protection
for the civil liberties afforded to future generations under
Article 20a of Germany's constitution, the Basic Law. The
petitioners found fault with the emissions levels laid out in
Germany's 2019 Federal Climate Act (Bundesklimaschutzgesetz) that
sets out sector emissions goals to help meet Germany's Paris
Agreement target of 55% emissions cuts between 1990 and 2030. That
target is higher than the EU's target of 40% for all member states,
but the EU is currently working on raising its target to the 55%
level. After the court released its findings, Germany's government
moved "unexpectedly" quickly to update laws, E3G policy advisor
Rebekka Popp said in a statement. (IHS Markit Climate and
Sustainability News' Cristina Brooks)
French oil company Total is to present a climate-based proposal
giving shareholders an opportunity on 28 May to express their views
on the company's strategy towards energy transition. The pending
shareholders' discussion comes at a sensitive time, after core
lenders to Total recently rejected funding the USD3.5-billion East
African Crude Oil Pipeline (EACOP) project, in which Total is the
majority stakeholder with a 72% stake, amid widespread criticism of
the scheme for both its carbon-intensive content and specific risks
of damage to key nature reserve sites. Despite the banks' adverse
stance, the project continues to have strong political backing from
the host governments, and the Ugandan government on 1 May published
a letter sent to President Yoweri Museveni by French President
Emmanuel Macron, who stated his support for the project. (IHS
Markit Country Risk's Jordan
Anderson, William Farmer, Bibianna Norek, and Alisa Strobel)
Core banks have rejected lending for the EACOP, challenging
execution of the project. Core bank lenders to Total, including
France-based BNP Paribas, Société Générale, and Crédit Agricole,
have refused to finance the EACOP project on environmental and
human rights grounds, reducing the likelihood of the project going
ahead and increasing the risk of lengthy delays.
Chinese policy banks are most likely to provide an alternative
source of financing for the EACOP project. Total has previously
received financing from Export-Import Bank of China and China
Development Bank for a project in Russia, which Western banks did
not fund because of sanctions. China is Uganda's largest creditor,
and Tanzania signed a USD1.3-billion loan agreement with Chinese
policy banks in January to build a section of its standard gauge
railway.
Italian anti-trust watchdog, the Competition and Market
Authority (AGCM), has fined Google for preventing an application
designed to find and book electric vehicle (EV) charging points
from working on its Android Auto in-car operating system, reports
Reuters. The regulator said that Enel's JuicePass had been
prevented by Google for two years, unfairly curtailing its use and
favoring Google Maps. As well as fining Google EUR102 million for
abuse of a dominant position, the company, it also asked Google to
make JuicePass available on Android Auto. The JuicePass application
not only allows drivers to find and book charging points, but also
uses maps to do so. It is already offered on rival Apple's
equivalent CarPlay system, which would allow for the use of the
application while in the car, albeit with some changes to
functionality. (IHS Markit AutoIntelligence's Ian Fletcher)
Stellantis and Hon Hai Precision Industry, known as Foxconn,
are to announce a strategic partnership later this week. According
to a statement, a presentation will take place tomorrow (18 May) at
11:45 am CEST together with Foxconn's subsidiary, FIH Mobile. The
companies said that Stellantis CEO Carlos Tavares, chairman of
Foxxcon Young Liu, Stellantis chief software officer Yves
Bonnefont, and CEO of FIH Calvin Chih will take part in the
presentation. Foxconn is best known for contract manufacturing high
technology consumer goods, such as Apple's iPhone. Its FIH Mobile
business provides a range of services including industrial design,
although according to its website this is primarily focused on
mobile devices and their accessories. (IHS Markit
AutoIntelligence's Ian Fletcher)
Poland has announced plans to upgrade its port infrastructure,
under its National Reconstruction Plan, to support its fledgling
offshore wind industry. The ports of Leba and Ustka will act as
support and maintenance hubs, while the port of Gdynia will act as
the main installation facility. Works are expected to start in 2021
and end sometime in 2026, and will cost the Polish government
EUR437 million. The government hopes to encourage the formation of
a local industry with the establishment of ports near the planned
offshore wind farms. (IHS Markit Upstream Costs and Technology's
Melvin Leong)
Asia-Pacific
APAC equity markets closed mixed; India +1.7%, Mainland China
+0.8%, Hong Kong +0.6%, Australia +0.1%, South Korea -0.6%, and
Japan -0.9%.
Shanghai has announced plans to begin its first hydrogen energy
testing base in Anting Town, Jiading District at the end of July
this year with construction expected to be completed by the end of
next year, according to Gasgoo. The testing center will support
tests to check performance of vehicles, fuel cell vehicle (FCV)
engines, and fuel cell stacks along with providing testing
environment for hydrogen supply, air supply, and cooling system.
There will also be a hydrogen fueling station set up at the
location to provide hydrogen fuel to labs and vehicles to be
tested. The move is in line with the June 2019 announcement that
Shanghai aims to establish a complete hydrogen energy and FCV
industrial chain in its northwestern Jiading district, a new effort
by the city to greatly develop the fuel cell industry. (IHS Markit
AutoIntelligence's Nitin Budhiraja)
Baidu has launched Apollo Air, a vehicle-to-everything (V2X)
technology platform that allows Level 4 autonomous vehicles (AVs)
to communicate with roadside sensors using ultra-fast 5G cellular
networks, according to a company statement. Apollo Air is built as
a part of Baidu's partnership with the Institute for AI Industry
Research (AIR) at Tsinghua University to provide reliable safety
redundancy for autonomous operations. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
Autonomous vehicle (AV) startup Pony.ai has expanded its
robotaxi fleet in Beijing (China). The company has added 30 AVs
into its fleet, which can be hailed through a smartphone
application for robotaxi service around the 150-square-km Yizhuang
region. Pony.ai said the new vehicles are built on a standard
production line with Toyota and that each of them is equipped with
15 sensors. James Peng, co-founder and CEO of Pony.ai, said that it
also plans to explore partnership with other carmakers, reports
China Daily. (IHS Markit Automotive Mobility's Surabhi Rajpal)
GE Renewable Energy and Toshiba Energy Systems and Solutions
Corporation have entered into a strategic partnership agreement to
localize critical manufacturing processes of GE's Haliade-X
offshore wind turbine, and to support its commercialization in
Japan. Financial terms of the deal were not disclosed, however as
part of the agreement, GE will provide the Haliade-X technology,
nacelle parts, and components for assembly. Toshiba will develop a
local supply chain to assemble, warehouse, transport, and provide
preventive maintenance services for the Haliade-X nacelles. Toshiba
will also lead critical sales and commercial activities to help
GE's offshore wind technology to become more competitive in Japan.
(IHS Markit Upstream Costs and Technology's Melvin Leong)
South Korean chicken meat imports rose sharply in the first
four months of 2021 as domestic production capacity was hit by
outbreaks of highly pathogenic avian flu. Total import volumes
reached 60,592 tons of chicken meat in the January-April period -
an increase of 13% y/y. This almost matches the record volume
imported in the same period in 2019. (IHS Markit Food and
Agricultural Commodities' Max Green)
Brazil and Thailand strengthened their dominance as suppliers
of poultry meat - together providing more than 93% of total import
volumes.
South Korean imports from Brazil reached 43,861 tons in the
period - an increase of 24% y/y. Imports from Thailand were up
12.5% y/y at 12,744 tons.
In contrast, imports from the US fell below 1,000 tons - down
22% y/y. The US, which six years ago was the leading supplier of
chicken meat to the Korean market, now accounts for less than 2% of
total import volumes.
Indonesia's ride-hailing and payments giant Gojek has merged
with local e-commerce company Tokopedia to form GoTo Group. The new
company will be led by Gojek's Andre Soelistyo as group CEO and
Tokopedia's Patrick Cao will serve as group president. GoTo Group
will combine e-commerce, on-demand, and financial services from
Gojek and Tokopedia. The companies together have over 11 million
merchant partners as of December 2020 and more than 100 million
monthly active users. Gojek and Tokopedia first began working
together in 2015 to accelerate e-commerce deliveries using Gojek's
drivers. The companies started conducting discussions on a
potential merger in 2018, but the deal did not materialize.
Negotiations between the companies gained attention in November
2020 after months-long merger talks between Gojek and rival Grab
reached an impasse. Common investors of Gojek and PT Tokopedia
include Temasek Holdings, Sequoia Capital, and Google. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Australia's Deputy Prime Minister Michael McCormack said on 13
May that Australia is seeking "patience" in its relationship with
mainland China, but is also aiming for "broadening its trade
interests" and to "diversify their markets" to other countries. The
remarks follow a 6 May decision by China's National Development and
Reform Commission (NDRC), under the State Council, to "indefinitely
suspend all activities" under the China-Australia Strategic
Economic Dialogue (CASED), which was initially introduced in June
2014 and involved annual talks between the NDRC and Australia's
treasurer and trade minister, although no exchanges have taken
place since 2017. (IHS Markit Country Risk's Hannah Cotillon and David Li)
CASED's suspension indicates that China is considering limiting
Australia's long-term role as a main economic partner, particularly
in commodities trade. CASED's main role is to advocate for closer
economic engagement and to provide a platform for
bureaucratic-level engagements. Its suspension by China is almost
certainly a reciprocal response to the cancellation on 21 April of
two Belt and Road Initiative (BRI) agreements in Victoria state
under Australia's Foreign Relations Act, which was passed in
December 2020.
The cancellation of BRI agreements in Victoria reflects the
Australian federal government's unwillingness to reverse core
policies affecting Chinese interests in Australia. Recent targeted
measures affecting Australian exports to China have not resulted in
a softening of Australia's policies towards Beijing.
Termination of the Darwin port lease would be likely to result
in reciprocal measures from China affecting key Australian exports.
Defense Minister Peter Dutton confirmed on 3 May that the 2015
lease of the commercial port of Darwin in the Northern Territory to
China's Landbridge Group is under review by the Department of
Defense.
Posted 17 May 2021 by Chris Fenske, Head of Fixed Income Research, Americas, S&P Global Market Intelligence
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