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Major APAC and European equity markets closed mixed, while all
major US indices closed lower. US government bonds closed mixed
with the curve flatter on the day, while most benchmark European
bonds closed higher. IG subindices closed flat across European
iTraxx and CDX-NA, while high yield indices were slightly wider on
the day. Natural gas closed higher, the US dollar was flat, and
oil, gold, silver, and copper closed lower.
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Americas
All major US equity indices closed lower; Russell 2000 -0.8%,
Nasdaq -0.9%, S&P 500 -1.1%, and DJIA -1.1%.
10yr US govt bonds closed flat/1.26% yield and 30yr bonds
-2bps/1.90% yield.
Data from Google Trends indicates that the relative number of
Google searches (0-100 scale) in the US for the term 'delta
variant' in 2021 (YTD as of Aug 15) began to increase noticeably in
June and negatively correlated with the cumulative change in 10yr
US Treasury bond yields since June 1.
CDX-NAIG closed flat/30bps and CDX-NAHY +2bps/295bps.
DXY US dollar index closed flat/93.14.
Gold closed -0.2%/$1,784 per troy oz, silver -1.0%/$23.42 per
troy oz, and copper -2.0%/$4.12 per pound.
Crude oil closed -1.7%/$65.21 per barrel and natural gas closed
+0.4%/$3.85 per mmbtu.
Tight gas market fundamentals in the US continue to point to
strong fall and winter natural gas prices. As a consequence of
capital discipline and supply inelasticity in the face of strong
and resilient demand fueled by the twin engines of limited domestic
coal switching and booming global LNG markets, the price impact of
storage deficits is being amplified on the upside, both in terms of
price at a given inventory level and price responsiveness to
changes in inventories. For the first time in many years, US gas
markets are displaying a lack of confidence that the US shale
supply system can balance itself without gas prices materially
above $3/MMBtu, leading to the ongoing process of price discovery.
This new relationship indicates that the possibility of winter
price spikes is higher than in recent years, and that even absent a
spike-worthy winter weather event, volatility could be higher. (IHS
Markit Energy Advisory's Roger
Diwan and North America Natural Gas' Matthew
Palmer)
The minutes of the meeting of the Federal Open Market Committee
(FOMC) held on 27 and 28 July were published this afternoon (18
August). At that meeting, the Committee maintained the stance of
monetary policy, with unanimous support among voting members. The
target for the federal funds rate was kept at a range of
0.00-0.25%, large‑scale asset purchases were continued at their
current rate, and the Committee repeated forward guidance for both
interest‑rate and balance‑sheet policies. FOMC participants heard
staff presentations on options for reducing the pace of asset
purchases (the taper) and held an in‑depth discussion about
tapering but made no decisions. Most FOMC participants are prepared
to start reducing asset purchases this year if economic conditions,
especially in labor markets, evolve as they expect. However,
several other participants prefer a more patient approach to
tapering asset purchases. In response to the revelation in the
minutes that "most" participants prefer to start tapering asset
purchases this year, we have moved up our assumption for the start
of the taper from January 2022 to this November. The impact on our
forecasts for bond yields is minor because a slightly earlier start
to the taper would have a relatively small impact on the trajectory
for the Fed's securities portfolio. (IHS Markit Economists Ken
Matheny and Chris
Varvares)
US single-family permits, arguably the most important number in
the monthly new residential construction report, dropped 1.7% in
July (plus or minus 0.8%; statistically significant) to a 1.048
million rate. This category fell for the fourth straight month; it
stands 4% above its February 2020 pre-pandemic reading, but 17%
below a January 2021 peak. (IHS Markit Economist Patrick
Newport)
Soaring home prices have shifted demand from the single-family
to the multifamily market. Multi permits soared to a 587,000-unit
annual rate, the third-highest monthly reading in 30 years.
Builders have taken out 321,000 permits this year through July, the
highest year-to-date total since 1986.
Total permits, which increased 2.6% in July (plus or minus
0.9%; statistically significant), were down 13.0% from a January
peak, but still up 11.0% from February 2020, the month before the
pandemic struck.
Housing starts fell 7.0% (plus or minus 8.9%, not statistically
significant) in July to a 1.534 million annual rate; single-family
starts dropped 4.5% (plus or minus 9.9%, not statistically
significant) to a 1.111 million rate; multifamily starts plunged
13.1% to a 423,000 rate.
The price deflator for new residential structures increased at
a 14.6% annual rate in the second quarter, the highest reading
since 1973; this followed a 12.6% first-quarter reading. Higher
construction costs have played a key role in slowing a housing
market that at the start of this year was on fire.
Housing starts likely peaked in the fourth quarter. We expect
them to gradually dip over several quarters before stabilizing in
about two to three years at a level set by increases in the number
of households.
More than two dozen shrimp products sold throughout the US by
retailers including Target and Whole Foods are now being recalled,
due to ongoing concerns about an outbreak of Salmonella Weltevreden
linked to frozen cooked shrimp manufactured by Avanti Frozen Foods
of India. In the latest development of the unusual Salmonella
outbreak, Avanti Frozen Foods announced August 13 it is expanding
an existing June 25 recall to include certain consignments of
various sizes of frozen cooked, peeled and deveined shrimp sold in
various unit sizes. The recalled products were distributed
nationwide from November 2020 to May 2021 and are being recalled
due to concerns over potential Salmonella contamination, the
company said. The Avanti shrimp was sold under various brand names,
including Nature's Promise, Meijer, Food Lion, Ahold, Censea,
Seacove, Hannaford and more. (IHS Markit Food and Agricultural
Policy's Margarita Raycheva)
Canada's consumer prices inflation jumped 0.5% month on month
(m/m) on a seasonally adjusted basis (SA) and gained 0.6% m/m on a
non-seasonally-adjusted basis (NSA). (IHS Markit Economist Chul-Woo
Hong)
The annual inflation rates elevated to 3.5% year on year (y/y)
SA and 3.7% y/y NSA, the strongest pace since March 2003.
The average core inflation rate was up 0.2 percentage point to
2.5% y/y as the consumer price index (CPI)-trim and CPI-median
inflation rates accelerated to 3.1% y/y and 2.6% y/y,
respectively.
Goods and services price inflation quickened to 5.0% y/y and
2.6%, respectively.
The stronger-than-expected inflation rate in July is still in
line with the Bank of Canada's forecast in July's Monetary Policy
Report.
Europe/Middle East/Africa
Major European equity indices closed mixed; Spain +1.2%, Italy
+0.5%, Germany +0.3%, UK -0.2%, and France -0.7%.
10yr European govt bonds closed higher except for UK flat;
Italy -2bps and Germany/France/Spain -1bp.
iTraxx-Europe closed flat/48bps and iTraxx-Xover
-1bp/235bps.
Brent crude closed -1.2%/$68.23 per barrel.
The number of payrolled UK employees showed another strong
monthly increase, up by 182,000 month on month (m/m) to 28.9
million in July. However, it remains 201,000 below pre-COVID-19
virus pandemic levels. (IHS Markit Economist Raj
Badiani)
Three of the sectors benefiting the most from the end of
COVID-19 restrictions reported a rise in payrolled employees
between June and July, namely accommodation and food service
activities by 32,000 m/m, arts and entertainment by 13,000 m/m, and
wholesale and retail by 7,000 m/m.
The Office for National Statistics (ONS) reported that total UK
employment (all aged 16 plus) increased by 95,000 quarter on
quarter (q/q), or 0.3% q/q, to 32.3 million in the three months to
June, compared with the three months to March.
In annual terms, the number of employed people in the three
months to June was 329,000, or 1.0%, lower compared with a year
earlier.
The number of unemployed people based on the Labour Force
Survey (LFS) or the International Labour Organization (ILO) measure
decreased by 53,000 q/q in the three months to June, standing at
1.6 million.
The unemployment rate fell for the second straight quarter when
falling to 4.7% in the three months to June. The drop in
unemployment was because of rising employment, which offset the
impact of a lower economic inactivity rate of 21.1%.
The pace of job losses continued to slow. The number of
redundancies decreased by 52,000 to 99,000 in April-June, compared
with the three months to March. This represents a redundancy rate
of 3.6 per 1,000, down from 12.9 in October-December 2020
Furthermore, the number of vacancies continued to climb,
averaging a record high of 953,000 over the three months to July,
up by 290,000 compared with the three months to April and 168,000
above its pre-pandemic levels.
The sectors reporting the largest rises in vacancies were
accommodation and food service activities and human health and
social work activities, up by 73,000 and 57,000, respectively.
Average annual weekly earnings (total pay including bonuses)
growth stood at 8.8% year on year (y/y) in the three months to
June. Regular pay (which excludes bonus payments) growth rose for
the 11th successive time and at a quicker pace, standing at 7.2%
y/y in the three months to June.
The Office for National Statistics (ONS) has reported that the
United Kingdom's 12-month rate of consumer price index (CPI)
inflation dropped surprisingly to 2.0% in July from 2.5% in the
previous month. (IHS Markit Economist Raj
Badiani)
The rate was equal to the Bank of England's (BoE)'s 2% target
for inflation.
During 2020, inflation averaged 0.9%.
Energy-related prices rose aggressively on an annual basis,
with transport fuel and lubricant prices growing by 17.7 year on
year (y/y), the fourth successive double-digit increase. This was
in line with global crude oil prices rising by 73.7% y/y to average
USD75.1 per barrel (pb) in July, the sixth successive gain since
January 2020.
Clothing and footwear prices decreased by 2.0% month on month
(m/m) in July, lowering the annual rate of change to 1.7% from 3.0%
in June. This was due to more generous summer sales in July
compared with a year ago when clothing and footwear prices fell by
0.7% m/m.
The ONS reported a notable rise in second-hand car prices due
to rising demand because the shortage of semiconductor chips has
disrupted production of new vehicles.
All-services price inflation fell to 1.6% in July from 2.1% in
June; for goods, it stood at 2.5%, down from 2.8% in June.
Core inflation, excluding energy, food, alcoholic beverages,
and tobacco prices, retreated to 1.8% in July from 2.3% in
June.
Mini has revealed a new concept to highlight the use of more
sustainable materials and manufacturing methods. Working in
conjunction with fashion designer Paul Smith, a Mini Electric which
has been stripped back and every aspect has been reviewed, to
create the Strip concept. Exterior changes include the body being
left unpainted with only a transparent paint film applied to
prevent corrosion. In addition, the rubbing strips and arches have
been 3D printed from recycled plastics, as well as the front and
rear apron inserts, while the grille, aerodynamic wheel covers, and
panoramic roof have been manufactured from recycled Perspex. The
interior has also been taken back to basics, with all the trim
omitted with the exception of the dashboard, topper pad and parcel
shelf, while the central dashboard display has been removed and
would instead be replaced by the driver's smartphone. The only
controls are said to be toggle switches for the power windows and
the start-stop function. The seats are upholstered in a knitted
mono-material that is fully recyclable, and the floor mats are
manufactured from recycled rubber. The interior uses cork for
certain remaining trim elements, which helps acoustics, and a mesh
covering is used to cover the airbag pad on the steering wheel and
the door panels. (IHS Markit AutoIntelligence's Ian Fletcher)
July's rise in eurozone HICP inflation from 1.9% to 2.2% was
confirmed by Eurostat's final estimate, above the initial market
consensus expectation (of 2.0%). (IHS Markit Economist Ken
Wattret)
This is the highest rate since October 2018, with energy
primarily responsible for the acceleration.
The year-on-year (y/y) rate of change in energy inflation rose
to a new high of 14.3% in July, slightly above the "flash"
estimate. In contrast to prior months, however, the acceleration
was not due to base effects but rather, a strong month-on-month
(m/m) rise (of 2.0%, due to higher crude oil prices).
The final data also confirmed July's unexpectedly large decline
in the core HICP inflation rate excluding food, energy, alcohol and
tobacco prices, from 0.9% down to 0.7%.
Spain's wine inventory fell to 39.4 million hectoliters in
June, down by 3.5 million hectoliters from May, according to the
latest wine market report from Spain's agriculture ministry. (IHS
Markit Food and Agricultural Commodities' Vladimir Pekic)
The country's total June inventory consisted of 21.4 million hl
of red/rose in bulk, 11.4 million hl of white in bulk, 3.2 million
hl of bottled red/rose and 3.4 million hl of bottled white wine.
The overall wine inventory is still 2 million hl higher than in
June 2020.
Although the June inventory is larger than last year's, the
market seems to be balancing out. The new wine grape harvest in the
Valencian Community is approaching and according to the estimates
of the farmers' association LA UNIÓ de Llauradors it could be
between 5-10% lower than last year. The group said it expects the
Spanish crop to suffer an even larger decline.
Asaja, the largest agricultural professional organization in
Spain, recently predicted that between 39 -40 million hectoliters
of wine will be produced this upcoming season (2021-22), down 15%
from 46.49 million hectoliters in the previous season and about 10%
less than the average of the last three seasons.
The expected drop in production will occur in the largest
grape-growing areas, such as Castilla-La Mancha, where the drop in
wine production is expected to reach 15% y/y, and in Extremadura
that is predicted to produce 20% less wine than in the previous
season. This decrease in production is being attributed to the
damages caused by the Filomena snowstorm in January, which caused
significant damage in the main wine-growing areas.
The Bank of Uganda (BoU) during its monetary policy committee
(MPC) meeting on 12 April maintained its benchmark policy rate at
6.5%; the central bank rate (CBR) was lowered from 7.0% to 6.5% in
June. (IHS Markit Economist Alisa Strobel)
In August, the central bank's MPC announced that it will
maintain the CBR at 6.5%, raising concerns that a second wave of
the coronavirus disease 2019 (COVID-19) virus pandemic is likely to
have a severe negative impact on the economy during the third
quarter of 2021.
The MPC has also decided to maintain the band on the CBR at
plus or minus 2 percentage points, while the margin on the
rediscount rate and bank rate was left unchanged at 3 and 4
percentage points on the CBR, respectively. The rediscount rate and
the bank rate were maintained at 9.5% and 10.5, respectively, at
the MPC meeting.
The BoU has highlighted that uncertainty regarding its
inflation projections remains. Although risks are balanced, the
adverse weather and high global commodity prices of oil, for
example, could continue fueling headline inflation upwards through
higher food and transportation costs. However, domestic demand
could decrease, lowering price pressures in the wake of a second
wave of the COVID-19 virus pandemic and its related containment
measures.
Asia-Pacific
Major APAC equity markets closed mixed; Mainland China +1.1%,
Japan +0.6%, South Korea +0.5%, Hong Kong +0.5%, Australia -0.1%,
and India -0.3%.
Mainland China's year-on-year (y/y) real industrial value-added
growth fell by 1.9 percentage points to 6.4% in July, marking the
third consecutive month of decline since May. Meanwhile, on a
two-year (2020-21) average basis, the growth rate fell to 5.6% from
5.6% in the previous month. The month-on-month growth rate also
fell by 0.3 percentage point to 0.3% expansion after a short-lived
pickup in June. (IHS Markit Economist Yating
Xu)
Contraction in upstream sectors due to production curbs
implemented to help achieve decarbonization targets, in addition to
the persisting chip shortage, led to the moderation in industrial
production. Meanwhile, the resurgence of COVID-19 cases and extreme
floods this summer added to the disruptions in overseas and
domestic demand. By sector, ferrous metals smelting sector growth
deteriorated from a 4.1% y/y expansion to a 2.6% y/y contraction,
while growth of the non-ferrous metals smelting and non-metal
minerals sector moderated. Downstream sectors' performance
continued to diverge, with the high-tech manufacturing sector
maintaining double-digit growth while the automobile manufacturing
sector contracted further. The equipment manufacturing sector's
growth fell with the slowdown in infrastructure investment
growth.
The service production index, on a two-year (2020-21) average
basis, grew by 5.6% compared with 2019 levels, down 0.4 percentage
point from the reading a month ago but higher than the percentage
point lower than the May 2019 growth rate.
Year-on-year FAI growth declined by 2.3 percentage points to
10.3% through July largely as a result of the higher-base effect.
On a 2020-21 average basis, FAI growth fell to 4.3% from 4.4% in
the previous month. Month-on-month growth slowed from 0.26% in June
to 0.18% in July. IHS Markit estimates that decumulative FAI growth
deteriorated from 6% y/y expansion to 0.4% y/y contraction.
By sector, estimated decumulative infrastructure investment
fell by 10.1% y/y in July compared with a 0.3% y/y fall in the
previous month; estimated decumulative real estate investment
growth fell from 6% y/y in June to 1.2% y/y in July owing to the
government's deepening de-risking campaign. Decumulative combined
real estate and infrastructure investment growth deteriorated from
a 2.3% y/y expansion in June to 5.2% y/y contraction in July.
Manufacturing investment continued to improve with sustained robust
growth in investment in high-tech manufacturing and high-tech
services, such as medical instruments, aerospace equipment, and
e-commerce.
The floor space of commercial housing sales dropped by 8.7% in
July from a 7.5% y/y expansion in June as housing market controls
were tightened in cities with "hot" housing markets. Meanwhile,
developers' financing growth continued to slow to 9.2% on a
two-year (2020-21) average basis as bank loans declined, while
mortgages and purchasers' deposits expanded at slower rates.
Year-on-year nominal retail sales fell by 3.6 percentage points
from June to 8.5% in July, despite the consumption drive in summer
vocation. On a two-year (2020-21) average basis, nominal retail
sales growth declined by 0.9 percentage point to 3.6%.
Month-on-month growth declined by 0.13%. Real retail sales growth
decelerated by 3.4 percentage points to 6.4% y/y.
Baidu has unveiled its first fully autonomous robocar Apollo
during its annual flagship technology conference Baidu World 2021,
reports CNBC. The robocar is equipped with Level 5 autonomous
system, representing fully autonomous capability, with no steering
wheel or pedals. The company also launched the second-generation
version of its artificial intelligence (AI) chip, Kunlun II, which
has entered mass production. It is designed to support autonomous
vehicle (AV) operations by assisting devices in processing huge
amounts of data and boosting computing power. It has also announced
the rebranding of its driverless taxi app to "Luobo Kuaipao" as it
plans to roll out robotaxis on a massive scale. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Japan's private machinery orders (excluding volatiles), a
leading indicator for capital expenditure (capex), fell by 1.5%
month on month (m/m) in June following three consecutive months of
increases. However, orders from manufacturing and non-manufacturing
(excluding volatiles) continued to rise by 3.6% m/m and 3.8% m/m,
respectively, as the sum of seasonally adjusted individual
groupings did not match total private machinery orders (excluding
volatiles). (IHS Markit Economist Harumi
Taguchi)
Orders from the public sector fell by 2.8% m/m following a 3.1%
m/m increase in the previous month. Orders from overseas also
declined by 10.0% m/m following sharp increases in April and
May.
The third consecutive rise in orders from manufacturing largely
reflected rebounds in orders from non-ferrous metals,
general-purpose and production machinery, and information and
communication electronics equipment, offsetting declines in
electrical machinery, shipbuilding, and some other groupings. The
continued increase in orders from non-manufacturing was thanks
largely to rises in orders from wholesale and retail trade and
construction.
Japan's trade balance recorded a surplus of JPY441 billion
(USD4 billion) on a non-seasonally adjusted basis in July. The
seasonally adjusted balance also recorded a surplus of JPY53
billion following a deficit of JPY63 billion in the previous month.
Exports continued to grow, but softened to a 37.0% year-on-year
(y/y) increase following a 48.6% y/y rise in the previous month.
Imports also softened to 28.5% y/y in July after a 32.7% y/y rise
in June. (IHS Markit Economist Harumi
Taguchi)
The softer increase in exports was due largely to easing low
base effects because of a plunge a year earlier in line with the
global lockdowns. Even so, export growth to all regions remained
solid. Major contributors to the increase were exports of autos,
auto parts, steel and iron, and semiconductors. However, auto
export volume remained below the pre-pandemic level.
The rise in imports largely reflected higher prices for energy
and other commodities, as import volume growth softened to 2.1% y/y
from 8.2% y/y in the previous month. While mineral fuels were the
major driver of imports, accounting for 11.1 percentage points of
total imports, other major contributors to the increase were iron
ore and concentrate, non-ferrous metals, semiconductors, and
medical products (presumably vaccines from the European Union and
the US).
In the bid to improve its financial health and develop
eco-friendly shipbuilding technologies, SHI will raise USD1.1
billion (KRW1.23 trillion) through the sale of new shares. 250
million common shares at KRW4,950 per share will be issued by SHI
but offering price to be finalized by end Oct. 20% of the shares
will be allocated to the company's employees while the balance to
its shareholders. Trading of the new shares in the main stock
market will commence on 29 November 2021. SHI has been in the red
since the 2015. (IHS Markit Upstream Costs and Technology's Jessica
Goh)
BP said a study into the feasibility of an export-scale green
hydrogen and ammonia production plant in Western Australia found
that production using renewable energy is technically feasible at
scale. Western Australia "is an ideal place to develop large-scale
renewable energy assets that can in turn produce green hydrogen
and/or green ammonia for domestic and export markets," the company
said in early August. Green hydrogen production involves
electrolysis using power from renewable resources. Green ammonia
uses this green hydrogen and atmospheric nitrogen as feedstocks.
Both renewables-sourced gases are seen as key decarbonization
tools, especially in hard-to-transition sectors such as
transportation and industries including steel production. The study
findings support BP's view that Western Australia's potential solar
and wind resources, existing infrastructure, and proximity to
large, long-term markets make it "particularly promising,"
according to Frédéric Baudry, APAC senior vice president for fuels
and low carbon solutions at BP. BP said it will continue to work
with key stakeholders to develop plans for integrated green
hydrogen projects in Western Australia, defining technical and
infrastructure solutions, customer demand, and the business models.
A potential investment figure and project schedule were not
disclosed. BP commenced a study in May 2020 of the hydrogen supply
chain and domestic and export markets at two differing scales. One
was for a demonstration/pilot-scale plant for up to 4,000 metric
tons (mt)/year of green hydrogen to produce up to 20,000 mt/year of
green ammonia, while the other was for a 200,000-mt/year renewable
hydrogen plant producing up to 1 million mt/year of green ammonia.
(IHS Markit Net-Zero Business Daily's Keiron Greenhalgh)
Posted 18 August 2021 by Ana Moreno, Director, Product Development, IHS Markit and
Chris Fenske, Head of Fixed Income Research, Americas
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