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Global equity markets closed modestly lower across Europe, but
were mixed across APAC and the US indices. Credit indices closed
weaker across Europe/US and IG/HY, while US government bonds
strengthened. The markets are cautiously watching as the number of
COVID-19 cases in certain hotspots continue to rise, with Florida
being of particular concern in the US given its steep trajectory of
new cases and its percentage of positive tests.
Americas
Most US equity ended the day close to unchanged; DJIA -0.2%,
Russell 2000 flat, S&P 500 +0.1%, and Nasdaq +0.3%.
10yr US govt bonds closed -3bps/0.71% yield.
CDX-NAIG closed +3bps/75bps and CDX-NAHY +13bps/385bps.
Crude oil +2.3%/$38.84 per barrel
Carnival Corp. reported a preliminary quarterly loss of more
than $4 billion and it warned that it could breach a loan agreement
in a prolonged sailing pause. The company posted a preliminary
fiscal second-quarter loss of $4.37 billion, or $6.07 a share,
compared with a profit of $451 million, or 65 cents a share, in the
same period last year. Revenue for the quarter was $700 million,
down 85% from a year earlier. The company said it had $7.6 billion
in liquidity as of the second quarter ended May 31 and expects to
burn about $650 million a month for the second half of the year.
(WSJ)
The chart below is a Price Viewer graph shows the significant
impact that COVID-19 had on the yield for Carnival Corporation's
7.2% 10/2023 USD corporate bond issue:
Seasonally adjusted US initial claims for unemployment
insurance, at 1,508,000 in the week ended 13 June, remained at
historically high levels, although well below the all-time high of
6,867,000 in the week ended 28 March. This was the 13th straight
week with claims in seven figures. (IHS Markit Economist Akshat
Goel)
The seasonally adjusted number of continuing claims (in regular
state programs), which lag initial claims by a week, fell by 62,000
to 20,544,000 in the week ended 6 June. This is well below the
all-time high of 24,912,000 in the week ended 9 May and indicates
that as businesses reopen, furloughed workers are cautiously
getting recalled.
The insured unemployment rate in the week ended 6 June stood at
14.1%.
There were 760,526 unadjusted initial claims for Pandemic
Unemployment Assistance in the week ended 13 June. In the week
ended 30 May, there were 9,280,644 continuing claims for PUA.
While continuing claims for regular state programs have
declined in the past two weeks, not everyone getting off these
benefits is heading back to work. Individuals who have exhausted
regular benefits are eligible for up to 13 weeks of extended
benefits under the Pandemic Emergency Unemployment Compensation
(PEUC). In the week ended 30 May, 1,077,319 individuals were
receiving PEUC benefits with 35 states accepting claims for PEUC so
far.
The Department of Labor provides the total number of people
claiming benefits under all its programs with a two-week lag. The
unadjusted total for the week ended 30 May was 29,165,753; 63% of
this total is from regular state programs and 32% from the PUA
program.
The Philadelphia Federal Reserve June 2020 survey built upon
last month's tentative gains, bouncing back well into positive
territory at 27.5. That marks an impressive 70-point jump from the
May level, and the index's first reading above zero since February.
(IHS Markit Economist Tom Jackson)
Of the surveyed firms, 46% reported increased activity in June
compared with May, with 19% reporting declines. Of course, these
increases come on the heels of two months' worth of record
declines, but still represent a solid move toward recovery.
The index of new orders, an indicator of demand and a harbinger
of future activity, rose to 16.7.
The index of current shipments showed a big gain in product
moving off of loading docks with a reading of 25.3.
The index of prices paid moved modestly higher, rising 8 points
to 11.1.
The only negative readings were on the labor front, with both
the number of employees and average employee workweek modestly
negative.
Chile's central bank left rates unchanged at 0.5% during the 16
June meeting and approved the use of non-conventional liquidity and
credit support. The bank has signaled its willingness to keep rates
at this technical minimum over the next two years. (IHS Markit
Economist Ellie Vorhaben)
The Central Bank of Chile (Banco Central de Chile: BCC) has
announced that it will be implementing a special asset purchase
program over the next six months, worth USD8 billion.
The bank is also considering making available USD16 billion in
additional funds to strengthen lending to small and medium-sized
businesses and non-bank credit providers; banks have already
withdrawn 83% of available funds from the current liquidity support
program, the Conditional Facility for Increased Lending.
Inflation has been decelerating since February, reaching 2.8%
in May because of the sharp downturn in economic growth, lower
energy costs, and the appreciation of the Chilean peso. Since
reaching its trough on 20 March, at CLP867/USD, the peso has gained
8%. On the same day, the price for copper reached its minimum of
USD2.3 per pound (0.45kg); prices have since increased by 25%.
In April, Chile's economic indicator (a proxy for GDP)
contracted by 14.1%. May and June could be even worse because
quarantine measures are stricter following an uptick in the number
of COVID-19 cases in May.
Tesla has signed a three-year deal with Panasonic, assuring the
manufacture and supply of lithium-ion batteries at the Gigafactory
plant in Nevada (United States). The deal was disclosed by Tesla in
a US Securities and Exchange Commission (SEC) filing. The filing
says the agreement was entered into on 10 June and that it is an
amendment to the agreement signed on 1 October 2014. Tesla states
that the changes include modifications of the agreement's general
terms and conditions, so the term expires in 10 years, after
Panasonic meets certain manufacturing milestones. In addition, a
new pricing agreement that runs through 31 March 2023 was signed.
That agreement sets pricing, includes planned investments, and
involves new technology. The deal also includes production capacity
commitments by Panasonic and purchase volume commitments by Tesla
over the first two years. The filing does not disclose what those
manufacturing and purchase commitments are. (IHS Markit
AutoIntelligence's Stephanie Brinley)
Merck Animal Health has broadened its digital portfolio with
the purchase of US data analytics firm Quantified Ag for an
undisclosed fee. Lincoln, Nebraska-headquartered Quantified Ag has
developed technology that continuously monitors cattle body
temperature and movement in order to detect illness at an early
stage. In 2018, Merck invested in Quantified Ag and partially
funded its development work. The firm offers cattle producers and
feedlot operators an ear tag-based system and sensors to track an
animal's biometrics and behavioral data. The technology uses
proprietary algorithms to provide real-time reports to users on any
mobile device, desktop or tablet. The acquisition brings an extra
addition to Merck's offering of digital livestock technology. The
company already owns Allflex Livestock Intelligence, which will now
hold the Quantified Ag product portfolio. Merck gained Allflex
Livestock Intelligence through its deal for Antelliq in 2019 . It
specializes in identification and monitoring technology. Like
Quantified Ag, Allflex Livestock Intelligence delivers real-time
data to help improve livestock management. Aside from the Antelliq
transaction, which is the largest digital tech deal in animal
health, Merck also recently became a minority investor in New
Zealand-based farm management software specialist FarmIQ and
acquired Icelandic fish counting specialist Vaki . Merck has so far
built the most comprehensive offering of digital tools among the
leading animal health majors. (IHS Markit Animal Health's Joseph
Harvey)
Although some Fiat Chrysler Automobiles (FCA) plants will still
shut down as normal, some will cancel the production breaks,
according to an Automotive News report. The report says that
Jefferson North Assembly in Detroit; Toledo Assembly in Ohio;
Sterling Heights Assembly in Michigan; Brampton Assembly in
Ontario; Saltillo Truck Assembly in Mexico; and Saltillo Van
Assembly will not shut down. IHS Markit's May 2020 forecast has
FCA's North American production declining to about 1.67 million
units in 2020, compared with 2.43 million units in 2019. (IHS
Markit AutoIntelligence's Stephanie Brinley)
Wheat futures settled lower on the prospect of higher export
competition from other major wheat origins. Chicago July wheat was
down 5 1/4 cents at $4.83 1/2 while Kansas City July was down 4
cents at $4.82 1/2. Minneapolis continued to buck the trend, rising
4 1/2 cents at $5.24 3/4. Recent wheat tenders point to active
participation by the EU and Russia. Egypt's GASC purchased 240,000
tons of wheat for shipment around July 25. The purchase is
comprised of 120,000 tons from Russia, 60,000 ton from Romania and
60,000 ton from Ukraine. The lowest offer presented in the tender
was at $206.95 per ton of Russian wheat. Tunisia's state grains
agency purchased 176,000 tons of soft milling wheat in an
international tender. The lowest offer presented was $211.98 per
ton (C&F). Net US wheat export sales for the 2020/21 marketing
year totaled 504,845 tons in the week ending June 11. (IHS Markit
Food and Agricultural Commodities' Adriel Cheng)
Europe/Middle East/ Africa
European equity indices closed lower across the region; Spain
-1.2%, Germany/France -0.8%, and Italy/UK -0.5%.
10yr European govt bonds closed higher except for UK +4bps;
Italy -4bps, Spain/France -3bps, and Germany -1bp.
iTraxx-Europe closed +3bps/67bps and iTraxx +13bps/385bps.
Jaguar Land Rover (JLR) is planning to cut around 1,100 workers
from its production operations in the United Kingdom. According to
a statement released by the Unite union, 400 workers employed
through the Manpower agency would be cut at Solihull (UK), with the
remainder spread between its other production sites in the country.
They are expected to leave around the time of the mid-year
shutdown. (IHS Markit AutoIntelligence's Ian Fletcher)
Japanese telco SoftBank Corporation has led a USD19.5-million
Series B funding round for London-based on-demand mobility startup
Splyt Technologies. Other participants in the round included
American Express Ventures and Splyt's existing investors. SoftBank
will take a "significant stake" in Splyt and its global business
division head, Daichi Nozaki, will join Splyt's board of directors.
This investment is a strategic partnership that will allow Splyt to
integrate SoftBank's different app platforms of group companies
into a single interface. Splyt was founded in 2015 and focuses on
providing its technology to support app operators to integrate
their mobility options with other services. Splyt operates an
on-demand mobility marketplace and its platform gives its partners
access to ride-hailing inventories in more than 1,000 cities. (IHS
Markit Automotive Mobility's Surabhi Rajpal)
The European Commission has announced its investigation into
FCA and PSA merger. The European Union's statement says that the
"Commission is concerned that the proposed transaction may reduce
competition with respect to light commercial vehicles [vans] below
3.5 ton in the European Economic Area [EEA]." Executive
Vice-President Margrethe Vestager, responsible for competition
policy, is quoted as saying, "Fiat Chrysler and Peugeot SA, with
their large portfolio of brands and models, have a strong position
in commercial vans in many European countries. We will carefully
assess whether the proposed transaction would negatively affect
competition in these markets and ensure that a healthy competitive
landscape remains for all the individuals and businesses relying on
commercial vans for their activities." The commission notes that in
many markets, either PSA or FCA are already market leaders in the
segment, and the merger would remove one of the main competitors.
The commission also noted it is specifically concerned about the
LCV markets in Belgium, Croatia, Czechia, France, Greece, Hungary,
Italy, Lithuania, Luxembourg, Poland, Portugal, Slovakia, Slovenia,
Spain, and the UK. (IHS Markit AutoIntelligence's Stephanie
Brinley)
According to the latest monthly industrial data from Statistics
Finland, output adjusted for variation in working days in April
contracted by 3.1% year on year (y/y), after growing by 3.4% y/y in
March and decreasing y/y in the previous two months. Consequently,
the contraction in January-April settled at 0.8% y/y. (IHS
Economist Venla Sipilä)
While base effects affected the y/y results, month-on-month
(m/m) developments also showed weakening results. Indeed,
seasonally adjusted output in April fell by 2.2% from March,
following m/m growth of 2.3% in February.
The annual contraction in the mining sector deepened in April,
while the poor performance of the metals sector particularly
contributed to weakness in manufacturing. M/m developments were
especially shaky in the chemical sector, which contracted by 6.8%
m/m.
Preliminary Finnish Customs data show that goods exports in
April contracted by 19.8%, while imports fell by a faster rate of
27.5% y/y. Consequently, the trade balance returned to a surplus of
EUR190 million (USD214 million), compared with the deficit of
EUR320 million in April 2019.
In January-April, the total value of exports eased by 14.5% y/y
while imports slid by 9.3% y/y. The resulting trade deficit of
EUR1.2 billion compares unfavorably with the surplus of EUR45
million posted in the same period last year.
The significant fall of both exports and imports in April was
greatly affected by decreased value of transport equipment and oil
products. Exports of machinery and equipment and forest industry
products also contracted. A base effect from an aircraft purchase
worth EUR160 million exacerbated the import slide.
Exports to other EU member states in April fell by 21.5% y/y,
while non-EU exports retreated by 17.9% y/y. In particular, exports
to Germany collapsed by 38.4% y/y, to Russia by 25.0%, and to the
United States by 28.6% y/y.
The Norges Bank's Monetary Policy and Financial Stability
Committee voted unanimously to keep its policy rate at 0%. The
central bank expects the policy rate to remain at 0% over the next
couple of years, followed by "a gradual rise as economic conditions
normalize." Meanwhile, IHS Markit assumes the first interest rate
rise is likely to be delayed until the third quarter of 2024, and
the anticipated peak of 1.75% is likely to occur only in 2030. (IHS
Markit Economist Raj Badiani)
The Swiss National Bank (SNB) in its latest regular quarterly
review has not changed policy or deposit rates but has stressed
that it will continue to provide the banking system with fresh
liquidity via its COVID-19 Refinancing Facility (CRF) to ensure
that companies in the real sector do not become insolvent simply
for lack of liquidity. (IHS Markit Economist Timo Klein)
Both the Swiss Average Rate Overnight (SARON), the key policy
rate, and the sight deposit rate have been kept at -0.75%.
The SNB is also maintaining the higher exemption thresholds
(than prior to March 2020) up to which banks do not need to pay any
negative interest on their sight deposits at the SNB (allowance
factor of 30). This has reduced banks' payments to the central bank
and thus their cost burden despite the persistence of a deeply
negative interest-rate environment.
The SNB is extending the deactivation of the countercyclical
(equity) capital buffer that banks are normally required to
maintain in order to counteract asset overvaluation risks in the
Swiss mortgage and real-estate market.
Montenegro's GDP rose by 2.7% year on year (y/y) during the
first quarter, a surprisingly strong result given the introduction
of the social distancing measures in mid-March aimed at containing
the spread of the COVID-19 virus pandemic. (IHS Markit Sharon
Fisher)
The first-quarter growth was driven by household demand and
fixed investment, while net exports and inventories were negatively
affected. Government consumption experienced flat growth.
Although the breakdown by value added is not yet available,
industrial output reported rapid growth in the first quarter,
rising by 12.9% y/y, thanks to strong results in all three sectors
(manufacturing, mining, and utilities). Positive first-quarter
results were also recorded in construction activity and
agriculture.
In line with the positive growth in household demand, nominal
retail sales rose by 7.4% y/y in the first quarter. This was
despite a steep drop in tourism, with overnight stays plunging by
18.9% y/y owing to a sharp March decline.
Although the first-quarter result was better than anticipated,
IHS Markit estimates that Montenegro will have experienced a steep
economic decline starting in April. In the May detailed forecast
round, we reduced our full-year GDP outlook for the country and are
now projecting an 8.5% drop.
Toufik Hakkar, CEO of Algeria's energy major Sonatrach, has
provided an update on the company's growth projects against the
background of the COVID-19 pandemic.
He says that despite reducing staff levels to avoid the spread
of COVID-19, oil and gas production volumes had not declined.
The company is now preparing for the "post-coronavirus" stage,
and plans an "imminent signing of several production,
petrochemical, and service contracts," he says.
The group says it continues to explore profitable investment
opportunities as part of its expansion in and outside the country.
Among priority petrochemical projects, Hakkar singled out the
grassroots Hassi Messaoud, Algeria, refinery with a capacity of 5
million metric tons/year, an agreement for which was signed in
early 2020.
Sonatrach is also planning petrochemical projects to transform
Algeria's hydrocarbon resources into plastics. These include
previously announced propane dehydrogenation (PDH) and
polypropylene (PP) plants planned jointly with Total at Arzew,
Algeria, and a similar joint venture with Rönesans Endüstri at
Ceyhan, Turkey.
Hakkar reveals that there are other projects under study,
including a $6-billion investment to transform oil and gas into
polymers at Skikda. This project is in the consultation stage with
a foreign partner. Another $6-billion methanol and derivatives
project is under study with another partner, he says.
MilliporeSigma, the US/Canada-based life sciences business of
German pharmaceutical, chemical, and life sciences conglomerate
Merck KGaA, is working together with US-based 10x Genomics, a
specialist in gene sequencing technology, to offer a new option for
companies involved in research involving Clustered Regularly
Interspaced Short Palindromic Repeats (CRISPR) technology. The
companies are combining their technologies to allow for the
screening of single cells using CRISPR libraries, as stated by
Merck KGaA in its press release. According to Andrew Bulpin, head
of Process Solutions in the Life Sciences business of Merck KGaA,
this will allow for the identification of novel molecular
therapeutic targets and speed up the discovery of treatments in
autoimmune disease, immuno-oncology, neurodegeneration, and other
diseases. As a result of combining single-cell transcriptomics and
pooled CRISPR screening, Merck KGaA will be the sole provider of a
tool that enables the measurement, simultaneously, of gene
perturbation and unbiased gene expression from single cells. (IHS
Markit Life Sciences Brendan Melck)
Asia-Pacific
APAC equity markets closed mixed; India +2.1%, China +0.1%,
Hong Kong -0.1%, South Korea -0.4%, Japan -0.5%, and Australia
-0.9%.
A three-day surge in Nintendo shares has propelled the market
value of the Japanese games maker to ¥6.6tn ($62 billion) and past
the country's biggest bank, retailer and chemical company as
investors bet on the long-term role of video games in a
coronavirus-stricken world. (FT)
The Chinese vehicle market experienced a strong month in May.
New vehicle sales on a wholesale basis increased by 14.5% year on
year (y/y) to 2.19 million units during the month, while production
rose by 18.2% y/y to 2.19 million units, according to data from the
China Association of Automobile Manufacturers. (IHS Markit
AutoIntelligence's Nitin Budhiraja)
Thanks to a rebound in new vehicle demand that began in April,
vehicle sales and production volumes in the year to date (YTD;
January to May) are narrowing the gap with the same period last
year. The passenger vehicle (PV) market posted its first demand
increase of the year during May, ending a prolonged decline since
July 2018. Sales of PVs rose by 7.0% y/y to 1.67 million units last
month, while PV production increased by 11.2% y/y to 1.66 million
units.
The new energy vehicle (NEV) sector and vehicle exports are
still in distress during the recovery period from the COVID-19
pandemic. Sales of NEVs, which primarily comprise battery electric
vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs),
declined 23.5% y/y to 82,000 units in May.
In the YTD, sales of NEVs have fallen by 38.7% y/y to 289,000
units.
Vehicle exports in May decreased 37.4% y/y to 49,000 units.
Export volumes of both PVs and commercial vehicles contracted in
May.
PV export volumes fell 36.2% y/y to 35,000 units last month,
while commercial vehicle exports fell by 40.2% y/y to 14,000
units.
Due to demand contractions in international markets, China's
vehicle export volumes have fallen by 17.5% y/y to 323,000 units in
the YTD.
We have slightly adjusted our forecast on Chinese light-vehicle
sales and production in 2020. We anticipate light-vehicle sales in
mainland China to decline by 13.4% to 21.5 million units in 2020 as
vehicle demand is likely to face further contraction in the second
half of the year.
Chinese agrochemical company Jiangsu Changqing's agrochemicals
sales were up 12.4% at Yuan 3,287 million ($465.1 million at the
current rate) in 2019. Agrochemicals accounted for 97.3% of total
revenues, which rose by 12.5% to Yuan 3,377.2 million ($477.9
million). Insecticides were the major product category for the
company, accounting for 49.8% of sales. They were followed by
herbicides making up 40.7% of revenues, and fungicides with 6.7%.
Exports accounted for 58.3% of total revenues. Net profit on total
sales rose by 10.4% to Yuan 355.5 million ($50.3 million). (IHS
Markit Crop Science's Shuyou Han)
Hyundai has announced that the first batch of 20 Nexo
hydrogen-powered sport utility vehicles (SUVs) has arrived in
Australia, according to The Driven website. The vehicles will be
deployed in the Australian Capital Territory (ACT) government's
fleet across several departments. The vehicle offers a long range
of 666 km and is the first fuel-cell electric vehicle (FCEV)
certified for sale in Australia. The fleet will be supported by
Canberra's first 700-bar hydrogen refueling station, which is
expected to open in the third quarter of 2020, according to a
report by ACROFAN. (IHS Markit AutoIntelligence's Nitin
Budhiraja)
The Chittagong Stock Exchange - one of Bangladesh's two stock
exchanges - on 17 June urged the government to expand proposals to
reduce the corporate tax rate in line with proposals to reduce the
rate for non-listed companies. The government proposed a 2.5%
percentage point decrease in the tax rate for non-listed companies
to 32.5% in its budget for fiscal year (FY) 2021, which was
announced on 11 June. Listed companies' tax rate was retained at
25%, and although the government pledged to reduce corporate tax
rates more broadly over the next five years, it did not provide
specific numbers. Moreover, the government proposed extending
expired tax breaks for garment manufacturing - which has been
particularly affected by the COVID-19 virus pandemic - that would
keep the sector's average tax rate at around 12%. (IHS Markit
Country Risk's Asad Ali)
Posted 18 June 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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