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All major US and most major APAC equity indices closed higher,
while Europe was lower. US government bonds were almost flat on the
day and benchmark European government bonds closed mixed. European
iTraxx and CDX-NA were modestly tighter on the day across IG and
high yield. WTI and Brent both closed higher, with the latter
noticeably outperforming. Gold, silver, and copper were all higher
on the day. On a positive note, data indicates that the number of
US COVID-19 cases and hospitalizations have been improving since
the all-time peak earlier this month.
Americas
US equity markets closed higher; Nasdaq +1.5%, Russell 2000
+1.3%, S&P 500 +0.8%, and DJIA +0.4%.
10yr US govt bonds closed +1bp/1.10% yield and 30yr bonds
flat/1.84% yield.
Janet Yellen invoked an enduring era of low interest rates in
delivering the Biden administration's opening argument to lawmakers
for its $1.9 trillion COVID-19 relief proposal. President-elect Joe
Biden's pick for Treasury secretary told the Senate Finance
Committee in testimony Tuesday that the slew of spending -- from
aid to small businesses and the unemployed to funding for state
governments -- was needed to fight the pandemic, while playing down
concerns about the debt it creates. (Bloomberg)
CDX-NAIG closed -1bp/51bps and CDX-NAHY -6bps/298bps.
DXY US dollar index closed -0.3%/90.50.
Gold closed +0.6%/$1,840 per ounce, silver +1.8%/$25.32 per
ounce, and copper +0.8%/$3.63 per pound.
Crude oil closed +0.1%/$52.42 per barrel.
The count of seated diners on the OpenTable platform in recent
days has been about 57% below year-earlier levels. This is an
improvement over readings one month ago but is still considerably
worse than readings early last fall, before temperatures turned
cooler, limiting outdoor seating opportunities. Meanwhile, the
Weekly Economic Index, from researchers affiliated with the New
York Fed, slipped to a reading of -2.5 last week. If sustained over
the balance of the first quarter, this would imply roughly a 2.4%
decline in real GDP over the four quarters ending in the first
quarter. This is below the 0.9% four-quarter decline in GDP
implicit in our latest GDP tracking, perhaps suggesting some
downside risk to our forecast. (IHS Markit Economists Ben Herzon
and Joel Prakken)
North Dakota, Idaho, Utah, New York and Kansas are the only
states with more patients in hospital than they had seven days ago.
That is the fewest number of states with rising hospitalizations
since March 23. Overall, the number of people currently in US
hospitals being treated for coronavirus fell to a 17-day low of
123,820 from 123,848 on Monday. That tally is down 6.5% from a
January 6 peak. (FT)
December Canadian housing starts declined 12.6% month on month
(m/m) to 228,279 units (annualized). (IHS Markit Economist Arlene
Kish)
Starts across all segments were down in the month, with the
15.5% m/m drop in urban multi-family units leading the overall
decline.
The December decline in total housing starts was a bit weaker
than projected, but annual starts were the strongest since 2017.
Strong demand will keep starts elevated but softer in 2021 with
slower population growth.
Although urban and rural housing starts were lower in the
month, they remained at robust levels. Given the high levels over
the past several months, the six-month housing starts trend hit a
13-year high at 239,052 units.
Alberta and New Brunswick were the only provinces to buck the
national trend, as starts were up in December; however, compared to
a year ago, Alberta and most of Atlantic Canada were the only
regions where starts were down. Note, CMHC noted that, due to the
pandemic, Kelowna housing starts were not included in the December
figures. The missing starts would not impact the overall direction
of housing trends.
The last three months saw a solid upswing in rural and
single-family units, well above the previous year's levels.
Single-family homebuilding is up across all provinces, so this
isn't just a specific regional issue; however, looking at the same
trend for multi-family units, they are up in six provinces.
Demand conditions are shifting and homebuilders will have to
adjust to meet demand, which will lead to higher costs, as
indicated in recent jumps in the new home price index.
Ontario's latest pandemic restrictions are putting a hold on
nonessential construction activity, so new home builds will be
lower for most of January and the beginning of February. This
announcement will not make a permanent dent on robust housing
demand.
Slightly weaker population growth should not throw current
trends off course, as upbeat sentiment about vaccines should lift
immigration patterns again soon. Starts are expected to average
just above 200,000 units this year.
General Motors (GM) plans to convert its CAMI plant in
Ingersoll, Canada, from production of the Chevrolet Equinox to
production of commercial electric vehicles (EVs) for its new
BrightDrop business unit, according to a company statement. GM's
statement said that the investment is expected to be CAD1 billion
(USD800 million) and that this "will support GM's timing to deliver
BrightDrop EV600 in late 2021". GM states that the work to convert
the plant from producing compact crossover utility vehicles to
building full-size commercial EVs will begin immediately. GM
expects it to take two years to fully transform the plant from
Equinox to EV600 electric commercial van production. Significance:
GM's announcement of the plan to convert the Canadian plant follows
the announcement of its new delivery solutions business BrightDrop
last week. Initially, there was speculation that BrightDrop's first
vehicle, the EV600 van, would be produced at GM's Factory Zero, but
the automaker's latest announcement ends that speculation.
Production of the Equinox is expected to be moved to GM's plant in
Ramos Arizpe, Mexico, although that was not confirmed in the
statement. IHS Markit expects the Mexican facility will receive
investment in order to be able to produce EVs as well, supporting
the company's plans to move as quickly as possible to an EV future.
The latest news also follows GM's announcement late last year of
planned investment in production in Canada, although these were not
for EVs. GM states that the plan to convert the Canadian plant is
subject to ratification by the Unifor union representing workers at
the facility. (IHS Markit AutoIntelligence's Stephanie
Brinley)
In a press release, Kosmos Energy announced a new oil discovery
at Winterfell well in Green Canyon Block 944 Gulf of Mexico (GoM).
Winterfell well encountered two intervals with a total net pay of
26 meters (85 feet) of oil. The well was drilled to a total depth
of about 7,000 meters (22,965 feet) in approximately 1,600 meters
(5,249 feet) of water, the company said. The block was awarded in
June 2017. The company plans to drill the Zora ILX well in the Gulf
of Mexico later this year. In June 2019, Kosmos Energy made its
first GoM discovery at Gladden Deep well in Block Mississippi
Canyon 800. Beacon Offshore Energy operates the block with a 23.10%
interest, with partners Red Willow Offshore (20%), Kosmos Energy
(17.5%), Ridgewood Energy (17.5%), Beacon Asset Holdings (11.90%),
CL&F Resources (5%), and Houston Energy (5%). (IHS Markit
Upstream Companies and Transactions' Karan Bhagani)
Continued economic reopening and fiscal and monetary stimulus
combined to make November Peru's best economic performance since
the COVID-19-virus pandemic began. Nonetheless, the recovery pace
continues on a downward trend and labor market weakness persists.
(IHS Markit Economist Jeremy Smith)
Peru's National Institute of Statistics and Information
(Instituto Nacional de Estadística e Informática: INEI) reports
that monthly output in November rose at a seasonally adjusted rate
of 0.9% month on month (m/m), corresponding to a 2.8% year-on-year
(y/y) decline.
The hospitality and restaurants sector continues to be the most
significant drag on growth, falling by 44.4% y/y in November. Close
behind is transportation and storage with a decline of 21.9% y/y as
all major forms of transportation by land, air, and water remain in
deep contraction.
The finance and insurance sector continued its strong
performance in 2020, rising by 22.4% y/y in November. This is
largely because of significant growth in government-backed credit
extended to businesses under the Reactiva Perú programme.
Construction, which came to a virtual halt in April and May, was
another bright spot in November, rising by 17.3% y/y as many
stalled projects resumed and government-funded projects under
Peru's economic recovery plan began.
Labor market conditions improved in the final quarter of 2020,
but the overall picture remains bleak; total employment in
Metropolitan Lima rose by 5.1% m/m, but levels of unemployment and
underemployment, at 13.8% and 47.7%, respectively, are still
elevated. In addition, total wage earnings fell by 25.6% y/y,
weighing on household consumption.
The timing and availability of a COVID-19 vaccine and the
stringency of containment measures continue to be the most
significant drivers of our short-term forecast. Over the past
month, a marked increase in COVID-19 cases prompted a new set of
measures that was announced on 14 January. These restrictions,
which are more targeted than those implemented early last year,
represent the first significant reversal of Peru's four-phase
reopening plan and were previously unassumed; the potential effects
will be considered in IHS Markit's February forecast.
Meanwhile, Peru has received mixed news about COVID-19
vaccines. Debate over price and delivery details threatens to
derail the country's advance purchase agreement with Pfizer, whose
vaccine was initially planned to begin arriving as early as this
month. On 6 January, President Francisco Sagasti announced new
agreements with Sinopharm and AstraZeneca, which will send a
combined 52-53 million doses. This comes on top of an expected 13.2
million doses to be received via the COVAX Facility. Sinopharm will
reportedly ship the first 1 million doses by the end of January,
although the full calendar has yet to be announced.
The Brazilian government increased the Tax on Commerce and
Services (Imposto sobre Circulaçao de Mercadorias e Serviços: ICMS)
on new vehicles from 12% to 13.3% in the state of São Paulo, and to
14.5% from April, reports Automotive Business. For used cars, the
state tax has increased 207% since a tax value of 18% was applied
to 10% of the sale value of the vehicle, but now that has gone up
to 30.7%. Auto industry organizations say they intend to file a
lawsuit to challenge the increase in ICMS. The entities include the
National Federation of Motor Vehicle Distributors (Federação
Nacional da Distribuição de Veiculos Automotores: Fenabrave), the
National Federation of Motor Vehicle Dealers' Associations (Fenauto
Federação Nacional das Associações de Revendedores de Veiculos
Automotores: Fenauto), and the Union of Vehicle Dealers and
Distributors in the State of São Paulo (Sindicato dos
Concessionários e Distribuidores de Veículos no Estado de São
Paulo: Sincodiv-SP). According to the report, there was an increase
in the 1.8% tax rate to 5.3% on the sale value of the asset, and
that has now been readjusted to 3.9% for used vehicles. A statement
issued by Fenabrave said, "The increase in the tax burden will cost
the State of São Paulo thousands of jobs, company bankruptcies and
an increase in consumer prices, in addition to promoting a drop in
tax collection, which may cause irreversible damage to the sector
and the São Paulo economy. To avoid this scenario, the entities
will take all appropriate legal measures to reverse this arbitrary
decision, which in practice turns the ICMS into a tax with the
effect of confiscation, which is expressly forbidden by the
Brazilian Constitution." Despite the opposition of industry
organizations to the tax increases, the state of São Paulo has
decided to maintain the decision at a time when the vehicle market
in Brazil has slowly started to stabilize following the COVID-19
virus outbreak. The increase in ICMS will impact mainly on
used-vehicle businesses. The increase in ICMS is also likely to
cause a reduction in new vehicle sales due to price increases. (IHS
Markit AutoIntelligence's Tarun Thakur)
Europe/Middle East/Africa
European equity markets closed lower; Spain -0.7%, France/Italy
-0.3%, Germany -0.2%, and UK -0.1%.
10yr European govt bonds closed mixed; Italy -5bps,
France/Spain -1bp, and UK/Germany flat.
iTraxx-Europe closed -1bp/50bps and iTraxx-Xover
-3bps/257bps.
Brent crude closed +2.1%/$55.90 per barrel.
Milton Keynes (UK) has launched a project to create and test
mobility services using 5G technology. The project has secured
GBP4.1 million (USD5.6 million) in funding from various sources,
including GBP2.3 million from the Department of Digital, Culture,
Media and Sport, reports UKAuthority. The project, named MK5G
Create, will operate at Stadium MK and will run from this February
until March 2022. The project will involve driverless shuttles and
road vehicles for transporting people and goods across the stadium.
In addition, the Milton Keynes Council plans to invest the funding
into autonomous surveillance vehicles and drones for enhancing
security and testing robots and drones for goods delivery and
hospitality use. The council will lead the project with partners
including BT, Appyway Parking, RDM, Imperium Drive, Metaswitch, MK
Dons, Neutral Wireless, City Fibre, Smart City, Connected Places
and Satellite Applications Catapults. Pete Marland, council leader,
said, "This is another important step in Milton Keynes' journey as
a modern, sustainable and forward looking city for the future.
Smart city projects like ours can do a lot to inspire and empower
other major venues around the world to create better, greener
experiences for visitors and staff, and boost their efficiency. Yet
again Milton Keynes will be leading the way." (IHS Markit
Automotive Mobility's Surabhi Rajpal)
The project Consortium, comprising Wardell Armstrong
International Limited (WAI), The Natural History Museum (NHM) and
Cornish Lithium Ltd (CLL), has successfully produced lithium
carbonate from two UK sources - one from Cornish Lithium's
Trelavour project site in Cornwall and another from Scotland. High
purity lithium carbonate is a raw material for lithium-ion battery
cells, such as those used in electric vehicles. Reimar Seltmann,
Research Leader, The Natural History Museum (NHM), said: "These two
samples represent the first known production of lithium carbonate
from UK hard rock sources and hence are of great importance for the
UK economy. The Consortium believes that the positive results from
this project will accelerate the development of a domestic supply
of battery quality lithium chemicals for the UK automotive and
battery industries, and the consequent economic value that such
industries would generate." (Cornish Lithium)
Britishvolt has announced that it is to collaborate with
Siemens. According to a statement, Siemens is to provide
Britishvolt with "access to its automation, electrification
solutions and Digital Twin manufacturing execution technology".
Britishvolt has said that this will allow it to simulate the
production processes and flows at its forthcoming UK battery plant
ahead of its completion, enabling it to optimise the design and
efficiency of the facility. Furthermore, Siemens is to provide
Britishvolt with its latest design and simulation development
tools, which are intended to reduce the time it takes for battery
cells to go from laboratory to production at scale. Having finally
announced that it has chosen a site for its new battery facility in
early December, the company is now accelerating its efforts to
achieve its aim of delivering its first lithium-ion batteries at
the end of 2023. Having signed up a partner to construct its
manufacturing facility, which will be located in Blyth (United
Kingdom), and appointing Pininfarina to design it, the agreement
with Siemens is intended to speed up the development and
implementation process further. It remains to be seen whether
Britishvolt will be able to stick to its aggressive timeline for
its plans. (IHS Markit AutoIntelligence's Ian Fletcher)
Audi and Ford are set to change their production schedules at
some sites owing to a shortage of semiconductors. Audi's chief
executive Markus Duesmann has told the Financial Times (FT) in an
interview that the company will delay and slow production of some
vehicles owing to a "massive" shortage, adding that it has placed
around 10,000 workers on furlough because of it. CNN Wire reports
that the issue has affected shift patterns at plants in Germany and
Mexico, while production of the A4 and A5 has been provisionally
halted at Audi's Neckarsulm (Germany) plant until 29 January.
However, Duesmann added that the brand will "do everything we can
to keep [production losses] below 10,000 during the first quarter".
He also warned that the shortage might have some impact on
second-quarter 2021 production "but only in the order in which we
build cars" and that the automaker intends to make up for the
losses during the second half of 2021. Separately, Ford has idled
production at its Saarlouis (Germany) facility, which manufactures
the Focus, from yesterday (18 January) to 19 February because of a
combination of semiconductor shortages and weak demand. A
spokesperson told CNN Wire, "We are closely monitoring the
situation and adjusting production schedules to minimize the effect
on our employees, suppliers, customers and dealers across Europe,"
adding, "At this time, we do not anticipate any similar actions at
our other European facilities." These are the latest production
disruptions related to the shortage in semiconductors for the
automotive sector, which began to emerge late last year and is
starting to affect more OEMs. In many instances, the shortage is
linked to stronger-than-expected demand in the second half of 2020
than previously anticipated in the wake of COVID-19 virus-related
production stoppages and demand disruption. The problem is also
exacerbated by strong demand experienced by consumer electronics
firms. (IHS Markit AutoIntelligence's Ian Fletcher)
The Volkswagen (VW) Group has increased its emissions pooling
to offset the CO2 output of its vehicle range as per the European
Union's (EU) latest regulations, according to an Electrive report.
The company has already merged its CO2 pool with Chinese OEM
Shanghai Automotive (SAIC). However, it has now extended its
pooling arrangements to include new Chinese manufacturer Aiways and
the Geely-owned British London Electric Vehicle Company (LEVC),
which manufactures the BEV London black cab. CO2 pooling allows
OEMs to combine their fleet average emissions with manufacturers of
plug-in vehicles, to allow a lower overall fleet average emissions
total and avoid paying the fines the EU will levy for missing its
95g/km combined fleet average target. VW announced a partnership
with SAIC last year and it is now looking to expand its pool in an
attempt to meet the stricter 2021 target, for which a company's top
5% of highest emitting vehicles are no longer exempt from the
overall fleet average calculation, as was the case in 2020. (IHS
Markit AutoIntelligence's Tim Urquhart)
According to the EU-harmonized measure, consumer price
inflation in Italy remained at -0.3% in December. (IHS Markit
Economist Raj Badiani)
On the national measure (NIC), inflation was unchanged at -0.2%
during the same month.
The breakdown of the harmonized index reveals lower clothing
and footwear - down 0.2% year on year (y/y) - and communication
(down 5.3% y/y) prices.
Overall, goods prices continued to fall in December, down by
0.8% y/y. Nervous consumers continue to maintain pressure on high
street retailers to price generously to attract new business in the
face of continued containment measures targeting non-essential
shops to contain the coronavirus disease 2019 (COVID-19)
virus.
Energy-related prices continued to fall when compared to a year
earlier. Specifically, transport and housing and utility prices in
December fell by 2.8% y/y and 2.0% y/y, respectively.
The main lever remained lower global crude oil prices, which
fell by 25.6% y/y to average USD50.0 per barrel in December.
Consumer-facing services reported stronger price developments
during December, up by 0.4% y/y from 0.2% y/y in November.
Finally, the harmonized core inflation rate (excluding energy
and fresh food) was +0.4% in December, up slightly from 0.3% in
November.
Consumer price developments in December were broadly in line
with expectations.
IHS Markit's January update forecasts that overall inflation is
likely to average 0.4% in 2021 after standing at -0.1% in 2020. The
prospect of higher inflation in 2021 is because:
Increasingly normalized trading conditions in the second half
of 2021 will encourage retailers and consumer-facing services to
make bolder pricing decisions.
Energy-related prices are likely to make a positive
contribution to the 12-month-rate CPI during 2021. Currently, we
expect global crude oil prices to rise by 15.7% to average USD48.3
pb in 2021. This will lift automotive fuel and energy utility
prices notably from the second quarter of this year.
Inflation is expected to rise moderately to average 0.4% in
2021, lifted by crude oil prices rising by an estimated 16.9% to
average USD49.0 pb.
Muted inflation developments will also help to maintain further
real wage growth to provide a welcome boost to household sentiment
and purchasing power.
Brazil's BRF has completed the acquisition of Joody Al Sharqiya
Food Production Factory, a food processor based in Dammam, Saudi
Arabia. BRF said it acquired the business for an enterprise value
of SAR29.7 million - equivalent to about USD8 million. The acquired
firm makes poultry, beef and fish products, with a portfolio that
includes breaded and marinated cuts and hamburgers. BRF said it
plans to invest around USD7.2 million expand the unit's current
installed capacity from 3,600 tons per year to 18,000 tons/year.
The company said this will further increase its presence in the
Saudi market, in line with its strategy of establishing local
production and boosting its high value-added product portfolio.
Saudi Arabia is the second largest buyer of Brazilian chicken meat,
behind only China. Brazilian chicken meat shipments to the Middle
Eastern country reached more than 460,000 tons in 2020, worth some
USD684 million. Saudi Arabia also imports significant volumes of
Brazilian beef - with purchases in 2020 amounting to more than
40,000 tons generating about USD160 million. (IHS Markit Food and
Agricultural Commodities' Ana Andrade)
Navya has launched public trials of its autonomous shuttle
service around the Sheba Medical Center campus in Israel. The
company will deploy its Autonom Shuttle on a 2.1-km route to
transport passengers around the campus. The shuttle will operate on
a route with seven stations serving the main hospital buildings and
in a complex environment, as it will encounter dense and varied
surrounding traffic, pass several bridges, and cross four
roundabouts and more than 20 pedestrian crossings. Etienne Hermite,
CEO of Navya, said, "I am very pleased with this first public
deployment in Israel, especially since our systems are implemented
within a complex path. I am also delighted that our partnership
with ST Engineering is being extended to Israel, which is a
"start-up nation" always at the forefront of the latest
technological innovations, with a strong potential." This pilot
project is part of the Smart Mobility Initiative and is Israel's
first public service of autonomous mobility. It is led by the
Israel Innovation Authority (IIA) and the country's Ministry of
Transport and Road Safety, in co-operation with ST Engineering and
startup Blue White Robotics. Israel is promoting autonomous trials
for various use cases for first and last-mile as the country is
facing major transportation challenges such as heavy traffic
congestion, traffic-related accidents, and air pollution. (IHS
Markit Automotive Mobility's Surabhi Rajpal)
Asia-Pacific
Most APAC equity markets closed sharply higher except for
Mainland China -0.8%; Hong Kong +2.7%, South Korea +2.6%, India
+1.7%, Japan +1.4%, and Australia +1.2%.
China's economy returned to potential growth in the fourth
quarter and the current growth momentum is expected to continue
into 2021. However, uncertainties regarding the pandemic and
tightening of real estate sector policies may impede economic
recovery in the first quarter. (IHS Markit Economist Yating Xu)
China's real GDP growth accelerated to 6.5% year on year (y/y)
in the fourth quarter of 2020, compared with 4.9% y/y in the third
quarter and 6.0% y/y expansion in fourth-quarter 2019. In annual
terms, GDP grew 2.3% y/y, down 3.7 percentage points from 2019, the
lowest growth rate recorded since 1976.
Recovery was registered across the agriculture, industry and
construction, and services sectors. The industry and construction
sector, which expanded by 6.8% y/y, continued to lead economic
growth in the fourth quarter. The services sector registered the
fastest recovery, with fourth-quarter growth at 6.7%, up by 2.4
percentage points from the third quarter, with the information and
financial sectors driving the growth.
From the demand side, acceleration in consumption and exports
were the two main contributors to the headline growth. Consumption
contributed 2.6 percentage points, or 40%, to real GDP growth in
the fourth quarter, compared with 29% in the preceding quarter. Net
exports (exports minus imports) also contributed toward growth as
China's trade surplus rose 27.1% y/y for the full year.
Industrial value-added growth rose to 7.3% y/y in December,
hitting an eight-month high. The acceleration in industrial
production was partially due to strong overseas demand as the
growth of export delivery value accelerated to 9.5% y/y from 9.1%
y/y in November. Additionally, December 2020 had two more working
days compared with December 2019. Annual industrial value-added
growth reached 2.8% y/y, down 3.3 percentage points y/y.
The Service Production Index declined by 0.3 percentage point
to 7.7% in December, suggesting slowing recovery momentum in
services as a result of local COVID-19 outbreaks.
For the full year, the index reading was 0.0, indicating that
service production returned to the year-ago level by the end of the
year. The information and software, scientific research and
technology services, and finance sectors drove growth, while the
catering and hotel sector remained the main drag.
Fixed-asset investment (FAI) expanded 2.9% y/y over the full
year. However, in non-cumulative terms, growth (according to IHS
Markit estimates) decelerated from 9.6% y/y in November to 5.5% y/y
in December. FAI growth for full-year 2020 was 2.5 percentage
points lower than the 2019 rate.
Housing investment increased 7.6% in 2020, up 0.2 percentage
point quarter on quarter, mainly owing to accelerations in floor
space of new starts and land purchases at the end of the year.
Meanwhile, estimated decumulative floor space of completions
registered expansion for the third consecutive month in
December.
Nominal retail sales growth fell to 4.6% y/y in December from
5.0% y/y in the previous month. For the full year, retail sales
remained in contraction, falling 3.9% y/y, largely dragged down by
the catering sector, compared with the 8% y/y expansion registered
in 2019.
China created 11.8 million new jobs in urban areas in 2020,
exceeding the 9 million annual target set at the beginning of the
year, though the figure remains 1.6 million lower compared with the
number of jobs created in 2019. Meanwhile, the surveyed
unemployment rate came in at 5.2% in December (the same rate as
that recorded in 2019), which is lower than the 6% annual
target.
China's economy has returned to potential growth in the fourth
quarter 2020 with strong exports and industrial production as well
as tenacity in the real estate sector. The current recovery
momentum is expected to continue into 2021 thanks to continuous
exports strength, improvement in manufacturing investment and
private consumption, expected stable policy, and low base effect.
IHS Markit expects China's GDP to increase 7.6% y/y in 2021 before
returning to 5.6% y/y growth in 2022.
The recovery momentum in China is expected to moderate further
in first quarter 2021 as resurgence of local COVID-19 outbreaks may
impede services and consumption growth. (IHS Markit Economist
Yating Xu)
The services sector was again the key growth engine in the
fourth quarter, assuming the mantle traditionally held by the
industry and construction sector. Real growth in services rose by
2.4 percentage points to 6.7% y/y in the fourth quarter, with
improvement registered across all sub-sectors except finance, which
was inhibited by monetary policy tightening. Information and
software remained the fastest-growing sector, although the annual
growth rate, at 16.9% y/y, is lower than the 21.7% y/y growth
registered in 2019. The accommodation and catering and rental
services sectors returned to expansion for the first time since the
beginning of 2020. Transportation and domestic trade growth
accelerated to above the year-ago level.
Industry and construction remained the fastest-growing
component in the economy, but the 0.8 percentage point improvement
in the fourth quarter was lower than the improvement registered by
the services sector. Also, in quarter-on-quarter terms, growth in
the sector moderated, mainly owing to slowing growth in
construction, with the deceleration in real estate and
infrastructure investment; industry has maintained its strength
since the second quarter, expanding 6.9% y/y in fourth-quarter 2020
compared with a 5.6% y/y increase in the third quarter.
The first-quarter 2020 COVID-19 shock will create a low base
for year-on-year growth in 2021, while quarter-on growth is
expected to slow further with the normalization of financial and
fiscal policy and uncertainties about the pandemic situation.
Recovery in services is likely to be impeded during the
upcoming Lunar New Year holiday, particularly for transportation,
domestic trade, accommodation, and catering, owing to the
tightening of pandemic controls to contain the new local COVID-19
outbreaks. Recovery momentum in the construction sector may
moderate further as efforts to reduce financial risk in the real
estate market may curtail real estate investment, and local
governments' debt burden could also dampen infrastructure
investment. From the demand side, exports are expected to remain
strong owing to the continuous global supply shortage while
consumption could weaken slightly amid the recent emergence of new
local COVID-19 outbreaks.
Mainland China's new home price inflation averaged 0.12% month
on month (m/m) in December 2020, unchanged from the November
reading, according to a National Bureau of Statistics survey
covering 70 major cities. (IHS Markit Economist Lei Yi)
The stabilization in December's release came following three
consecutive months of decline in average month-on-month (m/m) new
home price inflation. By city tier, new home price inflation in
December edged up by 0.1 percentage point in tier-1 cities from
November while remaining unchanged at 0.1% m/m in tier-2 and tier-3
cities.
Notably, new home prices in Guangzhou increased by 0.7% m/m,
continuing to lead the inflation among tier-1 cities; meanwhile,
Shenzhen reported decline of 0.1% m/m in new home prices as
tightened regulations gradually cooled down the local property
market.
Up to 42 out of the 70 surveyed cities recorded month-on-month
new home price gains in December, compared with 36 cities in
November. The number of cities reporting month-on-month price
declines fell to 22 from 28 in October.
Average year-on-year (y/y) new home price inflation further
declined to 3.7% in December, led by the 0.3 percentage point
disinflation in tier-3 cities. By the end of 2020, year-on-year new
home price inflation had either declined or remained unchanged for
20 and 21 consecutive months in tier-2 cities and tier-3 cities,
respectively.
Mainland China's real estate sector has recovered faster from
the COVID-19 pandemic shock than the overall economy during 2020.
The relaxation of urban residency registration rules, a favorable
credit environment, and the sustained recovery in income prospects
all contributed to the strength in housing sales and
construction.
Nationwide home price stability is expected to continue in 2021
despite that the economic growth rebound could generate tailwinds
for housing demand. The central government has been re-emphasizing
de-risking the property sector since the second half of 2020.
Volkswagen Group China (VW China) and FAW Group signed an
agreement on 18 January on the establishment of a joint venture
(JV) company to produce premium electric vehicles (EVs) in China.
VW China and Audi AG are to hold a stake of 60% in the new Audi-FAW
JV company. Headquartered in Changchun, China, the JV will produce
EVs based on the Premium Platform Electric (PPE). The PPE, an EV
architecture jointly developed by Audi and Porsche, will house
several all-electric Audi models to be produced in China from 2024.
Audi models from the new JV are to be sold through FAW Audi Sales
Company's network. The sales company also manages the distribution
of Audi models produced locally by FAW-VW, as well as imported Audi
vehicles. Under the new partnership with FAW, Audi said it would be
able to increase the number of its locally produced models in China
to 12 by the end of 2021. The announcement on 18 January has for
the first time confirmed that Audi and VW China will hold a
majority stake in the new company, allowing the German automakers
to have a greater say in the JV's operations. (IHS Markit
AutoIntelligence's Abby Chun Tu)
Chinese telecom giant Huawei has partnered with local
autonomous truck startup Trunk to jointly develop intelligent
driving solutions for smart port operations. In addition, the two
companies have unveiled their smart port project at Tianjin port,
China, reports Gasgoo. Under the project, an autonomous truck
deployed with Huawei's intelligent driving computing platform MDC
(Mobile Data Center) successfully carried out a whole-vessel
operation, including route planning, precise parking, and obstacle
response without human intervention. Autonomous trucks are gaining
a great deal of traction in the logistics industry because of a
growing shortage of drivers and improved efficiency. These trucks
enable autonomous loading and unloading of containers in yards,
thereby improving efficiency. China's Tianjin port aims to build an
autonomous vehicle demonstration zone to enhance the efficiency of
handling international shipments. Last year, Tianjin port completed
pilot tests of 25 driverless electric trucks. Last year, port
terminal operator COSCO Shipping Ports partnered with China Mobile
and Dongfeng Commercial Vehicle to demonstrate driverless trucks
loading and delivering containers around a port terminal in China.
(IHS Markit Automotive Mobility's Surabhi Rajpal)
Vietnamese automaker VinFast plans to launch two gasoline
(petrol)-powered vehicles and three electric vehicles (EVs) from
2022, reports the Vietnam News Brief Service. With this plan, the
automaker aims to capture 30% of the Vietnamese car market and hit
the earnings before interest, taxes, depreciation, and amortization
(EBITDA) breakeven in the next five years. Furthermore, VinFast
plans to launch its EVs in overseas markets, such as the United
States, Europe, and Russia. In particular, it plans to launch two
out of the three aforementioned EVs in the US in early 2022. The
automaker is also expected to start the operation of its electric
buses in Vietnam in 2021. VinFast, a new entrant in the car
manufacturing segment, aims to produce 500,000 cars a year by 2025,
with a local content rate of 60%. It also aims to be one of the top
car manufacturers in the Southeast Asian region by 2025. In June
2019, the automaker began deliveries of its Fadil hatchback and in
August 2019 it started deliveries of its two luxury models - the
Lux A2.0 sedan and the Lux SA2.0 sport utility vehicle (SUV).
VinFast has partnered with world-leading automotive technology and
manufacturing consulting firms such as BMW, Magna Steyr, and AVL.
(IHS Markit AutoIntelligence's Jamal Amir)
Posted 19 January 2021 by Chris Fenske, Head of Fixed Income Research, Americas
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