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US equity markets closed higher, while APAC was mixed and Europe
was lower on the day. US and benchmark European government bonds
closed higher. European iTraxx credit indices were close to flat on
the day and CDX-NA was slightly tighter across both IG and high
yield. The US dollar closed flat, while gold, silver, and oil were
all lower on the day.
Americas
US equity markets closed higher; Nasdaq +0.9%, Russell 2000
+0.8%, S&P 500 +0.4%, and DJIA +0.2%.
10yr US govt bonds closed -3bps/0.84% yield and 30yr bonds
closed -5bps/1.55% yield.
CDX-NAIG closed -1bp/54bps and CDX-NAHY -6bps/328bps.
DXY US dollar index closed flat/92.33.
Gold closed -0.7%/$1,862 per ounce and sliver -1.6%/$24.05 per
ounce.
Crude oil closed -0.3%/$41.90 per barrel.
IHS Markit's AAA Tax-Exempt Municipal Analytics Curve (MAC)
rallied 2-4bps across the curve today, with 9+ year maturities
12bps tighter week-over-week.
Treasury Secretary Steven Mnuchin said he would allow several
emergency Federal Reserve lending programs to expire, opening a
divide with the central bank, which had pressed for an extension.
As a result, on Dec. 31 several novel Fed programs that have backed
corporate credit and municipal-borrowing markets and that have
provided loans to small and midsize businesses and nonprofits
during the coronavirus pandemic will end. (WSJ)
Seasonally adjusted (SA) US initial claims for unemployment
insurance rose by 31,000 to 742,000 in the week ended 14 November,
increasing for the first time in five weeks. While claims are well
below the spring high, initial claims remain at historically high
levels—the high during the Great Recession was 665,000. The not
seasonally adjusted (NSA) tally of initial claims rose by 18,344 to
743,460. (IHS Markit Economist Akshat Goel)
Seasonally adjusted continuing claims (in regular state
programs), which lag initial claims by a week, fell by 429,000 to
6,372,000 in the week ended 7 November. Prior to seasonal
adjustment, continuing claims fell by 419,670 to 6,081,402. The
insured unemployment rate in the week ended 7 November was down 0.3
percentage point to 4.3%.
There were 320,237 unadjusted initial claims for Pandemic
Unemployment Assistance (PUA) in the week ended 14 November. In the
week ended 31 October, continuing claims for PUA fell by 751,480 to
8,681,647.
Pandemic Emergency Unemployment Compensation (PEUC) claims have
been steadily rising as claimants are exhausting their regular
program benefits. In the week ended 31 October, continuing claims
for PEUC rose by 233,458 to 4,376,847.
The Department of Labor provides the total number of claims for
benefits under all its programs with a two-week lag. In the week
ended 31 October, the unadjusted total fell by 841,245 to
20,319,615.
US existing home sales increased 4.3% in October to a
6.85-million-unit annual rate—the highest reading since
November 2005. Single-family sales climbed 4.1% to a 6.12 million
rate—also the highest since November 2005; condo/coop sales
increased 5.8% to a 730,000 rate. Sales were up 26.6% from a year
earlier and 18.9% from February—the month before COVID-19 shut
down vast swaths of the US economy. (IHS Markit Economist Patrick
Newport)
Sales were up or unchanged in all four regions for the fifth
straight month; the Midwest and South recorded all-time highs.
Inventory of single-family homes dipped to a record-low 1.2
million. Our seasonally adjusted single-family homes inventory
estimate, 1.16 million, was also an all-time low. Unsold inventory
of all homes amounted to a record-low 2.5-month supply at the
current sales pace; a 5.0-month supply is considered normal.
Home prices are soaring. The median price of a single-family
home was up 16% from a year earlier, with more than half the entire
increase coming since May. The median price of a single-family home
was up 22% in the Northeast, 17% in the Midwest, 16% in the South,
and 15% in the West.
The Mortgage Bankers Association's seasonally adjusted purchase
index remains elevated but has slipped 7% over eight weeks,
suggesting that October may be near a high point for sales.
Properties on average remained on the market for 21 days in
October, down from 36 days in October 2019.
Seasonally adjusted US e-commerce retail sales registered
$209.5 billion in the third quarter of 2020. Growth was 36.7% year
on year (y/y), a step down from the 44.5% rate in the second
quarter, which was by far the fastest growth in two decades. (IHS
Markit Economist James Bohnaker)
E-commerce retail sales were 1.0% lower in the third quarter
than in the second quarter, when widespread business closures
funneled more retail sales online.
The e-commerce share of total retail trade decreased from 16.1%
to 14.3%. This is still about two percentage points higher than the
share would have been without the COVID-19 pandemic.
Among retail categories for which detailed e-commerce data are
available, only nonstore retailers and motor vehicle and parts
dealers saw an increase in e-commerce sales from the second to
third quarters.
E-commerce retail sales edged lower in the third quarter of
2020 as business restrictions eased and consumers became somewhat
more willing to shop at physical store locations.
The quarterly decline of 1.0% in e-commerce sales still left
year-over-year sales up 36.7%—more than twice the rate of
growth one would expect in a normal, COVID-free year.
As a result, e-commerce as a share of total retail sales
remained elevated at 14.3%, below the 16.1% mark it hit during the
second quarter but well above the pre-pandemic share of 11.3%. In
other words, the online versus physical retail mix began to
normalize in the third quarter but remains heavily skewed toward
e-commerce.
Brick-and-mortar retail sales continue to be hamstrung by
COVID-19 and containment measures that limit in-person socializing.
While containment measures for most types of retail shopping are
not as restrictive as those for dining, entertainment, and other
socially dense services, the threat of the disease is a significant
limiting factor.
California has announced new incentives to support its
aggressive plans for electric vehicle (EV) adoption, as well as for
hybrid and plug-in hybrid adoption. Called the California Clean
Fuel Reward, the program is available to all California residents
who buy or lease a new EV with a battery capacity greater than 5
kilowatt hours. Depending on battery size, owners can get as much
as USD1,500; buyers do have to buy through a participating
retailer, although there are no income or location restrictions to
qualify, but the vehicle must be registered in the state of
California, to avoid someone who lives in a neighboring state
buying with the credit and then taking the car out of the state.
Hybrid and plug-in hybrid vehicles are also eligible. California
electric utilities participate by offering information on at-home
charging. (IHS Markit AutoIntelligence's Stephanie Brinley)
The chemical industry's focus on sustainability has continued
to strengthen despite disruptions caused by COVID-19, according to
Dow CEO Jim Fitterling. Speaking on 18 November at the Chemical
Industry Financial Outlook and Sustainability Forum and Awards
2020, held online by Chemical Week, he said the industry has
continued to develop its strategy and to set new targets for
reducing plastic waste and carbon dioxide emissions. However, the
transition to sustainability has a cost, and smart policy-making
will be key to encouraging the necessary investment, he added. (IHS
Markit Chemical Advisory)
"I think a lot of people, their natural reaction would be we've
been so focused on COVID that we forgot about plastics and we
forgot about the climate," Fitterling observed. "My sense is that
isn't the case. We've seen much stronger engagement in Europe, much
stronger engagement here [in the US] around the issues."
The pandemic has drawn attention to the importance of plastics
in daily life and the role they play in safety, security, and
protection, but that hasn't taken attention from the problems of
plastic waste and climate change, he noted. "I'd say we haven't
slowed down at all. If anything, we've doubled down on those
issues, and we raised some new targets for the industry."
Every brand owner in the value chain, from producer to
retailer, is "consumed" with the question of how to become more
sustainable, he said, and coming to terms with the cost of doing
so. "It's driving us to look at technologies that maybe we thought
were too expensive. And I think one of the mindset shifts that has
happened is everybody's got their head around the fact that doing
all this is not going to be cheaper than the way we do it
today."
Fitterling highlighted the positive role of government in
addressing cost. "How do we put the right policies in place--the
right energy policies, carbon policies, recycling policies—that
not only push us to new technology, but also create a market
opportunity? Because what we really want is to be able to unleash
the capital markets on these challenges," he said. "The cash is
there … but if the policies aren't smart, nobody will just throw
the money in and take the risk."
There has to be a clear path to a return on investment, he
noted. "That challenge I think has become much more in focus.
There's a lot of engagement on the public side, on the financial
services side, and on the business side on how to address that. The
consumer's there, but now all the other parts of the equation are
coming together.
At the same time, Fitterling pointed to the consequences of
policy overreach in the realm of energy decarbonization. Pushing
alternative energy sources and electrification of the economy
without addressing reliable baseload supply and the limitations of
the power grid leads has led to rolling brownouts in California and
increased coal-burning in Germany, he noted. "Even within Dow,
we've made a big move towards alternative power as part of our
climate change initiatives, but I'll hit a wall at about 15%
renewable energy because it is not available and dispatchable 24/7
like we need to run big, energy-intensive assets," he said.
May Mobility has partnered with public transit technology firm
Via Transportation to expand its on-demand autonomous shuttle
operations to new cities in 2021, starting with Arlington (Texas,
US). May Mobility will integrate its autonomous vehicles (AVs) into
Via's existing on-demand public transit service in Arlington, in
partnership with the City of Arlington and University of Texas at
Arlington. To achieve this, May Mobility's AVs will be connected
with Via's platform, which handles booking, routing, passenger and
vehicle assignment. The companies will provide students and faculty
with free rides during the test phase, all integrated into Via's
app. This one-year pilot program, called Arlington Rideshare,
Automation, and Payment Integration Demonstration (RAPID), is
expected to launch in March 2021. The pilot program has received a
USD1.7-million grant from the Federal Transit Administration's
Integrated Mobility Innovation Program. Daniel Ramot, CEO and
co-founder of Via, said, "Our partnership with May Mobility is the
next step in Via's vision to use technology to expand access to
public transit across the globe. When autonomous vehicles are
efficiently shared and on-demand, they are a solution that
municipalities can use to strengthen and complement their existing
transit networks, ushering in a new generation of flexible mobility
offerings." Via's real-time ride-sharing services integrate with
existing fixed-route transportation infrastructure, enabling
commuters to hail a ride using an app. Its technology also helps
aggregate multiple passengers into shared vehicles, reducing
single-occupancy vehicle trips and thereby alleviating traffic
congestion. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Carnival is seeking to borrow $1.6bn in a bond offering not
backed by its cruise ships, a first for the company since the
pandemic wreaked havoc on the travel sector. The group is selling
the debt in US and European high yield bond markets, according to a
term sheet seen by the Financial Times. It marks the clearest sign
yet that recent vaccine developments have eased constraints for
groups hard hit by the pandemic, including those in the hospitality
and travel businesses. (FT)
According to data from the Colombian National Administrative
Department of Statistics (Departamento Administrativo Nacional de
Estadística: DANE), industrial production fell 8.6% year on year
(y/y) in September, while retail sales contracted by a mere 0.8%
y/y. (IHS Markit Economist Lindsay Jagla)
Colombia's total industrial production remained 8.6% below
September 2019 levels in September 2020, driven primarily by low
levels of production in mining and quarrying. Coal mining and crude
oil extraction remained the biggest negative drivers, contracting
by 61.2% and 14.3% y/y, respectively.
Still, Colombia's industrial production index has shown signs
of recovery, albeit unevenly, with quick monthly rebounds in May,
June, and July followed by a slight downturn in August. September
saw a return to positive monthly growth, with industrial production
increasing 1.73% month on month (m/m), due largely to the m/m
recovery in the manufacturing sector (up 6.9% m/m).
Retail sales recovered by 14.1% m/m in September and remained
only narrowly below September 2019 levels (-0.8% y/y). Nine out of
19 merchandise lines grew in yearly terms, boosted by a 50.2% y/y
increase in sales of technology and communication equipment and a
19.3% y/y rise in sales of household appliances and furniture.
The areas where sales remained weak were fuel purchases (-5.6%
y/y) and clothing and textiles (-15.2% y/y).
After hitting rock bottom in April, when industrial production
fell 29.4% y/y and retail sales declined 42.3% y/y, monthly
improvements in these indicators signal a gradual recovery for
Colombia. However, following the quick initial rebounds for various
indicators in the early months after the economy was reopened
following the COVID-19 virus-related lockdown, monthly growth will
continue to slow and taper off, resulting in a drawn-out
recovery.
The Central Bank of Chile (Banco Central de Chile: BCC) has
reported that the Chilean economy advanced by 5.2% in the third
quarter of 2020 in comparison with the April-June quarter,
reflecting the effects of partial closures, limitations on
mobility, and a gradual reopening of the economy during the
COVID-19 virus pandemic. (IHS Markit Economist Claudia Wehbe)
Chile's economy grew by 5.2% quarter on quarter (q/q) on a
seasonally adjusted basis during the third quarter of 2020. On the
upside, the advance resulted from the gradual lifting of COVID-19
virus-related confinement measures, but on the downside the
moderate overall performance was still dampened by mobility
restrictions and partial closures due to the pandemic.
Commerce, manufacturing, and personal and business services
made the largest contributions to the quarterly advance, pulled
down by a negative contribution from construction. Household
consumption of both durable and non-durable goods expanded, while
accelerating machinery and equipment demand drove an advance in
investment. However, construction performed negatively. The country
recorded lower exports and higher imports during the quarter,
mainly led by industrial goods.
In unadjusted terms, the economy fell by 9.1% year on year
(y/y) in the third quarter. Similar to the y/y results observed in
the second quarter, the worst-hit sectors included personal and
business services, construction, transportation, and restaurants
and hotels. From an expenditure perspective, the contraction in
domestic demand - still driven by limited activity in services and
a contraction in construction - was partially offset by positive
net exports.
After bottoming out in May, the economy continued to recover
into September. Although IHS Markit expects the moderate recovery
to continue into 2021, we do not project that the economy will be
back to its end-2019 levels until 2022. We currently forecast real
GDP to decline by 6.1% in 2020, before advancing by 6.1% in
2021.
Chinese ride-hailing giant Didi Chuxing (DiDi) has launched
operations in Argentina, reports Xinhua News Agency. The company
has introduced rideshare service DiDi Express and taxi service DiDi
Taxi in La Plata, capital city of Argentina's Buenos Aires
province, and in Greater Buenos Aires. To ensure safety, the
company will offer personal accident insurance to users and drivers
for each trip and will also provide access to a 24/7 local
emergency hotline. In Latin America, DiDi's services are available
in Brazil, Chile, Colombia, Costa Rica, Mexico, Panama, and now in
Argentina. DiDi has tapped into many markets worldwide by either
launching its own services or by investing in local ride-hailing
firms. Globally, DiDi has over 31 million drivers registered on its
platform and has attracted 550 million customers who are using the
company's range of app-based transportation options. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Europe/Middle East/Africa
European equity markets closed lower across the region; Germany
-0.9%, UK -0.8%, France -0.7%, Spain -0.6%, and Italy -0.4%.
10yr European govt bonds closed higher; Germany/France -2bps
and UK/Italy/France -1bp.
iTraxx-Europe +1bp/51bps and iTraxx-Xover +2bps/283bps.
Brent crude -0.3%/$44.20 per barrel.
Prysmian has signed a preferred bidder agreement with RWE
Renewables Sofia Offshore Wind Farm, the world's second biggest
offshore wind farm developer, for the development of the turn-key
high voltage submarine and land export cable connection worth over
USD 237 million (€200 million) for Sofia Offshore Wind Farm
project. The contract is subject to final negotiations and final
investment decision by RWE. Located 195 km from the nearest point
on the UK's North East coast, the 1.4 GW Sofia offshore wind farm,
sited on the shallow central area of the North Sea known as Dogger
Bank, is RWE Renewables' largest single offshore wind project under
development so far, as well as the farthest from shore. Once it
becomes operational in 2025, it will be able to generate enough
power to supply over 1.2 million homes with renewable electricity.
With the contract signature and notice to proceed both expected in
the first quarter of 2021, Prysmian will be responsible for the
design, supply, installation and commissioning of an HVDC
symmetrical monopole cable system that will connect Sofia's
offshore converter station with the onshore converter station in
Teesside, UK. The project involves more than 440 km of ±320 kV
submarine export cables with XLPE insulation, and 15 km of ±320 kV
land cables with P-Laser insulation. All submarine cables will be
produced at Prysmian Group's center of excellence in Pikkala,
Finland, while the land cables will be manufactured at the Gron
plant, France. The offshore cable operations will be performed
using the Leonardo da Vinci, Prysmian's cable laying vessel. Some
of Prysmian's offshore wind farm projects are: Hornsea 2, Wikinger,
Ostwind 1, Borssele III & IV, Horns Rev 3, Merkur, BorWin2
& BorWin3, Helwin1 & Helwin2, SylWin1 and DolWin3. (IHS
Markit Upstream Costs and Technology's Helge Qvam)
UK electric van startup Arrival is to go public through a
merger with a special-purpose acquisition company (SPAC). The
merged company is to be listed on the NASDAQ stock exchange in the
United States, under the ticker ARVL. Arrival is to merge with CIIG
Merger Corporation, in a deal reported to be valued at USD5.4
billion. Arrival is expected to receive about USD660 million from
the deal, which has been approved by CIIG's shareholders. The
USD660 million will include USD260 million that CIIG raised in an
initial public offering (IPO) and USD400 million from other
institutional investors. Arrival says it will use the funds to
increase production capacity. Arrival has reported previously that
it has received an order for 10,000 vehicles delivery company UPS,
which has an option to double the order. The deal is expected to be
closed in the first quarter of 2021. The deal appears to be
structured in the same way as earlier similar deals by other
startups using SPACs to become publicly traded companies. (IHS
Markit AutoIntelligence's Stephanie Brinley)
The Eurozone deflation vulnerability index has risen markedly
over the first half of 2020, primarily because of tumbling
inflation and a surging output gap, the index remained in the
"moderate" risk zone in the third quarter. Further increases are
likely, however. (IHS Markit Economist Ken Wattret)
We have previously highlighted our concern over the
vulnerability of the eurozone to deflation and its consequences.
This vulnerability reflects a range of factors including persistent
low inflation expectations, prior policy errors, and a series of
adverse economic shocks, including the most recent, the COVID-19
virus pandemic.
Given the potentially severe implications of deflation for the
eurozone, IHS Markit created a deflation vulnerability index (DVI)
to monitor this risk, based around 10 economic and financial
indicators.
The methodology, pioneered by the International Monetary Fund
(IMF) to better understand what led to the onset of deflation in
Japan, divides the DVI readings into four categories of risk:
minimal, low, moderate, and high.
The eurozone DVI rose markedly over the first half of 2020 to
its highest level since 2016, although it remained below its
historic peaks and within the "moderate risk" category (see chart
below).
The key factors generating the increase in deflation
vulnerability were the plunge in the harmonized index of consumer
price (HICP) inflation rate and collapsing GDP, which led to a
surge in the output gap. These factors continued to contribute to
the DVI in the third quarter, although the index remained unchanged
at 0.4 as there were no additional contributions.
Over the coming quarters, the DVI is likely to rise further for
a number of reasons.
First, there are significant lags between the maximum intensity
of negative shocks and subsequent peaks in the DVI. This was the
case in the aftermath of the two previous major adverse shocks, the
global financial crisis (GFC) in 2008-09 and the subsequent
eurozone crisis in 2011-12
Second, the factors already contributing to the DVI are likely
to continue to do so in the coming quarters. Although GDP rebounded
more strongly than expected in the third quarter, it remained well
below its pre-pandemic level and the output gap remained very
large. With a "double dip" in train, it will widen further.
Third, other indicators are also likely to start pushing up the
DVI, including the core HICP inflation rate, which has recently
fallen to record lows (not fully captured in the third quarter's
data).
The DVI's threshold for the appreciation of the real effective
euro exchange rate (which has risen towards its historic highs) is
also likely to be met in the fourth quarter, meaning that the
eurozone DVI could rise into the "high risk" bracket for the first
time in its history. We will update the various inputs to the DVI
for the fourth quarter in three months' time.
We expect the partial recovery in the third quarter will be
followed by another contraction for Ireland in the fourth quarter
and the rebound in economic activity to start only at the end of
the first quarter of 2021 after a difficult winter period
(December-February). (IHS Markit Economist Daniel Kral)
A set of releases by the Central Statistics Office (CSO)
reveals that the Irish economy posted a recovery in the third
quarter. However, the economy likely still remained below the
pre-COVID-19 virus peak.
Industrial production has followed different dynamics compared
with that in other European economies owing to the heavy weight of
pharmaceuticals and chemicals in the index. However, the
traditional sector, which strips these out, by September recovered
to February's levels after contracting by a quarter in
April-May.
Retail sales volumes were above the levels prior to the
COVID-19 virus pandemic. However, they captured only goods
consumption, while spending on services likely remained
depressed.
After almost a total collapse in April, car sales rebounded
strongly through the third quarter. This reflects pent-up demand
and consumers making delayed purchases.
Goods exports, measured by the customs methodology, have
remained strong throughout the pandemic, also reflecting Ireland's
specialization in pharmaceuticals and other goods in high demand.
Imports of goods remained below pre-COVID-19 virus levels.
According to the third quarter's labor force survey, total
employment grew by 3.3% quarter on quarter (q/q), after a decline
of almost 6% in the first half of 2020. Compared with the fourth
quarter of 2019, the largest losses in employment occurred in
accommodation and food services (-17.2%), administrative and
support services (-15.6%), and construction (-7.1%).
According to the standard International Labour Organization
(ILO) methodology, the unemployment rate for those aged 15-74 was
7.1% in the third quarter. However, based on the adjusted
methodology, which takes into account recipients of the Pandemic
Unemployment Payment, the unemployment rate at the end of September
was 15.9%.
Ireland was the first European country to go into a full
lockdown during the second wave of the pandemic in mid-October.
This will affect activity in the fourth quarter, reversing some of
the earlier gains.
The BMW Group has said that it will alter all its German
factories' production facilities to produce electric vehicle (EV)
drivetrains, according to a Reuters report. The company is planning
to focus its internal combustion engine (ICE) production at its
plants in Austria and Hams Hall in the UK. In a statement Milan
Nedeljkovic, BMW's board member responsible for production, said,
"By the end of 2022 all our German factories will make at least one
fully electric car." BMW's Munich plant, which currently makes
four-, six-, eight- and 12-cylinder combustion engines, will be
retooled with EUR400 million in investment until 2026, to make
battery electric vehicles (BEVs) and their drivetrains. The
production of eight- and 12-cylinder engines will move from Munich
to Hams Hall, and other engines will be made in Steyr (Austria),
although the V8 is a low-volume powertrain and only a handful of
the BMW brand's forecast production of 2.3 million vehicles in 2020
will be fitted with V12 powertrains. (IHS Markit AutoIntelligence's
Tim Urquhart)
Panasonic has announced that it has signed a memorandum of
understanding (MoU) with Norwegian energy company Equinor and
Norwegian industrial group Hydro regarding exploring the
establishment of battery business in Norway. According to a
statement, it will target manufacturing lithium-ion batteries based
on Panasonic technology for the European market to supply battery
electric vehicles (BEVs) and other applications. The companies will
also investigate the potential for an integrated battery value
chain and for "co-location of supply chain partners". This findings
from this exploratory phase, due to the end in mid-2021, will form
the basis for future decisions. (IHS Markit AutoIntelligence's Ian
Fletcher)
Asia-Pacific
APAC equity markets closed mixed; India -1.3%, Hong Kong -0.7%,
Nikkei -0.4%, South Korea +0.1%, Australia +0.3%, and Mainland
China +0.5%.
Chinese exporters are facing a serious container shortage and
rocketing freight charges. The problem of temperature-controlled
containers is more acute for food and agricultural products, IHS
Markit was told by local exporters. Several ports such as Shanghai,
Ningbo, Qingdao and Lianyungang reported that the situation
worsened last week, causing delays and booking chaos. Sea freight
from Qingdao to Kelang port at Malaysia has risen from USD600 per
container three months ago to USD3,200. Rates to other popular
ports in south-east Asia also doubled or tripled, according to
Zhang Shuhan, sales manager from Jining Greenstream Fruit &
Vegetable Co Ltd, who commented: "Freight cost to Europe has
increased by 20%." Space on the Sino-Europe railway is becoming
tight as Chinese exporters are looking for alternative routes to
reduce transport costs, a local logistic agent said. Logistics
agents have to participate in the 'lottery' to be able to get their
ideal slots. The pandemic has affected the global supply chain,
disrupting the usual scheduled docking of ships/containers. It took
time to re-schedule the flow and re-balance global demand at
different ports. Meanwhile, some ports might see oversupplies while
China has noted a shortage. Chinese inspections of all imported
frozen and chilled foods have probably contributed to the chaos.
Some industry sources commented that reefer containers may not need
to be returned to China as imports of temperature-controlled foods
have reduced. Subsequently, some Chinese exporters have switched to
quoting fob prices and only reluctantly quote cif. One shipping
company has warned customers that prices may continue to rise until
the Chinese New Year, 12 February 2021. (IHS Markit Food and
Agricultural Commodities' Hope Lee)
Chinese electric vehicle battery-maker SVOLT Energy Technology
gave an update on its planned European plants on 17 November. The
battery-maker said it is to invest up to EUR2 billion (USD2.4
billion) in Germany to build a factory for battery pack and module
manufacturing, as well as a plant for battery cells in Saarland
(Germany). The battery pack and module factory, which is due to
begin production in mid-2022, is to be located in the Heusweiler
district of Saarbrücken, using an existing site. The company plans
to start battery-cell production in Germany at the end of 2023, at
a facility to be established near the town of Überherrn. In its
final stage of expansion, the battery-cell production plant is
expected to achieve a production capacity of 24 GWh to power
between 300,000 to 500,000 electric cars annually. SVOLT first
broke the news about its plan to build a battery plant in Europe in
July last year. By confirming the locations of the two new
facilities in Germany, the company is a step closer towards
launching production in Europe. The company, a spin-off from
Chinese automaker Great Wall Motor, began production in Changzhou,
Jiangsu province (China), in November 2019. SVOLT currently mainly
supplies batteries for Great Wall's new energy vehicles. Unlike
China, where the manufacture of EV batteries is dominated by market
leaders such as Contemporary Amperex Technology Co Limited (CATL)
and LG Chem, Europe presents greater opportunities for Chinese
battery-makers to enter the market. (IHS Markit AutoIntelligence's
Abby Chun Tu)
The au Jibun Bank flash Composite PMI, compiled by IHS Markit
and based on 85-90% of responses received from the monthly surveys,
dropped from 48.0 in October to 47.0 in November. The latest
reading signaled a further and faster decline in private sector
output across both manufacturing and services. (IHS Markit
Economist Bernard Aw)
The data suggest that the pace of recovery is stalling, putting
the economy on track for a subdued fourth quarter. At 47.5, the
average PMI so far for the fourth quarter is just a mere 1.9 points
higher than the 45.6 in the third quarter, far underwhelming the
gain of 14.1 points recorded in the three months ending
September.
Although recent GDP data showed the economy expanding 5.0% in
the third quarter, that followed an 8.2% decline in the second
quarter and left GDP still 5.9% below levels of a year ago,
underscoring the sluggish recovery to regain pre-pandemic output
levels.
Stubbornly weak demand may also limit the extent to which
activity rebounds in December. Inflows of new business fell further
and at a marked rate in November, reflecting subdued domestic and
foreign demand as rising COVID-19 infections in many countries,
including Japan, dampened activity.
The labor market meanwhile also deteriorated in November amid
weakening sales and rising spare capacity, representing a setback
to the recent move towards stabilization signaled by the PMI's
employment index. The decline in overall employment accelerated
from October, with the service sector seeing a renewed fall in
workforce numbers.
Looking ahead, the path to recovery remains fraught with
challenges, notably as a recent rise in local infections could
re-ignite cautious consumer behavior alongside a subdued labor
market and a weak outlook for wages. Reintroduced lockdown measures
in many countries due to second waves of new COVID-19 cases could
also weigh on foreign demand for Japanese goods and services.
India's index of industrial production (IIP) returned to growth
in September following six months of contraction, supported by
further easing of the lockdown restrictions and a pre-festive boost
to consumer demand. However, both retail and wholesale inflation
edged up again in October, likely delaying additional monetary
policy easing. (IHS Markit Economist Hanna Luchnikava-Schorsch)
The IIP grew 0.2% year on year (y/y) in September, recovering
after six months of decline compared with a 7.4% y/y contraction
recorded in August.
Both mining and power output returned to growth, growing by
1.4% y/y and 4.9% y/y respectively in September. Manufacturing
output contracted by 0.6% y/y, but this was a sharp improvement
from a 7.9% y/y fall in August (which was revised upwards from a
contraction of 8.6% y/y).
Separately released core sector output data for October showed
coal output up by 21.2% y/y and electricity generation up by 3.7%
y/y, while the Manufacturing Purchasing Managers Index (PMI) also
improved sharply to 58.9 points in October - all of which likely
indicates further improvements in all three sectors of industrial
production in the following month.
On a use-based approach, there were major improvements in
production of consumer goods. Consumer durables output grew 2.8%
y/y in September following a 9.6% y/y contraction in August, and
non-durables output up by 4.1% y/y from a contraction of 2.3% y/y
in August. These improvements were likely driven by manufacturers'
inventory restocking ahead of the Indian religious festival
holiday, which is the country's highest-spending season.
On the downside, separately released inflation data showed
consumer price index (CPI) inflation accelerating to 7.6% y/y in
October, up from 7.3% y/y in September and further away from the
central bank's inflation tolerance band of 2-6%.
As in the previous month, headline inflation was spurred by
rising food prices, with prices of vegetables, eggs, and meat up by
22.5%y/y, 21.8% y/y, and 18.7% y/y respectively. The lingering
impact of the fuel tax hikes earlier in the year also led to higher
inflation in the transport and communication category.
Inflation in rural areas stood at 7.7% y/y, while prices for
urban consumers grew by 7.4% y/y. This mainly reflected the higher
prevalence of food in the rural consumer price basket, but also
indicates faster demand recovery among rural consumers - a trend
that was also observed in other high frequency indicators, such as
vehicle sales. Rural consumption fared better during the pandemic,
supported by a favorable monsoon season and numerous government
social schemes.
Wholesale price index (WPI) inflation also edged up to 1.5% y/y
in October from 1.3% y/y in September. The food articles category
again recorded the highest inflation, but at 6.4% y/y it was lower
than in September, suggesting that the spike in food prices (both
wholesale and eventually retail) may be coming to an end.
Although an encouraging development, the boost to demand and
production will likely wane after the December quarter (the third
quarter of India's FY 2020). Supported by the pick-up in festive
demand, an easing of lockdown restrictions, and the government's
third mini-stimulus worth 0.4% of GDP announced in early October,
consumer spending will rebound in the third fiscal quarter.
However, a probable second wave of COVID-19 infections that is
already evident in some areas, including Delhi - and the still very
small fiscal stimulus - will weigh on further recovery in the
fourth fiscal quarter and in FY 2021.
The Bank of Thailand (BOT) has left its monetary policy
unchanged. The bank maintained its outlook for a weak recovery and
preserved its limited policy space for downside risks. (IHS Markit
Economist Harumi Taguchi)
The BOT maintained its monetary policy rate at 0.5% at its
Monetary Policy Committee meeting held on 18 November. The bank
assessed that it needs to support the recovery of the Thai economy
with the continued low policy rate. The BOT expects the recovery to
be moderate and vary significantly among economic sectors, despite
stronger-than-anticipated improvement in the economy in the third
quarter.
The BOT maintained its view that it will take around two years
for the economy to return the pre-pandemic level while headline
inflation will rise gradually close to the lower boundary of its
target range (1-3%) in 2021, as previously expected. The BOT is
concerned that some businesses and households in need of liquidity
do not have access to credit despite ample liquidity in the
financial system and low financing costs. The bank is also
concerned about the recent rapid appreciation of the baht.
BOT's decision was in line with IHS Markit expectations, given
that the economy improved at a faster pace than it anticipated but
uncertainties over the recovery remain. While the BOT stressed that
monetary policy must remain accommodative, the bank continued to
emphasize the importance of fiscal measures to support the
vulnerable target sectors.
The Australian Capital Territory (ACT) has promised to
introduce free registration and interest-free loans for electric
vehicle (EV) purchases, according to CarAdvice. Under the agreement
co-signed by the Labor Party and the Greens, people of Canberra
will be able to receive zero-interest loans of up to AUD15,000 for
EV purchases. They will also get free vehicle registration for new
zero-emission vehicles for two years. The government is also
planning to set up at least 50 EV charging stations in Canberra.
(IHS Markit AutoIntelligence's Nitin Budhiraja)
Posted 19 November 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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