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Global equity markets closed mixed across each region, with
mostly modest price action across major indices. US government
bonds closed slightly lower and the curve steepened, while
benchmark European bonds closed mixed. European iTraxx and CDX-NA
credit indices were close to flat across IG and high yield. The US
dollar closed lower, while copper/silver were unchanged and
gold/oil were higher on the day.
Americas
US equity markets closed slightly higher except for Nasdaq
-0.1%; S&P 500/DJIA +0.2% and Russell 2000 +0.1%.
The House unanimously approved legislation on Wednesday that
threatens a trading ban of shares of Chinese companies such as
Alibaba Group Holding Ltd. over concerns that their audits aren't
sufficiently regulated. The bipartisan measure passed the Senate in
May and could quickly become law with President Trump's signature.
Under the measure, Chinese companies and their auditors would have
three years to comply with the inspections before a trading
prohibition could take effect. If a breakthrough looked unlikely,
the companies would probably respond ahead of a ban by either going
private or moving their listing to a non-U.S. exchange. (WSJ)
10yr US govt bonds closed +1bp/0.94% yield and 30yr bonds
+2bps/1.69% yield.
CDX-NAIG closed flat/50bps and CDX-NAHY -4bps/300bps.
DXY US dollar index closed -0.3%/91.01.
Gold closed +0.7%/$1,831 per ounce, silver flat/$24.08 per
ounce, and copper flat/$3.49 per pound.
Crude oil closed +1.6%/$45.28 per barrel.
Seadrill Partners LLC has filed voluntary petitions under
chapter 11 of the Bankruptcy Code. Seadrill Partners is a limited
liability company formed by Seadrill to own and operate offshore
drilling units. The Chapter 11 filing follows Seadrill Partners'
negotiations with an ad hoc group of lenders under the company's
Term Loan B credit facility regarding a consensual reorganization
of the company's balance sheet and is supported by the ad hoc
group. Seadrill Partners intends to use the bankruptcy process to
ensure that all customer, vendor and employee obligations are met
without interruption and to complete a consensual restructuring of
its debt. (IHS Markit Upstream Costs and Technology's Matthew
Donovan)
The below chart shows the daily bid prices for Seadrill
Partners 2/14 term leveraged loan, which closed at a price of 9.00
today.
Hospitalizations for COVID-19 in the U.S. increased by more
than 1,000 a day at the end of November, data released Tuesday from
the Department of Health and Human Services show. The number of
inpatients jumped 9.6% to a record 96,668 on Dec. 1 from 88,167 on
Nov. 23. California recorded a 38% surge over the eight-day period,
with 8,171 coronavirus patients as of Tuesday. Arizona's Covid-19
inpatients jumped 28% to 2,479. Coronavirus cases account for more
than a fifth of hospitalized patients in North Dakota and South
Dakota, Rhode Island, New Mexico, Indiana, Illinois, Minnesota and
Michigan. (Bloomberg)
United Parcel Service Inc. imposed shipping restrictions on
some large retailers such as Gap Inc. and Nike Inc. this week, an
early sign that the pandemic-fueled online shopping season is
stretching delivery networks to their limits. The delivery giant on
Cyber Monday notified drivers across the U.S. to stop picking up
packages at six retailers, including L.L. Bean Inc., Hot Topic
Inc., Newegg Inc. and Macy's Inc. according to an internal message
viewed by The Wall Street Journal and confirmed by UPS workers in
different regions. (WSJ)
Disrupt or be disrupted. Currently, this mantra is extremely
pertinent to the animal protein industry, with alternative meat
companies making inroads. These firms are gaining consumer
attention and market share from 'real animal protein' producers.
Disruptive innovation is usually defined as a process where a new
product or technology is launched and gradually overtakes the
existing market leaders. (IHS Markit Animal Health's Sandeep
Juneja)
While the reach and adoption of alternative meat sources are in
the nascent stages, many in the animal health industry may be
worried after a few large animal meat producers (Tyson Foods,
Smithfield Foods and Purdue Farms) have chosen to actually join the
trend rather than tackle it head on.
While disruption is inevitable, and innovations often seem like
common sense solutions once they gain popularity, few tasks are
more difficult or require greater dedication than bringing
innovation to a stagnating industry.
The animal protein industry has been stagnating over the past
decade. This is particularly obvious in developed countries. There
have been minimal efforts to innovate or promote the health and
nutrition benefits of animal protein to millennials.
However, the alternative meat sector has showed the power of
the millennial via the valuations some of the emerging start-ups in
the space have seen in a relatively short period of time.
With increasing availability and growing acceptance from
mainstream consumers, meat and dairy alternatives are one of the
fastest growing categories at key supermarket chains. As per data
from The Good Food Initiative, grocery sales of plant-based meats
have grown at 11% in the last year (2018/2019) and cumulatively 29%
in the last two years to reach $5bn in 2019.
However, with plant-based burgers, sausages and chicken
becoming increasingly popular and available in fast food
restaurants and grocery stores across the US, a new group of
companies has started making meatless meat. These are the food
conglomerates and conventional meat producers that Beyond Meat and
Impossible Foods originally set out to disrupt.
In recent months, major food companies like Tyson Foods,
Smithfield Foods, Perdue, Hormel and Nestlé have rolled out their
own meat alternatives, filling supermarket shelves with plant-based
burgers, meatballs and chicken nuggets.
This trend spells bad news for the already battered food animal
segment, which is reeling partly from the onslaught of African
swine fever and a recurrence of avian influenza in certain markets.
Could this also hasten the process of the companion animal market
overtaking the food animal segment in terms of global revenue
share?
Starting largely as alternatives to animal meat products for
vegans and vegetarians, and supposedly having a smaller
environmental footprint, plant-based protein is being adopted in
large volumes, with significant expansion across multiple
geographies. As per Swiss investment firm UBS, the market for
lab-cultured meats and plant-based meat alternatives may hit $85bn
by 2030.
Question marks remain regarding claims of sustainable
agricultural practices, as common ingredients of alternative plant
meat products include soya, rice and maize, which are part of a
highly industrialized production process. Concerns also remain on
the usage of GMO yeast and soya - genetically modified to resist
the herbicide glyphosate - as key ingredients in plant
burgers.
US light-vehicle sales declined 14.0% year on year (y/y) to
1,214,891 units in November, partly on there being three fewer
sales days during the month in 2020 than in 2019. The estimated
seasonally adjusted annual rate (SAAR) of sales was 15.6-15.9
million units in November, a decline from the 16.2-million-unit
reading in October.(IHS Markit AutoIntelligence's Stephanie
Brinley)
General Motors (GM) remains the top-selling automaker in the
United States and its sales are estimated to have decreased 13.3%
y/y in November and declined 13.9% y/y in the year to date (YTD;
January to November). Despite the all-new Encore GX, Buick sales
were down 23.1% y/y in November and 23.4% in the YTD. Encore sales
in November dropped 82.8%, much more than sales of the top-selling
Encore GX were able to absorb, while Envision sales also saw a
sharp decline.
Toyota Motor North America (TMNA) reported a 15.8% y/y drop in
YTD sales, eased by a second consecutive monthly improvement. With
its November results, Toyota pulled ahead of Ford in terms of YTD
sales as well as monthly performance. In November, Toyota's sales
slipped only 1.1% y/y. In the YTD, the Toyota division's sales are
down 15.1% y/y and Lexus sales are down 9.9%, although in November,
Toyota sales were essentially flat and Lexus sales fell 6.9% y/y.
The RAV4 continues to be the Toyota volume leader and the distance
is still increasing between its sales and the Camry's sales, which
have dropped 14.8% y/y in the YTD, although they increased 19% y/y
in November.
Ford is expected to release its sales figures on 2 December,
and the figures reported here are estimates. Ford's sales dropped
21% y/y in November, leaving the company with a 16.6% decline in
the YTD. The Ford brand's sales dropped 21% y/y and the Lincoln
brand's sales improved 22.9% in November.
American Honda reported a 23.4% y/y sales decline in November
and its sales fell behind the Hyundai-Kia group's sales last month.
In the YTD, Honda's sales are down 17.8% y/y. Honda brand's sales
have fallen 18.1% in the YTD, with car sales down 24.0% and truck
sales down 13.1%.
Nissan continues to struggle, with sales down 35.5% y/y over
the first 11 months of 2020. Nissan's efforts to adjust its
business after years of reliance on fleet sales and incentives have
been hindered by the COVID-19 pandemic and changes in management.
In the YTD, Nissan brand's sales have dropped 35.6% y/y, with car
sales down 42.1% and light truck sales down 31.0%. Nissan's all-new
Rogue arrived in October, and the new entry brings a compelling
package that might help the model revive some of its earlier strong
segment performance in 2021.
Lucid has announced completion of construction of its plant in
Casa Grande (Arizona, US); initial capacity is for 30,000 units per
annum, with phased expansion planned up to 400,000 units. Lucid
calls the plant Lucid AMP-1 (Advanced Manufacturing Plant). With
the first phase of construction complete, Lucid says "the
commissioning of production equipment and processes" are under way
for a planned production start between March and May 2021. The next
expansion phase is scheduled to begin in early 2021 as well,
preparing for production of Lucid's sport utility vehicle (SUV) in
2023, under the development name Project Gravity, which is an
interesting counterpoint to the sedan being called the Lucid Air.
There are four planned phases through 2028; Lucid intends to expand
from its current 999,000 square feet to 5.1 million square feet.
The water-based paint shop has been designed to be future-proofed
for expansion through all phases of plant expansion. In a statement
announcing the milestone, CEO and CTO Peter Rawlinson was quoted as
saying, "We broke ground on the 590-acre Lucid AMP-1 site in Casa
Grande, Arizona, on December 2, 2019, and slightly less than a year
later we have completed the first purpose-built [electric vehicle]
EV factory in North America. As the Lucid Air nears production,
Lucid has been revealing more details on the vehicle and pricing
(see United States: 15 October 2020: Lucid Motors announces entry
version of Air sedan, United States: 10 September 2020: Lucid
reveals production Air sedan, initial pricing, and United States:
24 August 2020: Lucid claims fastest charging EV, with 900V+
electrical architecture). IHS Markit forecasts Lucid's global sales
will rise to above 30,000 units in 2025, after Project Gravity
comes on the scene, although having the capacity to build at that
pace sooner can allow Lucid to meet demand if it is higher than
forecast. Lucid's Air boasts strong technology and an attractive
exterior, but it is coming to market as consumers are being flooded
with EV options. (IHS Markit AutoIntelligence's Stephanie
Brinley)
Ford Otosan, US automaker Ford's joint venture (JV) with
Turkey's Koç Holding, has partnered with Velodyne Lidar to test and
develop autonomous heavy commercial trucks. Ford Otosan will deploy
Veloyne's Velarray H800 LiDAR sensors in its next-generation
vehicles to enable safe navigation and collision avoidance. LiDAR
sensors are necessary for autonomous vehicles (AVs) as they measure
distance via pulses of laser light and generate 3D maps of the
world around them. Burak Gökçelik, assistant general manager at
Ford Otosan, said, "Autonomous vehicle technology, powered by
lidar, can bring multiple efficiency and safety benefits to the
trucking industry. Our autonomous driving initiative with Velodyne
looks to improve roadway safety by helping trucks understand and
react to approaching road conditions and surroundings." 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. Ford Otosan has
expanded its partnership with AVL to jointly trial hub-to-hub
autonomous highway transportation using 'Level 4 Highway Pilot'
technology. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Livermore Amador Valley Transit Authority (LAVTA) in the United
States has begun carrying passengers for its shared autonomous
vehicle (SAV) project. After undergoing rigorous testing, the
vehicle has been certified for use on public streets by the
National Highway Traffic Safety Administration (NHTSA). The project
will provide first- and last-mile passenger rides by connecting
them between the Dublin/Pleasanton Bay Area Rapid Transit (BART)
station and nearby locations. The vehicle will have a safety
operator on board and will travel along a one-mile route that
includes two stops and one traffic light. The vehicle is
manufactured by French autonomous vehicle (AV) startup EasyMile and
is operated by public transport company Transdev. The project has
implemented coronavirus disease 2019 (COVID-19) virus-related
safety measures, including limiting the vehicle's capacity to three
passengers, making face masks or coverings mandatory for
passengers, and regular cleaning and sanitization of vehicle
touchpoints between each ride. Transdev is already engaged in pilot
AV deployments in multiple countries; the firm has carried a total
of 3.5 million passengers and clocked up 1.6 million kilometers. In
2019, Transdev and French manufacturer Lohr unveiled the i-Cristal
autonomous shuttle. It is also operating the world's first
commercial driverless service on energy company EDF's campus in
Civaux (France), working with partners including Vedecom and
SystemX. (IHS Markit Automotive Mobility's Surabhi Rajpal)
According to Peru's National Institute of Statistics and
Information (Instituto Nacional de Estadística e Informática:
INEI), the country's consumer price index increased by 0.52% month
on month (m/m) in November and by 2.14% year on year (y/y). (IHS
Markit Economist Jeremy Smith)
After several consecutive months of flat or negative changes in
consumer prices, prices rose across all consumption categories in
November, causing inflation to jump by 0.52% m/m and bringing the
overall consumer price index above the Central Reserve Bank of Peru
(Banco Central de Reserva del Perú)'s 2% target in yearly terms for
the first time since mid-2019.
Increases in the price of food and beverages, the largest
portion of the consumption basket, made by far the largest
contribution to the uptick, as products in this category rose by
0.88% m/m and 2.81% y/y. Fruits and meats recorded the largest
price increases. In addition, prices in the housing rental, petrol,
and electricity category rose by 1.38% m/m because of a 2.8%
increase in residential electricity rates.
Put together, the above two categories accounted for 93% of the
November increase in the consumer price index. By contrast, core
inflation, the portion of the consumption basket excluding more
volatile food and energy prices, increased by just 0.11% m/m and
1.75% y/y.
The fact that core inflation has hardly budged since dropping
below target in March supports IHS Markit's view that demand
remains quite weak. In October, new vehicle sales eclipsed 2019
levels for the first time this year, perhaps indicating some
pent-up demand for durable goods; however, this effect has not yet
exerted much influence on prices.
Ford is to invest USD580 million in a plant in Argentina and
has confirmed plans to launch four models in South America in 2021.
Lyle Watters, president of Ford South America, announced that the
automaker plans to invest USD580 million in its General Pacheco
plant in Argentina for the production of the new generation of the
Ranger pick-up, reports Automotive Business. The Ranger is
scheduled to be launched in 2023. Watters said, "Investments will
be made to modernize the Pacheco plant and in many efforts to
locate components." Ford also confirmed the plans to launch four
models in South America and said that the products would arrive
during 2021. The products that will be part of Ford's portfolio
next year include the Transit utility vehicle, the Ranger Black
pick-up, the limited-edition Mustang Mach 1, and the new Bronco
sport utility vehicle (SUV). Watters said, "They are vehicles that
serve different customers and segments, but they all have
connectivity in common, which will be progressively available in
different countries. This technology brings great functionality and
expands the possibilities of offering a wide range of services to
meet the needs and the growing desires and expectations of
consumers." The new-generation Ranger will be based on the same T6
platform as the current generation, but it will be part of the P703
program, unlike the current generation's P375 program, which
started in 2012 and is to continue until 2022. According to IHS
Markit's light-vehicle production and export data, 43.3% of the
Ford Ranger vehicles produced at the General Pacheco plant in 2023
will be exported to Brazil and 13.3% to Mexico, while 30.3% of the
production will be for the Argentinian market. (IHS Markit
AutoIntelligence's Tarun Thakur)
Europe/Middle East/Africa
European equity markets closed mixed; UK +1.2%, Spain +1.0%,
France flat, Germany -0.5%, and Italy -0.6%.
10yr European govt bonds closed mixed; Italy -4bps, Spain
-2bps, France -1bp, and Germany/UK +1bp.
iTraxx-Europe closed +1bp/47bps and iTraxx-Xover
flat/251bps.
Brent crude closed +1.8%/$48.25 per barrel.
Mini is developing a battery electric vehicle (BEV) version of
the high-performance flagship model, the Cooper S John Cooper Works
(JCW), according to a company statement. According to Mini, the
company's direction in terms of platform and future battery cell
developments will give it the opportunity to combine what it refers
to as 'extreme performance and genuine driving enjoyment'. Bernd
Körber, the head of the Mini brand said, "With the Mini Electric,
we've shown how well brand-typical driving enjoyment and electric
mobility can be combine. Now it's time to translate the passion for
performance of the John Cooper Works brand to electromobility.
That's why we're working to develop concepts for electric John
Cooper Works models." The company has already successfully launched
the Mini Electric, which Körber addresses above, so the brand
already has an electrified offering and it is likely that any
battery-electric JCW will use a variant of this existing
powertrain. However, the existing Mini Electric only has a 32.6 kwh
battery and a somewhat limited range as a result of between 124 and
144 miles on the WLTP cycle. High-performance driving will shorten
that capability significantly, and this is the main issue Mini has
with developing a BEV version of the JCW. (IHS Markit
AutoIntelligence's Tim Urquhart)
According to Federal Statistical Office (FSO) data, German real
retail sales excluding cars rebounded by 2.6% month on month (m/m)
in seasonally and calendar-adjusted terms during October, more than
unwinding September's decline of 2.3% m/m. Together with the
combined increase of 2.8% during July-August, October's retail
sales thus exceeded the June level (just before the VAT cut) by 3%.
(IHS Markit Economist Timo Klein)
As recent developments build on the huge rebound seen in May
after the end to the COVID-19 virus-related lockdown period - then
helped by catch-up effects - October's unadjusted year-on-year
(y/y) rates reached 8.2% in real terms and 9.4% in nominal terms.
This compares with average growth of 3.2% and 3.7%, respectively,
in 2019, and even lower long-term trend growth of 0.6% and
1.3%.
Recent above-trend retail sales are attributable to three
factors: the temporary VAT cut (July-December 2020); catch-up
effects due to the enforced inability to make purchases during the
March-April lockdown; and substitution effects with respect to
income that cannot be used for services which - for public health
reasons - are either not available at all or only with restricted
capacity (e.g. restaurants). Furthermore, with a greater share than
usual spent indoors, people want to improve their living conditions
at home and thus turned to DIY and household equipment.
Major categories of the price-adjusted y/y data for October
(total 8.0% y/y; for details, see table below) show a somewhat
stronger increase for non-food sales (9.0%) than for food sales
(7.3%). Among the former, internet and mail order sales remained
well ahead of the rest (up 29.8% y/y), followed by
furniture/household goods/DIY (up 14.2%), and sales in specialty
stores such as for toys, books, and bicycles (up 4.5%). The other
major groups of goods all posted declines, specifically -0.8% y/y
for pharmaceutical/cosmetic goods, -2.3% y/y for sales at general
department stores, and -6.4% y/y for textiles/shoes.
A clear distinction needs to be made between retail sales alone
and consumer demand in general, given the aforementioned
catching-up, substitution, and tax effects. Many services in the
recreation and entertainment sector will remain underutilized until
widespread vaccination against COVID-19 has been completed, which
is unlikely before mid-2021. Until that time, consumers will spend
an above-average share of their income on retail goods, compared
with long-term trends.
The improvement of Austria's labor market indicators around
mid-2020 has gone into reverse in November due to the constraints
on economic activity caused by the second lockdown needed to
counter the second wave of COVID-19 infections. A sustained
improvement will require widespread vaccination, and should
therefore not be expected before mid-2021. (IHS Markit Economist
Timo Klein)
According to the Austrian Labour Market Service (AMS), there
were 390,858 unemployed people in Austria at end-November, up
32,000 from October and up 91,000 (30.5) versus November 2019.
The gap with the unemployment rate a year earlier had peaked at
5.4 percentage points at the height of the initial lockdown in
April before narrowing to 1.7 points in October, but November's
rate at 9.5% was 2.2 points higher than in November 2019. The
closure of hotels and restaurants and large parts of the retail
sector and the educational system is having a major impact,
although continuing operations in the manufacturing sector mean
that the situation will remain far better than during
March-April.
The unemployment rate on a harmonized, seasonally adjusted
basis as calculated according to European Union and thus
International Labour Organization (ILO) criteria, which is only
available until October, has remained steady at 5.4% (September
revised down from 5.5%). This compares to an interim peak of 5.9%
in June, caused by ramifications of the March-April lockdown, and a
cyclical low point of 4.3% in November-December 2019.
Vacancies, which had still exceeded their year-ago level until
February, were down 18.2 y/y in November (absolute level: 58,243).
Vacancies no longer are recovering now, the year-on-year (y/y)
decline thus deepening anew.
Finally, dependent employment declined by 55,000 (or 1.5%) y/y
in November, representing the second consecutive month of
deterioration following a phase in which the annual decline
diminished from a peak of 200,000 (or -5.0%) in April to just
35,000 (or -0.9%) y/y in September. The dip by 55,000 in
combination with the unemployment increase of 91,000 means the
labor force has increased by 36,000 y/y (or 0.9%). This indicates a
bottoming, as September's increase had been only 0.7% y/y, down
from April's peak at 2.0% y/y.
The corrective improvement seen in the Austrian labor market
since May, when the initial lockdown was lifted, will partly unwind
again during the next few months due to the negative knock-on
effects of the new lockdown. Even if the current strict measures
are removed again in January, it is clear that employment related
to large public gatherings or people potentially being in close
contact to one another, such as spectator sports, festivals, fairs,
cinemas, or theatres, will remain lower than normal until mid-2021
in any case. Labor market conditions will improve lastingly only
once widespread vaccination has been achieved. During the next six
to eight months, company insolvencies and thus unemployment will
increase once more.
Groupe PSA has announced that it plans to launch
battery-electric variants of its compact light commercial vehicle
line-up in 2021. According to a statement, the Peugeot e-Partner,
Citroën ë-Berlingo van, Opel Combo-e and Vauxhall Combo-e will
feature a water-cooled 50kWh electric battery and a 100kW electric
motor. The onboard charger offers two levels of power, a 7.4kW
single-phase and 11kW three-phase. It said that as well as the
commercial variants, the same powertrain will also feature in the
Peugeot e-Rifter, Citroën ë -Berlingo, Opel Combo-e Life and
Vauxhall Combo-e Life passenger versions. The launch of the
battery-electric variants of these vehicles will lead to PSA
offering electrified variants of all its models before the end of
2021. The company has already begun offering battery-electric
variants of the Citroën Jumper, Peugeot Expert, Opel Vivaro and
Vauxhall Vivaro, as well as the larger Peugeot Boxer and Citroën
Jumpy, which will be joined by Opel and Vauxhalls based on these
models in due course. These new compact vans use the same electric
motor used by the mid-size vans, as well as the Peugeot e-208,
Peugeot e-2008 and its other vehicles based on the CMP
architecture. It also uses the same battery size as the other CMP
models ,with which they share a platform. (IHS Markit
AutoIntelligence's Ian Fletcher)
After demand was underpinned by market support measures, the
Italian passenger car registrations went into decline during
November. According to the latest data published by the National
Association of Foreign Vehicle Makers' Representatives (Unione
Nazionale Rappresentanti Autoveicoli Esteri: UNRAE), registrations
fell by 8.3% year on year (y/y) to 138,405 units. This means that
registrations in the year to date (YTD) are now down by 29% y/y to
1,261,802 units, not helped by the significant impact of the
COVID-19 virus in earlier months. November has marked a return to
decline for the Italian passenger car market after government
support measures helped lift demand during the past couple of
months. However, the performance is far better than we had expected
for the month, when lockdown measures for parts of the country
returned from 6 November as COVID-19 infections rose again. The new
rules introduced an overnight curfew across the country and public
transport running at half capacity as part of the three-tier system
of measures rolled out on a regional basis, which allowed
businesses, factories, pharmacies, and supermarkets to remain open.
(IHS Markit AutoIntelligence's Ian Fletcher)
Passenger car registrations in Spain recorded another decline
during November, according to the latest data published by the
Spanish Association of Passenger Car and Truck Manufacturers
(Asociación Española de Fabricantes de Automóviles y Camiones:
ANFAC). Demand fell by 18.7% y/y to 75,708 units. The YTD figure
now stands at 745,369 units, a decline of 35.3% y/y, as the
COVID-19 virus pandemic had a heavy impact in earlier months. The
decline in the Spanish passenger car market has been despite
support, introduced in mid-June, for parc replacement and those
looking to purchase alternative powertrain vehicles. Although there
was some initial uplift in July, interest has since waned. The
24.4% y/y fall in private customers during November underlines the
thinking that these measures are not generous enough to lure
uncertain consumers to the market. The 35.4% y/y decline in
registrations to rental fleets adds to the woes of the Spanish
automotive industry, not helped by the far weaker tourism market
this year. (IHS Markit AutoIntelligence's Ian Fletcher)
Despite the economy's better-than-expected third-quarter
performance, the short-term outlook for Czechia remains bleak,
affected by restrictions aimed at limiting surge in coronavirus
COVID-19 cases. Seasonally adjusted GDP jumped by 6.9% quarter on
quarter (q/q) in the third quarter, considerably faster than the
'flash' estimate of 6.2%. In year-on-year (y/y) terms, Czechia's
GDP fell by 5.0%, versus a preliminary decline of 5.8%. (IHS Markit
Economist Sharon Fisher)
Detailed data indicate that net exports were the main driver of
the third-quarter recovery, with exports significantly outpacing
imports in both q/q and y/y terms, partly thanks to a drop in fuel
imports. Although goods exports slightly exceeded year-earlier
levels in the third quarter (amid rising sales in the electronics
and food categories), services exports continued to fall, down by
20.2% y/y.
Private consumption (up by 4.9% q/q) supported q/q growth
during the third quarter, while inventories, fixed investment, and
public consumption had a negative impact on growth. According to
the Czech Statistical Office, fixed investment fell by 10.7% y/y
and 5.0% q/q, and the steepest declines were recorded in
investments in dwellings, transport equipment, and intellectual
property products.
Data by sector indicate that industry and trade were the main
drivers of third-quarter growth in value added, recording
double-digit q/q gains. In a y/y comparison, only agriculture and
public administration recorded positive results.
Czechia's third-quarter GDP results were considerably weaker
than in neighboring Poland, where both private consumption and
exports of goods and services exceeded year-earlier levels,
contributing to a decline in GDP of just 1.5% y/y. Data by sector
indicate that value added from Polish industry rose by 2.9% y/y,
whereas Czechia's declined by 5.5%.
In the November forecast round, IHS Markit downgraded its GDP
forecast for Czechia for both 2020 and 2021. We are currently
projecting a 7.1% decline this year, followed by a recovery to
+2.6% in 2021.
Given the upgrade in the third-quarter figure, we will consider
raising our full-year growth projection for 2020. Our November
forecast had assumed a 3.6% q/q decline in the fourth quarter, and
keeping that figure stable would result in a 6.6% drop in GDP for
2020 as a whole.
State budget data for the first 11 months of 2020 indicate that
the budget gap has widened sharply this year, as a surge in
expenditure (up by 19.1% y/y) was matched by a drop in revenues
(down by 2.8% y/y). Budget receipts would have fallen faster if not
for EU transfers, which increased by 5.5% y/y.
Asia-Pacific
APAC equity markets closed mixed; South Korea +1.6%, Japan
+0.1%, Australia flat, Mainland China/India -0.1%, and Hong Kong
-0.1%.
Direct impact on first-time buyers is expected to be limited as
the down-payment ratio for first-home mortgages remains unchanged.
Although raising the bar for presale could further limit financing
sources, especially for small developers, the move is still likely
to help improve overall financial stability. (IHS Markit Economist
Lei Yi)
The housing bureau of Xi'an City (Shaanxi Province) issued a
notice on further regulating the local housing market on 1
December. According to the notice, rules on the presale system will
be tightened and the down-payment ratio requirement for second home
purchases will be higher.
On the housing demand side, the local government will impose
differentiated down-payment requirements based on the floor space
of the buyer's existing home and the second home the buyer is
trying to purchase with a mortgage. Post the adjustment, the
down-payment ratio could vary from 40% to 70% for second home
purchases, compared with 40% across the board previously.
The latest notice also increases the hurdles faced by
developers in applying for presale permits. To qualify for the
permit, buildings with seven floors and below will need to have the
basic structure completed, while buildings with over seven floors
must have construction of a third of all floors, or seven floors,
completed, whichever is greater. Prior to the adjustment, the
threshold was set at six floors across the board.
Additionally, the notice states that funds received from
presales should be fully stored in regulatory accounts, and will be
strictly prohibited from being used by developers for other
purposes.
The strength of housing demand in Xi'an can partly be
attributed to the city's attractiveness as a regional center for
talent inflow. New home prices in Xi'an have been rising
significantly faster than in other peer tier-2 cities. Through
October, year-on-year (y/y) home price inflation averaged at around
5.5% y/y for all tier-2 cities, compared with over 9% y/y for
Xi'an. Still, as the newly launched policy focuses on adjusting
credit policy for second-home buyers, the direct impact on
first-time buyers is expected to be limited.
Chinese electric vehicle (EV) manufacturers NIO and Xpeng
Motors have announced their delivery results for November. EV
startup NIO delivered 5,291 vehicles in November, an increase of
109.3% year on year (y/y). The deliveries included 1,387 units of
the ES8, 2,386 units of the ES6, and 1,518 units of the EC6. From
January to November, NIO delivered 36,721 vehicles, an increase of
111.1% y/y. As of 30 November, NIO's cumulative deliveries of the
ES8, ES6, and EC6 totaled 68,643 units. Meanwhile, Xpeng said it
delivered 4,224 vehicles in November, up 342% y/y. Deliveries of
the P7 sedan and the G3 sport utility vehicle (SUV) totaled 2,732
units and 1,492 units respectively in November. From January to
November, Xpeng's combined deliveries of its two models were 21,341
units, up 87% y/y. NIO and Xpeng have both reported record monthly
deliveries in the Chinese market during November, an indication of
a positive market response to their respective new products. (IHS
Markit AutoIntelligence's Abby Chun Tu)
The US pecan association (APC) has just released October export
data, revealing that Chinese recovery is strengthening. Global
sales totaled 11.3 million in-shell basis pounds this October,
87.3% more year-on-year, bringing seasonal (September-October 2020)
exports to 20.7 million pounds, 56% more y-o-y. The Chinese
appetite for in-shell pecans was the driver of growth. China and
Hong Kong SAR imported 5.8 million in-shell pounds, five times more
than in October 2019. Shelled sales recovered strongly to 2.7 7
million pounds, 22% more year-on-year. Canada and the Netherlands
were the main importers, accounting for 44.3% and 15%,
respectively, of the total volume. Exports are confirming that
Chinese purchases are cutting in-shell stocks, as IHS Markit
reported on 24 November, finishing the huge disparity between US
in-shell and shelled inventories and the industry being ready for
rising prices. (IHS Markit Food and Agricultural Commodities' Jose
Gutierrez)
South Korean automakers posted a 5.1% y/y decline in their
combined global vehicle sales to 674,040 units in November,
according to data released by the five major domestic
manufacturers, as reported by Yonhap News Agency and compiled by
IHS Markit. (IHS Markit AutoIntelligence's Jamal Amir)
The five automakers reported a 5.3% y/y increase in their
combined domestic sales last month to 143,591 units, while their
combined overseas sales went down by 7.6% y/y to 530,449
units.
South Korea's top-selling automaker, Hyundai, posted global
sales of 376,704 units in November, down 4.3% y/y. Hyundai's
domestic sales surged 10.9% y/y to 70,035 units last month, while
its overseas sales declined by 7.2% y/y to 306,669 units.
Global sales of Hyundai's affiliate, Kia, increased by 2.0% y/y
to 256,019 units in November.
General Motors (GM) Korea reported a 45.6% y/y plunge in its
total sales to 21,384 units last month, with its domestic sales
down 10.5% y/y to 6,556 units and its overseas sales down 53.7% y/y
to 14,828 units. The plunge in GM Korea's global sales last month
was mainly due to several rounds of industrial action at its plants
over this year's wage negotiations. This industrial action has
resulted in a production loss of around 25,000 vehicles.
SsangYong's global sales increased by 10.3% y/y to 11,859 units
during November. Last month, the automaker sold 9,270 units in
South Korea, up 0.3% y/y, and around 2,589 units in its overseas
markets, up 71.0% y/y.
Renault Samsung's sales nosedived by 48.7% y/y to 8,074 units
in November, with its domestic sales plunging by 10.8% y/y to 7,207
units and its overseas sales plummeting by 88.7% y/y to 867 units.
Renault Samsung suspended production operations at its sole Busan
plant in South Korea on 2 and 3 November in a bid to keep
inventories at manageable levels as the COVID-19 virus pandemic has
weighed down on export demand.
The decline in South Korean automakers' global sales during
November was mainly due to a poor performance in overseas markets
owing to the COVID-19 virus pandemic, which has caused a
contraction in consumer spending. The decline last month can also
be attributed to industrial action at GM Korea and production
suspensions at Renault Samsung's plant.
Hyundai Motor Group (HMG) has announced an overview of
information about its new E-GMP global electric vehicle (EV)
platform, which will transition HMG EVs to rear-wheel drive and
promises range of at least 500 kilometers (WLTP) and bi-directional
charging. HMG's unveiling of its dedicated EV platform comes on the
heels of a series of announcements across the industry as an
increasing number of automakers get closer to production of new EV
products that have been in development for several years. Hyundai's
approach with the E-GMP platform bears similarities to the
strategies of General Motors and others to create a modular and
flexible solution. (IHS Markit AutoIntelligence's Stephanie
Brinley)
Indonesia's headline consumer price inflation nudged up to 1.6%
year on year (y/y) or a five-month high in November, but it is
still a far cry from Bank Indonesia (BI)'s 2.0-4.0% target range.
Proposals in a draft finance omnibus bill will broaden the central
bank's mandate to include sustainable growth and employment in
addition to the inflation target, but drop at least one
controversial proposal previously floated that threatened the
central bank's future independence. (IHS Markit Economists Angus
Lam and Bree Neff)
Food prices were the primary source of inflationary pressure in
November as they ticked up to a five-month high because of the
start of the rainy season that lifted prices for chicken, eggs, red
chilies, and onions, according to Statistics Indonesia. Health
prices also remained elevated, nudging back up to 3.0% y/y
potentially because of the persistence of the coronavirus disease
2019 (COVID-19) pandemic in the country.
Implying continued weak demand pressures, core consumer price
inflation nudged down to a fresh record low of 1.67% y/y in
November, as other price pressures otherwise remained subdued
(hanging close to record lows) across most consumer spending
categories.
BI cut its policy rate - the seven-day reverse repurchase
(repo) rate - on 19 November by 25 basis points to 3.75%. This is a
fresh record low for this policy rate that was introduced in 2016.
BI's Board of Governors indicated that low inflation and improved
external stability (read as - rupiah stability) allowed for the
rate cut, and it is intended to help bolster the country's economic
recovery.
The inflation outlook for Indonesia remains benign because of
the persistence of COVID-19 in Indonesia and the resulting negative
effects on employment and consumer confidence. Enhanced food price
monitoring systems by BI should help contain food prices beyond
temporary disruptions. Therefore, barring a significant shock to
food supplies, food price inflation should not worsen too much in
the next few months.
Annual average inflation for 2020 is likely to come in right
around 2.0%, but will only creep into the central bank's target
range by mid-2021 and will meaningfully reach the top of that band
around late 2021, supported by recovering demand domestically and
globally.
Posted 02 December 2020 by Chris Fenske, Head of Fixed Income Research, Americas, S&P Global Market Intelligence
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