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President Trump's Twitter announcement that he and the first
lady tested positive for COVID-19 triggered an uptick in volatility
across global markets within seconds of the tweet. Several APAC
equity markets were closed for market holidays, but the major
markets that were open closed lower on the day. Both European and
US equity markets closed mixed, with US small caps ending the day
higher and tech sharply lower. US government bonds ended the day
lower, despite being higher on the day until the US equity market
opened. iTraxx and CDX indices were both close to unchanged on the
day, while oil closed sharply lower for the third time this week.
The US non-farm payroll headline number came in below consensus,
but still reported an encouraging 661K jobs were added and
unemployment declined to 7.9% in September.
Americas
US President Donald Trump announced on 1 October that he has
tested positive for COVID-19, along with his wife Melania Trump,
and that he will be self-isolating for an unspecified amount of
time. The statement comes only 32 days prior to the 3 November
election date, which is extremely unlikely to be moved because of
existing congressional statutes. According to the White House, the
president will continue working throughout his illness, but
Vice-President Mike Pence will step in as his surrogate for
scheduled appearances. According to government statements, the
president is not currently experiencing adverse symptoms. However,
because of his weight and age, he remains in a high-risk category
for a severe reaction. The immediate political impact will be to
force the president to cancel his campaign rallies (at least
temporarily) and, depending upon his condition, his ability to
participate in the next presidential debate on 15 October may be
affected. The national discussion will also move away from the
president's 29 September debate performance back to the COVID-19
virus, with the public largely viewing his handling of the pandemic
negatively, and this will undermine the health arguments that Trump
has used against former vice-president Joe Biden's competence to
hold office and his claims that the nation has "rounded the corner"
on handling the pandemic. Conversely, as seen in other countries
where leaders have contracted the illness, some members of the
public are likely to sympathize with Trump's condition. Recent
polling suggests that approximately 85% to 90% of the US public are
already sure of their voting choice. Consequently, if the president
recovers quickly, the overall implication of his illness for the
outcome of the election race is likely to be limited. With respect
to governance, Trump's illness is likely to stall some Republican
governors from fully reopening their economies. If the virus
spreads throughout the West Wing, ongoing international
negotiations or policy enactment will be delayed. If the president
were to die or become completely incapacitated, the Republicans
would almost certainly quickly nominate Vice President Mike Pence
to replace him as the party nominee. A semi-incapacitated state
would present more problems as it would require Trump to
temporarily relinquish power or for a majority of the cabinet and
the vice-president to vote to remove him. It would also raise
questions among the public as to the president's state of health
prior to the election. (IHS Markit Country Risk's John Raines)
S&P futures sold-off sharply on the 12:54am EST twitter
announcement of President Trump testing positive for COVID-19, but
the index did retrace most of the losses after the US markets
opened.
Most US equity markets closed lower except for the Russell 2000
+0.5%; Nasdaq -2.2%, S&P 500 -1.0%, and DJIA -0.5%.
10yr US govt bonds closed +2bps/0.70% yield and 30yr bonds
+3bps/1.49% yield, despite rallying to intraday highs of -3bps and
-4bps, respectively, before the US equity markets opened.
CDX-NAIG closed +1bp/58bps and CDX-NAHY +1bp/404bps.
DXY US dollar index closed +0.1%/93.81.
Gold closed -0.5%/$1,908 per ounce and silver -0.9%/$24.03 per
ounce.
Crude oil closed -4.3%/$37.05 per barrel.
As of 1 October, IHS Markit estimates that under half of global
gasoline demand was in countries or regions with major restrictions
on activity for the first time since March 2020, although barely.
The worldwide rate of new infection has been relatively flat since
August and the majority of large countries are seeing falling new
case rates. However, overall rates remain elevated in most
countries, and a few large countries are bucking the improvement
trend, including Iraq, Argentina, and much of Europe. Countries
with the harshest restrictions have slowly reduced them as new case
rates fall. However most countries never reduced below moderate
restrictions and these have remained steady on a regional
demand-weighted basis. After months of reducing restrictions, large
countries in Europe have started to reimpose restrictions as of
this week. Global mobility data does not show any signs of
improvement, although Google's decision to temporarily halt
publication of some of the key indices does hamper our ability to
get more granular. Workplace mobility, which has been flat in most
countries since June or July, has been flat or falling over the
last few weeks, with the exception of Brazil and Pakistan, which
appear to be trending upwards, uniquely among large gasoline
consumers. In the US, estimates of consumer spending and highway
VMT have been trending upward, suggesting greater activity, but
this trend has so far failed to be reflected in the OPIS data on
gasoline sales or EIA data on gasoline supplied to market, which
have been flat since July at around -10% y-o-y for the EIA or -17%
for OPIS. (IHS Markit Energy Advisory's Roger Diwan, Karim Fawaz,
Justin Jacobs, Edward Moe, and Sean Karst)
US nonfarm payroll employment rose 661,000 in September, while
the unemployment rate declined 0.5 percentage point to 7.9%. The
gain in payrolls followed larger increases in prior months of the
recovery, and the level of payroll employment was still 10.7
million below the February peak. (IHS Markit Economists Ben Herzon
and Michael Konidaris)
The slowing profile of payroll gains mirrors a slowing profile
of monthly GDP, which decelerated to growth of 0.6% (monthly rate)
in August and is expected to be roughly flat in September.
Gains in overall payroll employment since April have reversed
about one-half of the sharp drop in employment in the spring, with
some industries faring better than others.
Employment in accommodation and food services, hit hard by the
pandemic, has reversed about 56% of its decline, and retail has
reversed about 80% of its decline.
Examples of industries where the recovery has lagged include
professional and business services (reversed only 40% of the spring
decline) and financial activities (reversed only 42% of its
decline).
The unemployment rate continues to trend lower, as the
participation rate has essentially stalled over the last four
months near 61.4%, well shy of 63.4% over January and
February.
Both average hourly earnings and the private workweek were
above IHS Markit's assumptions, implying stronger momentum for
private wages and salaries heading into the fourth quarter.
US manufacturers' orders rose only 0.7% in August following
substantially larger increases over the prior three months.
Manufacturers' shipments rose 0.3% in August, down from increases
over the prior three months averaging 5.9% per month. (IHS Markit
Economists Ben Herzon and Lawrence Nelson)
Both orders and shipments stalled in August shy of their
pre-pandemic (February) levels, with orders still 5.3% below
February and shipments still 3.3% below February.
The slowing profile of orders and shipments mirrors slowing
patterns in other aggregate data, including industrial production,
payroll employment, and monthly GDP. The pattern across these data
show robust, albeit only partial, recovery (of varying degrees)
from the spring contraction.
Orders and shipments of core capital goods, by contrast, are
faring quite well. Both have surpassed their pre-pandemic levels
(and were revised somewhat higher through August), indicating a
robust recovery in equipment spending.
Manufacturers' inventories were flat in August; we had expected
a 0.4% decline. This led us to raise our estimate of real nonfarm
inventory investment in the third quarter by about $19
billion.
The University of Michigan US Consumer Sentiment Index rose 6.3
points (8.5%) to 80.4 in the final September reading, the highest
since March. The index has recovered just under one-third of its
decline from February to April, and is consistent with our
expectation for sharply slower growth of consumer spending in the
fourth quarter. (IHS Markit Economists David Deull and James
Bohnaker)
The final September Consumer Sentiment reading was 1.5 points
higher than the preliminary reading, suggesting that sentiment
improved slightly over the course of the month.
The expectations index rose 7.1 points to 75.6. The current
conditions index increased 4.9 points to 87.8.
Consumer sentiment rose 5.4 points to 77.2 among households
earning less than $75,000 a year and rose 8.2 points to 83.6 among
households with earnings above that threshold.
Perceptions of buying conditions mostly improved in September.
The index of buying conditions for large household durable goods
rose 8 points to 114, while that for vehicles rose 2 points to 127.
The index of buying conditions for homes slipped 1 point to 132,
just shy of the 2019 average.
The expected one-year inflation rate dipped sharply by 0.5
percentage point to 2.6% as some pandemic-induced price
fluctuations have begun to normalize. Expected five-year inflation
was unchanged at 2.7%.
The University of Michigan's Consumer Sentiment Index and the
Conference Board's Consumer Confidence Index moved back into sync
in September, with each posting an improvement that left it about
20% beneath its respective February level.
The recovery in consumer sentiment has thus far lagged that of
other economic data such as consumer spending and payroll
employment. This implies elevated caution on the part of consumers
that may last until the threat of the COVID-19 pandemic has
receded.
US auto sales motor along with a seasonally adjusted selling
rate estimate of 15.9-16.3 million units at time of publishing, the
pace of light-vehicle sales continues to improve from the April
2020 low reading of 8.7 million units. (IHS Markit Economist Chris
Hopson)
September 2020 sales benefited from two extra sales days, and
the Labor Day holiday weekend, which fell in August for 2019
results. Incoming monthly sales figures from reporting automakers
are reflecting year-on-year (y/y) improvements. On an unadjusted
volume level, the sales tally for the month is expected to be up
2-5% y/y, the first time since February 2020 the market will
realize monthly y/y growth.
The outlook for the last quarter of the year remains blurred by
political (election, stimulus policies) and economic uncertainty,
but the sequential rise in auto demand levels from April reflects
that consumers who are willing, ready, and able to enter a new car
purchase are doing so.
There were 25 selling days this September, two more than the
year-earlier period.
On a unit volume level, September sales are estimated to have
climbed to approximately 1.30-1.33 million units, which would be
above the year-earlier level, and bring the year-to-date
light-vehicle sales volume figure through the third quarter to
approximately 19% below the year-earlier level.
We do not expect the pace of sales to advance much further than
the September result, but the ongoing recovery in auto sales lends
upside bias in expectations for the remainder of the year.
Month-end September inventory levels as reported by AutoData at
time of publishing were estimated to be up mildly from the previous
month. Compared with month-end August, September 2020 industry
inventory was up approximately 105,000 units. The days' supply
reading at the end of September came down to a reading of 49 days'
supply, down from a 50 days' supply level at the end of August and
a 65 days' supply a year earlier.
Please note: All industry-level numbers in this report are
estimates, owing to the absence of official monthly reports from
General Motors (GM), Ford, Fiat Chrysler Automobiles (FCA), and
others.
Global securities lending returns declined by 28% YoY in
September, however as noted in the August snapshot the YoY
comparison is substantially affected by North American equity
specials for the latter portion of Q3 2019. In the context of 2020,
September was remarkable in its similarity to August, with global
returns increasing by 0.2% MoM. US equities were the largest
contributor to the YoY shortfall, as revenue from specials
continued to decline from the YTD peak in June and was well below
2019 returns. September was the fifth month of 2020 to deliver less
revenue than the 2019 comparable, the others were the months from
March to May, along with August. The total Q3 revenue was $2.2bn, a
16% YoY decline. In this note, we review some of the drivers of
global lending income in September. Varta Ag delivered $14 million
in September securities lending revenue, the firm's 2nd consecutive
month atop the global most revenue generator table. Borrow demand,
and fees, for the German battery maker have trended higher since a
January 8th report from an activist short seller suggested
increased Chinese competition in a category where the firm had been
viewed as an exclusive provider. (IHS Markit Securities Finance's
Sam Pierson)
LyondellBasell and Sasol have agreed to form a joint venture
(JV), under which LyondellBasell will pay $2 billion to acquire 50%
of Sasol's new 1.5-million metric tons/year steam cracker, and
low-density polyethylene (LDPE) and linear low-density polyethylene
(LLDPE) plants with combined capacity for 900,000 metric tons/year,
as well as associated infrastructure, at Lake Charles, Louisiana.
The agreement includes customary rights for each partner regarding
the potential future sale of its ownership interest, the companies
say in a joint statement. The JV will operate under the name
Louisiana Integrated PolyEthylene JV LLC. LyondellBasell and Sasol
will each provide pro-rata shares of ethane feedstock to the
cracker and offtake pro-rata shares of cracker and polyethylene
(PE) products at cost, they say. LyondellBasell will operate the
assets on behalf of the JV. Sasol will retain full ownership and
operational control of its existing 454,000-metric tons/year Lake
Charles East Plant ethane cracker, an R&D complex, and its
performance chemicals assets at Lake Charles producing Ziegler
alcohols and alumina, ethoxylates, Guerbet alcohols, paraffins,
comonomers, linear alkylbenzene, ethylene oxide, and ethylene
glycol, it says. Sasol said in August that it had received "strong
global interest" for its Lake Charles Chemicals Project (LCCP) base
chemicals assets and that a deal was expected to close by the end
of the year. The overall current forecast cost of the LCCP is $12.8
billion, a cost that has soared from its original estimate of $8.9
billion. Sasol also reported a net loss of $5.3 billion for its
full financial year ended 30 June. The last remaining unit to come
online at the LCCP complex is the 420,000-metric tons/year LDPE
facility, damaged in a fire earlier this year. It is still expected
to achieve beneficial operations by the end of this month,
according to Grobler.
Electric vehicle (EV) startup Nikola has released an overview
of its company plan, in the wake of the departure of founder Trevor
Milton. Nikola also postponed indefinitely its planned Nikola World
in-person event. The company describes itself as a "disruptor and
integrator". Nikola says that it intends to integrate the
next-generation truck technology, hydrogen fuelling infrastructure
and maintenance to create a zero-emissions transportation ecosystem
for its customers. Nikola said, "We assemble, integrate, and
commission our vehicles in collaboration with support from business
partners and suppliers that bring decades of experience in
manufacturing, and that have invested billions of dollars in
industrializing and scaling production. Nikola designs and
engineers its vehicles and works with business partners and
suppliers to manufacture a majority of the vehicle components."
This plan is designed to give the company the "quickest, least
capital-intensive path to market, in combination with our own
intellectual property", it says. Nikola says its business comprises
three units: Truck - battery electric vehicle (BEV) and fuel-cell
EV (FCEV) Class 8 trucks; Energy - hydrogen fueling station
network; and Powersports - outdoor recreational vehicles (ORVs). On
the Tre BEV joint venture (JV) truck with CNH, being built at a JV
factory in Ulm, Germany, Nikola said that the first batch of five
prototypes will be completed in the next few weeks, and that the
company remains confident it will begin full production and
deliveries in the fourth quarter of 2021. Regarding the Tre, Nikola
says its engineers have taken the lead on the human machine
interface, infotainment, battery pack engineering and integration
into the e-propulsion architecture, vehicle thermal management, and
the e-axles. Nikola expects to begin testing production-engineered
fuel-cell semi-truck prototypes by the end of 2021, and beta
prototypes in the first half of 2022. Nikola has been working with
Bosch on integration of the heavy-duty fuel-cell power modules, the
company said. Although Nikola's plan also includes a hydrogen
fueling station network, the company has the furthest way to go on
this element. The company also confirmed that construction of its
greenfield assembly plant in Coolidge, Arizona, United States, is
on schedule for phase 1 to be completed by the end of 2021 and to
be fully completed by mid-2023. This facility is due to have a
production capacity of 35,000 Class 8 commercial semi-trucks
annually. Nikola laid out the timeline of its company plan to calm
investors after a scathing report was published by a research
company. (IHS Markit AutoIntelligence's Stephanie Brinley)
On 30 September, the International Monetary Fund (IMF)
Executive Board approved a new Extended Fund Facility for Ecuador
that replaces the March 2019 one, which was cancelled in May 2020
because of missed targets. (IHS Markit Economist Claudia Wehbe)
Amid a severe financing squeeze and health crisis caused by the
COVID-19 virus pandemic, Ecuador completed a distressed debt
exchange (DDE) on 31 August after initiating a consent solicitation
process that the government started in April. The DDE includes the
exchange of 10 sovereign bonds for four new ones, postpones
amortization payments to 2026, reduces interest payments to 6.9%,
includes a 10% principal haircut and a USD1-billion zero coupon
bond for past-due interest.
Ecuador's government was in the process of negotiating a new
Extended Fund Facility (EFF) with the IMF's Executive Board
following the May 2020 cancellation of the prior EFF - approved in
March 2019 - due to missed targets. In May 2020, the IMF had
disbursed emergency funds totaling USD0.643 billion that offered
short-term relief to support the health-system crisis triggered by
the pandemic.
Under the 27-month USD6.5-billion EFF approved on 30 September,
Ecuador's government will receive a USD2-billion disbursement to
support its budget immediately. The overall program's goal is to
assist the government's continued effort to support macroeconomic
stabilization and the foundation for strong growth, expand social
assistance programs, ensure fiscal and debt sustainability, and
strengthen the dollarization regime. Other objectives include
improving transparency in public procurement, promoting debt
transparency, and adopting robust cash management practices.
According to Finance Minister Richard Martinez, more than 60%
of the loan - USD4 billion - will be received in 2020, and two
remaining disbursements totalling USD1.5 billion and USD1 billion
will be received in 2021 and 2022, respectively.
Uncertainty regarding the February 2021 election, fiscal
commitments and reforms under the new agreement with the IMF
remains high, although it is likely that any elected presidential
candidate would honor the debt deal as the debt restructuring
offers substantial relief.
The deeper short-term liquidity squeeze has been averted and
the government will be able to stay up to date with past due
payments with suppliers, the social security, retirees, states and
municipalities. Uncertainty about the length and depth of the
pandemic add risks to the downside.
IHS Markit projects the economy to remain in a severe recession
in 2020 on the back of the external crisis, expecting negative GDP
growth at close to -9.0% in 2020, while the government continues to
work on its fiscal adjustment strategy. However, the decline could
be larger than expected in the coming quarters, assuming weak oil
prices in 2021-22 to remain below 2019 prices.
Europe/Middle East/Africa
Most European equity markets closed higher except for Germany
-0.3%; Spain/UK +0.4% and Italy/France flat.
10yr European govt bonds closed mixed; Italy -4bps, France
-2bps, Spain -1bp, Germany flat, and UK +1bp.
iTraxx-Europe closed -1bp/59bps and iTraxx-Xover
-1bp/342bps.
Brent crude closed -4.1%/$39.27 per barrel.
A new British standard for biodegradable plastic means that
plastic claiming to be biodegradable will have to pass a test to
prove it breaks down into a harmless wax which contains no
microplastics or nanoplastics. To meet the PAS 9017 standard, the
polymer has to pass tests which show it will biodegrade to a
harmless state in real-world situations. The new standard was
sponsored by Polymateria, based at Imperial College, London and
agreed after independent review and discussions with stakeholders
in the industry, the waste and recycling group Wrap, the Department
for Environment, Food and Rural Affairs and the Department for
Business, Energy and Industrial Strategy. The British Standards
Institution's (BSI) specification has been met by Polymateria, a
British company which has created a formula to transform plastic
items such as bottles, cups and film into a sludge at a specific
moment in the product's life. Once the breakdown of the product
begins, most items, triggered by sunlight, air and water, will have
decomposed to carbon dioxide, water and sludge within two years.
Polymateria adds bio-transformation chemicals to the plastic when
the packaging type is being made. The formulation differs from one
type of plastic or pack to another. The biodegradable packaging
will bear a clear recycle-by date, to inform consumers that they
have a timeframe to dispose of them responsibly in the recycling
system before they start breaking down. According to Niall Dunne,
chief executive of Polymateria, in tests polyethylene film fully
broke down in 226 days and plastic cups in 336 days. (IHS Markit
Food and Agricultural Commodities' Neil Murray)
Mobile network operator O2 has opened a commercial lab in
Oxfordshire (UK) to help companies test connected and autonomous
vehicles (CAVs). The facility, called Darwin SatCom Lab, has been
launched as part of Project Darwin, a four-year pilot program based
at the Harwell Science & Innovation Campus. The lab is backed
by government funding from the UK Space Agency, which uses 5G and
satellite technologies to trial ways of keeping vehicles connected.
At the lab, O2 has already converted two Renault TWIZY electric
cars into driverless cars, deployed with LiDAR sensors. This will
allow these vehicles to be controlled from the lab and driven
around the Harwell campus. Derek McManus, CEO at O2, said, "We're
delighted to announce that the Darwin SatCom Lab is now open for
business at Harwell Campus, allowing companies to put theory into
practice and test innovative ideas using our connected and
autonomous vehicles". (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Swedish passenger car registrations recorded an improvement
during September, according to data published by trade association
Bilindustrieföreningen (BIL Sweden). Sales increased by 7.3% year
on year (y/y) to 28,719 units. (IHS Markit AutoIntelligence's Ian
Fletcher)
During the month, Volvo was the biggest selling brand with 7.9%
y/y to 4,606 units, while Volkswagen (VW) in second slipped back by
13% y/y to 3,575 units.
In third, Toyota registered 2,948 units, a leap of 54% y/y. The
Swedish passenger car market has now fallen by 18.2% y/y to 202,644
units in the year to date (YTD).
In the commercial vehicle categories, registrations of light
commercial vehicles (LCVs) with a gross vehicle weight (GVW) of
less than 3.5 tons slid by 2.2% y/y to 3,596 units during the
month, although in the YTD, they remain down by 41.1% y/y at 20,592
units.
Sales of heavy commercial vehicles (HCVs) with a GVW of more
than 16 tons recorded a further modest improvement in September,
gaining by 0.7% y/y to 452 units last month. Nevertheless, in the
YTD, sales are down by 28.2% y/y at 3,568 units.
Einride, a startup that specializes in electric and autonomous
vehicles, has raised USD10 million in venture capital funding,
reports VentureBeat. The funding for the latest round is secured
from existing investors, including Norrsken VC, EQT Ventures,
Nordic Ninja VC, and Ericsson Ventures. The company will use the
capital to accelerate the official launch of its Einride Pod, an
electric truck that can be remotely controlled by drivers and does
not have a cabin. Robert Falck, Einride founder and CEO, said,
"There is both a lot of excitement and a lot of uncertainty about
autonomous trucking, but the fact remains: This is one of the
largest business opportunities in the history of mankind We have a
unique opportunity to make transport both exponentially safer and
more sustainable. It's something the vast majority of us want, but
many are unsure of how to get there and resort to half-measures."
(IHS Markit Automotive Mobility's Surabhi Rajpal)
The Russian city of Moscow has launched an autonomous car
project to record parking violations, reports Intelligent
Transport. The autonomous car is developed by the MosTransProekt
Research Institute and deploys vehicle-to-everything (V2X)
technology to communicate with traffic lights and detectors
throughout its route. In this process, the vehicle can transmit and
receive data through LTE communication channels and radio frequency
interaction. Alexander Polyakov, director of the MosTransProekt
Research Institute, said, "The vehicle's route goes along the
inside of the Garden ring. The vehicle is equipped with a
high-precision electronic map - a so-called 'digital twin' of the
road. The map contains information about road boundaries, turning,
speed limits, stops, markings and traffic lights. We are testing an
innovative solution in the center of a metropolis - a merge of new
mobility and city control over parking areas." This project is a
first of its kind, deploying autonomous cars for parking
enforcement trials. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Expectations of a return to fiscal consolidation and debt
reduction from 2021 after the temporary economic shock of the
spread of COVID-19 virus has prompted Moody's to revise its outlook
for Hungary to Positive. (IHS Markit Economist Dragana Ignjatovic)
Moody's Investor Service (Moody's) has revised its outlook on
Hungary's long-term sovereign debt rating to Positive from Stable.
It maintained its sovereign rating for Hungary at BBB- on the
generic scale (equivalent to 40 on the IHS Markit scale), the same
level that IHS Markit currently has for the country's medium-term
rating.
The Positive outlook signifies that Moody's are likely to alter
Hungary's rating in the near term. The revision reflects Moody's
belief that, while the COVID-19 virus pandemic has had a
substantial impact on Hungary, the effects are temporary and that
the country's history of fiscal consolidation and debt reduction
from 2015-19 will resume from 2021 onwards.
Hungary's rating would be upgraded should the economic recovery
forecast for 2021 materialize, with the government taking policy
action to reverse the rising debt from 2020. The outlook would be
returned to Stable should government commitment to fiscal
consolidation waver or the country's debt trajectory continues to
accelerate.
IHS Markit's and Moody's current rating at investment grade is
one notch below S&P Global Ratings (S&P) and Fitch Ratings
at one notch higher.
Hungary's economy (alongside most in Europe and the world) is
facing significant downside risks for 2020 as the country struggles
to deal with the COVID-19 virus pandemic. IHS Markit is currently
forecasting a contraction of 7.8% in 2020, reflecting the historic
fall in economic activity in the second quarter. The fiscal deficit
is forecast to rise to 6.4% of GDP as the government attempts to
support households and businesses in the aftermath of the severe
lockdowns implemented in the second quarter. Public debt is also
forecast to rise to 69% of GDP, the first increase in debt levels
since 2009.
Although a statistical rebound in the third quarter of 2020
from the historical low recorded in April-June is forecast, the
latest trade data combined with the collapse of summer tourism
revenues and rising infection numbers across Europe will result in
Albania's economy continuing to underperform through the second
half of 2020. (IHS Markit Economist Dragana Ignjatovic)
According to detailed data released by the Albanian Institute
of Statistics (INSTAT), real GDP growth fell 11% year on year (y/y)
in the second quarter of 2020. This is the third consecutive
quarter of declining economic activity, although the second-quarter
print is the largest real GDP fall since records began. The
contraction in real GDP in the first half of 2020 averaged 6.7%
y/y.
The decline has been led by the foreign trade sector, with
exports down 50% y/y in the second quarter and imports dropping 36%
y/y. The sharp deterioration in foreign trade reflects the spread
of COVID-19 virus throughout Europe and national lockdowns which
resulted in a collapse in demand. The uneven decline has resulted
in exports only accounting for around 52% of imports, down from
more than 70% in the first quarter of 2020.
Domestic demand was another key component of the second quarter
collapse, with the fall in fixed investment (-11% y/y) compounded
by the 7.6% y/y drop in private consumption. Investment has been
falling since the second quarter of 2019, with the pace of decline
steadily gaining speed, reflecting the completion of several large
infrastructure projects in the country as well as the increased
risk aversion following the November 2019 earthquake and the spread
of COVID-19 through Europe in the first quarter of 2020. Meanwhile,
government spending held up relatively well, falling by only 0.7%
y/y as the state stepped in to support households and business
suffering from the economic impact of the pandemic and associated
lockdowns.
Across value added, the only segment to post growth was
agriculture. Retail trade recorded the largest fall (-27% y/y)
reflecting the closure of non-essential shops as part of the
country's response to COVID-19. Meanwhile, industry contracted by
13.8% y/y, with manufacturing down by close to 20% y/y as factories
suffered from supply chain disruption and social distancing
requirements as well as a lack of domestic and external demand. The
construction sector, also contracted although the pace of decline
in the second quarter eased to 12.4% y/y.
In a separate INSTAT release, Albania's unemployment rate
ticked up to 11.9% in the second quarter of 2020, up 0.7 percentage
points from the historic low 11.2% in the fourth quarter of
2019.
Although the historic fall in economic activity in the second
quarter is likely to result in a statistical bounce back in
July-September, the outlook for Albania's economy remains
challenging. Despite the easing of the social distancing measures
in late May, the Albanian economy continues to feel the impact of
the spread of the COVID-19 virus through Europe. Albania's
overreliance on Italy in its foreign trade and remittance inflows,
could present a problem should a second wave of infections prompt
renewed lockdowns.
Equatorial Guinea's 2020 second-quarter real GDP declined by
4.9% year on year (y/y), driven by a sharp decline in oil
production because of measures put in place to contain the spread
of the COVID-19 virus and low output from maturing oil fields. (IHS
Markit Economist Archbold Macheka)
Oil GDP, which anchors Equatorial Guinea's national output,
fell by 4.1% y/y, reflecting an 11.7% y/y contraction in
hydrocarbon production. Oil production dropped from 28.7 million
barrels during the second quarter of 2019 to 25.3 million barrels
during the second quarter of 2020. This is because of
COVID-19-virus containment measures, which forced oil companies to
reduce the workforce working on their oil facilities. Declining oil
output from maturing oil fields was also a significant contributor
to the low production level.
Non-oil GDP shrunk by 6.0% y/y, owing to public spending
contracting by 1.5% y/y, thanks to weakness in investment spending
and current spending, which fell 2.7% y/y and 1.0% y/y,
respectively. Non-Oil GDP was also constrained by the fall in money
supply of 5.5% y/y, on the back of private companies reducing their
deposits in most commercial banks. Inflation, which ticked up to
3.0% y/y largely because of COVID-19-virus-related supply-chain
disruption, is also another contributor to the decline in non-oil
GDP.
Asia-Pacific
Most major APAC equity markets were closed for market holidays
today, with the two that were open closing lower on the day;
Australia -1.4% and Japan -0.7%. Please note that equity closes
published 1 October for Mainland China, Hong Kong, and South Korea
were incorrect, as all those markets were actually closed, and the
performance was a repeat of the previous close.
China began its eight-day Golden Week holiday on 1 October,
which incorporates the National Day and Mid-Autumn Festival, and
means many market players are now on leave until next Friday.
Limited thermal import activity was seen before the holiday, amid
uncertainties over policies and demand changes after the long
break. However, domestic prices moved into the government
designated "red zone," reaching RMB608/t ($89.28/t) FOB
Qinhuangdao, basis 5,500 kc NAR, on Wednesday amid persistent
supply strains, prompting expectations of possible price cooling
measures after the holiday. Daily consumption at Zhejiang
Electricity Power, the only major coastal power reporting
consumption data at present, was 0.12 mt/d on Tuesday, the last
reported figure before the break, and inventory at its plants was
4.37 mt, enough for 38 days of consumption. Inventory at the
domestic loading port Qinhuangdao (QHD) was 5.02 mt on 30
September, dropping from 5.04 mt in the week before and inventory
at discharging port Guangzhou stood at 2.37 mt on Wednesday, down
from 2.46 mt reported last Friday. (IHS Markit Global Coal)
Tesla's China-made Model 3 is now available with lithium iron
phosphate (LFP) batteries. According to Tesla's Chinese website,
the price of the standard-range Model 3 was adjusted from
CNY271,550 (USD39,977) to CNY249,900 after government subsidies on
1 October. The price of the long-range Model 3 is CNY309,900, down
from CNY344,050. Both models are currently produced at Tesla's
Gigafactory Shanghai in Pudong district. The price of the
performance version of the Model 3 remained unchanged as of 1
October. Tesla did not disclose details of the new batteries in the
Model 3. However, specifications-wise, the standard-range Model 3
with LFP batteries can now deliver a range of 468 km, an increase
of 23 km compared with the same vehicle powered by
nickel-manganese-cobalt (NMC) cells. Reuters first reported Tesla's
intention to introduce LFP batteries to the Model 3 in February.
The model gained approval from Chinese regulators in June. Compared
with lithium-ion (Li-ion) batteries equipped in Tesla's current
models, LFP batteries are less expensive as they do not contain
cobalt - one of the most expensive materials in Li-ion batteries.
(IHS Markit AutoIntelligence's Abby Chun Tu)
Hongqi, the premium brand of FAW Group, has announced the
pre-sales pricing of the E-HS9 electric sport utility vehicle
(SUV). Two versions of the model are available for reservation now,
with pre-sales prices starting from CNY550,000 (USD80,990). With a
body length of 5,200 meters, the E-HS9 represents the largest model
from the Hongqi family and it is designed to showcase Hongqi's
capacity to build a luxury SUV that delivers both the performance
and the top-notch quality that customers in this segment expect.
Based on the FAW's FME platform, the E-HS9 will provide several
battery options including an 85-kWh battery pack, a 99-kWh battery
pack, and a 120-kWh battery pack. The battery cells are supplied by
Chinese battery-maker CATL. The top-of-range model will feature
four-wheel drive with two electric motors to deliver a combined
output of 405 kW and a peak torque of 750 Nm. According to Hongqi,
the E-HS9 with a 120-kWh battery pack can deliver a range of up to
650 kilometers. To cater for the needs of business customers, the
E-HS9 will provide three seating configurations: a two-row
four-seater, a three-row six-seater, and a three-row seven-seater.
The E-HS9's suspension system also features continuous damping
control, which continuously adjusts the damping force on each wheel
based on road conditions and driving style. The E-HS9 from Hongqi
represents one of most important launches from Chinese automakers
this year. As a full-size luxury SUV, the E-HS9 is designed to
present a flagship Hongqi model transformed by the brand's newest
design language and brand philosophy. (IHS Markit
AutoIntelligence's Abby Chun Tu)
China's dairy imports (including infant formula) grew 6.3% in
volume and 5% in value, driven by a strong recovery in whey imports
as the African Swine Fever (ASF) situation eases, according to
customs data. China imported a total of 2.15 million tons of dairy
products (including IMF), with import value reaching USD8.3 billion
in the first eight months of the year (January-August). The most
drastic volume surge was seen in whey, growing by 35% in volume to
395,000 tons, with supplies hitting at least a 10-year maximum. Due
to a rapid decline in international whey prices, import value in
the period totaled USD408.7 million, or 2.4% lower. This recovery
could be attributed to the improving situation with the ASF
outbreak in Chinese industrial farms, that has been lasting for the
last two years, which is one of the main industries in China
importing whey for animal feed purposes. Butter's imports have also
rebounded, seeing a 40.5% surge in import volume to 85,000 tons. On
the other hand, milk powders' performance lagged behind volumes
imported in the same period last year. While largest import
category WMP held up fairly flat (1.2%) at 478,400 tons, SMP
experienced a 10.1% plunge to 219,600 tons. In addition, imports of
IMF have seen a decline for the first time in the same period in
the last five years. China imported almost 3% less IMF in
January-August, a volume of 231,900 tons. (IHS Markit Food and
Agricultural Commodities' Jana Sutenko)
Japan's unemployment rate rose in August for the second
consecutive month. The modest pace of Japan's economic recovery
could continue to increase unemployment. (IHS Markit Economist
Harumi Taguchi)
Japan's unemployment rate rose by one notch to 3.0% in August,
largely reflecting an increase in labor participation, as the
number of employees rose by 11,000 from the previous month while
the labor force rose by 23,000 from a month earlier. This suggests
people who left the labor market because of containment measures
came back to seek jobs in line with the resumption of economic
activity.
That said, the reason behind the increase in the number of
unemployed was also due largely to jobs losses because of the
circumstances of employers or businesses. The rise in employment
was largely due to increases in the number of self-employed and a
softer decline in the number of part-timers while year-on-year
(y/y) growth for full-timers weakened.
Job opportunities were also more severe for job seekers. The
ratio of active job openings to active job applications continued
to fall in August 2020, moving down to 1.04, the lowest level since
January 2014, reflecting a faster increase in active job
applications despite the second consecutive month of rise in
effective job openings. A rise in the ratio of new openings to new
applications signaled marginal improvement for job opportunities,
but new openings remained weak (27.8% below the year-earlier level)
and new job openings for full-time positions declined at a faster
pace.
The September results suggest employment conditions remain weak
and severely affected by persistent soft economic activity.
Sluggish recovery could increase the unemployment rate by pushing
up bankruptcies and business closures and turning furloughs into
unemployment. While the government's measures have helped support
employment, the number of furloughs rose by 30,000 in August from
the end of 2019 on a non-seasonally adjusted basis.
Posted 02 October 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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