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Global equity markets closed lower across all regions, with
European markets coming under considerable pressure given the rapid
rise in COVID-19 cases in the region. iTraxx Europe/Xover and
CDX-NAIG all rolled today, with the IG indices entering the first
day of trading at much tighter levels than the prior series after
purging several fallen angel constituents. US/European benchmark
government bonds and the US dollar were higher on the day, while
gold and oil were sharply lower. One new factor weighing on the US
markets is the apparent plan by President Trump and the Republican
party to expedite the nomination and appointment process to fill
the vacancy on the Supreme Court of the United States from last
week's passing of the honorable Justice Ruth Bader Ginsburg, which
is being met with significant Democrat opposition and appears to be
rapidly deflating expectations of passing a second (and potentially
essential) large US stimulus bill.
Americas
US equity markets closed lower, but on the higher end of the
day's range after a late-day rally; Russell 2000 -3.4%, DJIA -1.8%,
S&P 500 -1.2%, and Nasdaq -0.1%. The S&P 500 had its fourth
consecutive daily decline, which is the longest down streak since
February.
10yr US govt bonds closed -3bps/0.67% yield and 30yr bonds
-4bps/1.42% yield.
CDX-NAIG Series 35.1 began trading today and closed at 53bps.
CDX-NAHY (series 34.9) closed at +15bps/363bps.
DXY US dollar index closed +0.7%/93.55.
Gold closed -2.6%/$1,910 per ounce.
Crude oil closed -3.8%/$39.54 per barrel.
Total nonfarm payroll employment increased in 49 states in
August 2020, gaining a net 1.4 million jobs from the previous month
on a seasonally adjusted basis, according to the most recent report
from the US Bureau of Labor Statistics (BLS). This was lower than
the gain of 1.6 million jobs in July 2020, and well below June's
increase of 4.6 million, indicating that the recovery spurred by
state reopenings is losing steam. Indeed, the August employment
numbers would have looked worse if not for the 239,000 jobs added
thanks to temporary Census 2020 workers. Outside of the public
sector, retail trade was the main driver of growth in August,
followed by professional and business services. Reflecting the
upward movement in labor markets, unemployment rates decreased in
45 states in August. The rate of change for unemployment was
remarkable this month, with 16 states declining by 2 points or
more. This unexpectedly sharp decline in the jobless rate relative
to the comparatively mild increase in employment is largely due to
a significant difference between the surveys of employer payrolls
and of household employment, each of which provides the data used
to calculate the unemployment rate. Regardless of the improving
jobless numbers, the dramatic impact that COVID-19 has had on
unemployment rates regionally is still apparent. Many of the states
that implemented strict lockdown measures still have the highest
unemployment rates in the country, while states that reopened early
are much lower. August was the second month in a row of slowing
payroll gains, despite a boost from temporary Census hiring during
the month. While employment and unemployment rates are still
improving, we remain cautious as to the strength of the rebound and
do not think that conditions will return to "normal" until there is
a reliable vaccine or treatment to control the virus. (IHS Markit
Economist Steven Frable)
Nikola founder Trevor Milton has resigned as executive chairman
and from the board of directors, according to a company statement.
Stephen Girsky has been appointed chairman of the board, effective
immediately. Mark Russell serves as Chief Executive Officer and Kim
Brady continues as Chief Financial Officer. The change in
management comes after a research firm accused Nikola's management
of a number of issues. In stepping down, Milton did not address or
acknowledge any personal wrongdoing. Hindenburg Research issued a
report into the company on 13 September, days after General Motors
(GM) and Nikola announced a strategic partnership. The US
Securities and Exchange Commission (SEC), which oversees companies
that trade on the stock exchange to ensure accurate and
comprehensive financial disclosures, is reported to have begun a
probe into Nikola, although Nikola also issued a statement
following the Hindenburg Research report saying that it had gone to
the SEC as well. The SEC has not announced a formal investigation,
although it is not required to do so. Milton's departure is an
effort to distance the company from the scandal, although it is not
clear whether the SEC will be able to prove wrongdoing. Relative to
criminal charges, the US Department of Justice (DOJ), is also
reported to be looking into the issue. The decision by Milton to
step down should enable the board and management team to focus on
moving forward, although it does not resolve the issue for Nikola.
(IHS Markit AutoIntelligence's Stephanie Brinley)
Chinese automaker JAC Motors has announced the start of imports
of the iEV 330P electric pick-up and iEV 1200T electric light truck
into Brazil, reports Automotive Business. According to the report,
the iEV 330P has a manufacturer's suggested retail price (MSRP) of
BRL289,900 (USD53,750) and the iEV 1200T has an MSRP of BRL349,900.
Sergio Habib, president of JAC Motors Brazil, said, "We decided to
take on the vocation of seeking a better world and we seriously
invested in a significant evolution of our business model. Our
family of five electric vehicles takes center stage in the brand.
The idea is to shake up the market and instantly give you several
shopping options in diversified segments." According to automaker,
the JAC iEV 330P has a range of 320 kilometers (km) and a payload
capacity of 800 kilograms (kg). The iEV 1200T light truck has a
total gross weight (peso bruto total: PBT) of 7.5 tons, can carry
up to 4 tons of cargo, and has a range of 200 km. Both vehicles
come with lithium-iron-phosphate batteries (suitable for cargo
operations due to a relatively high charge density) and a JAC
Monitor system for performing diagnosis of all electronic control
units (ECUs) and high-voltage circuits. In September 2019, JAC
Motors revealed five electric vehicles (EVs) in Brazil, which
include three passenger cars, a double-cabin pick-up truck, and an
urban truck. Brazil is making efforts to improve its infrastructure
and encourage increased use of EVs in the country. Brazil's latest
program for encouraging automotive industry efficiency and
investment, Rota 2030, will see fuel-efficiency requirements become
stricter in three phases, with new targets set for 2022, 2027, and
2032, although only the 2022 target has been set so far. In
February 2020, Brazil's National Consortium Unifisa launched a
consortium offering a financing plan for purchasers of EVs in the
country to aid in expanding the accessibility of EVs to customers
who require more-affordable vehicle financing plans. (IHS Markit
AutoIntelligence's Tarun Thakur)
Europe/Middle East/Africa
European equity markets closed sharply lower; Germany -4.4%,
Italy -3.8%, France -3.7%, and Spain/UK -3.4%.
European govt bonds closed higher across the region; Germany
-5bps and France/UK/Italy/Spain -3bps.
iTraxx-Europe and iTraxx-Xover series 34.1 began trading today
and closed at 57bps and 325bps, respectively.
Brent crude closed -4.0%/$41.44 per barrel.
Eurostat's release of trade and construction output data for
July completed the set of main eurozone indicators for the month
and confirm a strong post-lockdown rebound across the board. (IHS
Markit Economist Ken Wattret)
Eurozone exports rose strongly for the third straight month in
July, with the 6.6% month-on-month (m/m) increase taking the
cumulative increase since May to more than 28% (in values, not
volumes). Despite the strong rebound, exports remained 12.5% below
their pre-pandemic February level.
The recovery in eurozone imports has been less pronounced, with
July's 4.2% m/m rise taking the cumulative increase since May to
just under 14%.
As a result, the eurozone trade surplus has started to climb
again. Having dropped to virtually zero at the height of the
coronavirus disease 2019 (COVID-19) virus shock in April, the
surplus reached EUR20.3 billion (USD24.03 billion) in July.
Although this was still well below February's recent high of
EUR26.2 billion, the large widening of the surplus points to a
return to positive net trade contributions to GDP growth from the
third quarter of 2020.
On a less upbeat note, eurozone construction output rose only
marginally in July, by 0.2% m/m. Still, as this followed
exceptionally strong gains in the two prior months, it contributed
to a cumulative increase of over 36% between May and July.
As of July, the level of construction output in the eurozone
was more than 5% below where it was back in February. This compares
with a 7% net decline in industrial production between February and
July.
The strong gains in exports and construction output in the
three months to July followed very large increases in industrial
production (28%) and retail sales (25%), implying exceptionally
strong "carry over effects" for third-quarter-2020 growth rates.
The initial preliminary 'flash' estimate of third-quarter-2020 GDP
growth in the eurozone will be released on 30 October.
Monthly momentum across all the main activity data releases is
starting to diminish, as the post-lockdown rebound is already well
advanced.
UK retail spending continued to recover in August after the
reopening of non-essential shops from mid-June. Nevertheless, parts
of the high street continued to lag behind the recovery, weighed
down by protocols to combat the spread of the COVID-19 virus
pandemic. (IHS Markit Economist Raj Badiani)
Retail sales (including fuel sales) in volume terms increased
for the fourth straight month, rising by 0.8% month on month (m/m)
in August. This was preceded by m/m gains of 12.1% in May, 13.9% in
June, and 3.7% in July, standing 4.0% above their February's
pre-COVID-19-virus level.
In annual terms, they were 2.8% higher than in August
2019.
August's monthly gain was primarily driven by increased
spending for home improvements, highlighted by spending in
household goods stores increasing by 1.9% m/m. In addition,
textile, clothing, and footwear stores reported reviving sales for
the fourth straight month, rising by 13.5% m/m. However, they
remained 15.9% below their February's pre-COVID-19-virus
levels.
Non-store retailing fell back in volume terms during both July
and August, contracting by 7.0% m/m, but was still 46.8% higher
than February's pre-COVID-19-virus levels and accounts for around
one-third of all retail spending.
Sales on the high street, or in physical shops, remained short
of pre-lockdown levels, with spending in non-food stores in August
remaining 2.7% lower than February's level.
The recovery in retail sales continued to unfold during August,
but we still argue that the immediate outlook for retail spending
remains challenging.
Footfall after the reopening of non-essential shops has been
uneven, affected by retailers having to limit the number of
customers to meet social-distancing requirements. Indeed, retail
analyst Springboard reports that footfall in the week ending 20
September was up by 2.4% compared with the previous week but was
still 28.7% lower than a year earlier.
The UK government is said to be planning to pull forward a ban
on sales of internal combustion engine (ICE) light vehicles to
2030. The Guardian has been told by sources in the automotive and
energy industry that Prime Minister Boris Johnson had been planning
to make the announcement this week, but this will now be delayed as
the government focuses on tackling the ongoing coronavirus disease
2019 (COVID-19) virus pandemic. According to the newspaper, the
decision to ban ICE sales sooner than the 2035 timeframe already
proposed is on the back of assurances that the UK's infrastructure
will be prepared to cope with the transition. The government has
already been consulting on banning ICE light-vehicle sales from
2035, rather than banning non-electrified light vehicles from 2040.
However, even at this point there was talk of a move by 2032 (see
United Kingdom: 13 February 2020: Light-vehicle ICE ban could come
as early as 2032, says UK government minister), and in recent weeks
there have been growing calls for a deadline to be set for 2030.
While the charging infrastructure is equipped to cope with the
relatively small number of vehicles on the country's roads at the
moment, despite previous concerns, the National Grid believes that
it will not be as much of a struggle to deal with the additional
electricity demand, despite the UK typically adding over 2.5
million new light vehicles a year to the country's roads. Indeed,
Graham Cooper, the director of the electricity infrastructure
company's project for battery electric vehicles (BEVs) told the
newspaper that the operator was "confident that a faster transition
is possible" and that it is "suitably robust" to cope with a rise
in electricity demand. It suggested that this would require less
than one-third more energy than current demand levels, which Cooper
said that "the grid could easily cope with". He went on to say that
the increase at peak may only climb by 10% if owners charged
vehicles overnight. However, he did note that "some targeted
investment will be needed to ensure there are appropriate places
where drivers can access sufficient high-power charging away from
home." (IHS Markit AutoIntelligence's Ian Fletcher)
Two European automakers, Volkswagen (VW) Group and Fiat
Chrysler Automobiles (FCA), have announced that they have sought
external support to finance their low-emission vehicle development
pushes. VW Group has said that it has placed EUR2 billion (USD2.35
billion) worth of bonds, the funds from which are being used to
refinance the development costs of not only its modular battery
electric vehicle (BEV) architecture, MEB, but also the ID.3 and
ID.4 models that are based on it. The bonds have terms of eight and
12 years, with annual interest rates of 0.875% and 1.25%,
respectively. Separately, FCA has announced that it has been given
support for investments in BEVs and plug-in hybrid electric
vehicles (PHEVs) from the European Investment Bank (EIB). According
to a statement, EUR485 million has been allocated to supporting the
production of PHEVs at FCA's Pomigliano (Italy) facility, as well
as the development of electrification, connectivity, and automated
driving systems in Turin (Italy). The credit line is said to cover
around 75% of the total value of FCA's investments between 2020 and
2023, involving a five-year loan term at "particularly favourable
interest rates provided thanks to the AAA rating of the EIB's bond
issues". The EIB has also contributed a further EUR300 million to
support production of PHEVs at Melfi (Italy) and BEVs at Mirafiori
(Italy), with this investment covering the period to 2021. FCA has
a longstanding relationship with the EIB, from which it has loan
EUR3.2 billion since 2010. The EIB has been a source of funding in
the areas of research and development (R&D) and manufacturing
of low-emission vehicle technologies, while in this instance, the
funding will also be used to support employment, specifically in
southern Italy. As for VW Group, these are said to be the first
'green bonds' that have been placed by the business, but follows
the company's Porsche unit using a traditional German floating- or
fixed-rate debt instrument known as a Schuldschein to refinance the
development expenditure on the Taycan. However, this latest
offering is based on the Green Finance Framework (GFF) for
sustainability-orientated financial instruments, which was
presented in March. Annual reporting on the use of the proceeds and
the environmental effects achieved will create transparency for
investors. Among the specific areas that the automaker has said
that the funds have been used in are conceptual design,
infrastructure, development, and production of the MEB, the
vehicles that are based on it, and the production facilities
required for it, alongside tooling and systems from suppliers and
key components, including batteries. The company has said that
investors showed considerable interest in the new bonds, including
both international and specialist investors, which is likely to
mean that the automaker will offer further bonds like this to
underpin its aggressive strategy. (IHS Markit AutoIntelligence's
Ian Fletcher)
Due to the increasing number of new COVID-19 cases, the Dutch
government announced new restrictions for six regions, effective
from 20 September. These include Amsterdam-Amstelland,
Rotterdam-Rijnmond, Haaglanden, Utrecht, Kennemerland, and Hollands
Midden, which have seen the largest increase in new COVID-19
infections and hospital admissions. (IHS Markit Economist Daniel
Kral)
The six regions were put on Level 2 or "Worrisome" on the
government's three-stage warning system. The remaining 19 regions
are at Level 1 or "Vigilance."
Three general measures apply to the six regions. First,
establishments with a catering license cannot allow customers in
after midnight and must close by 1am. Second, no more than 50
people can meet inside or outside, barring some exceptions,
including demonstrations, religious gatherings, funerals, or
theatre. Third, organizers of gatherings of more than 50 people,
such as concerts in a park, must notify authorities in advance.
This does not apply to situations with a continuous flow of people,
such as shops or religious services.
In addition to the three general measures, the six regions have
each adopted their own targeted restrictions. For Amsterdam, this
includes keeping a safe distance of 1.5 meters from others in all
public places and disinfecting hands upon arrival; increased checks
by police to prevent over-crowding; and the closing of parks and
other public places at night to prevent illegal parties; additional
communication campaigns targeted different groups.
This is in addition to basic rules, valid for the whole
country, requiring everyone to work from home if possible; avoiding
crowds; and a ban on more than six visitors in a single house.
The new restrictions are intended to slow the spread of the
virus, after the latest estimate put the R rate, the rate of virus
reproduction, at 1.4, meaning an exponential rise. Although deaths
remain low, the number of people in hospital care has risen to
almost 300, doubling in 10 days.
This year, Scandinavia was poised to have a bumper wild
blueberry crop, but labor shortages have forced some processors to
leave the fruit on the plant. The right proportion of warmth and
rain had lifted industry expectations for wild blueberry yields in
Finland and Sweden this season, following last year's small crop
when extreme caused fruit losses. The Ukrainian government closed
its borders in March amid the pandemic peak, while the Thai
ministry of labor decided to ban seasonal work in the Nordic
country. Thai workers account for 90% of the harvest in both
Finland and Sweden. Swedish media reported that after tough
negotiations, the Thai government eventually allowed a group of
berry pickers to make the trip to Sweden and Finland, but it
demanded a two-week period of paid quarantine for the workers upon
return, as well as stringent corona safety measures on locations
where Thai citizens had to work. Those requirements proved to be
such a financial burden that many businesses declined. Fewer than
3,000 seasonal workers have been invited to travel to Scandinavia,
less than half of what would be needed to refill the blueberry's
stocks, The Local Sweden reported. According to industry
representatives, the pickers shortage might have halved the Finnish
crop. This has caused prices for IQF wild blueberry to stay high,
around EUR3.50-3.90 (USD4.14-4.62) per kilogram for the few volumes
sold in the food industry, lifting prices across the whole European
market. Even in countries were the crop was higher, such as Ukraine
and Belarus, prices were in the range of EUR2.65-2.70/kg for class
I, while for radioactivity below 100 becquerels, prices were higher
and about EUR2.85-2.90/kg ex-works. In Poland, where the wild
blueberry crop is limited as farmers are investing more on
cultivated for the fresh market, prices were above EUR3.0/kg
ex-works. (IHS Markit Food and Agricultural Commodities' Cristina
Nanni)
Turkey's leading pharmaceutical manufacturer Abdi Ibrahim on
Friday (18 September) announced that it had acquired a 28.5% stake
in the Switzerland-based biotech company OM Pharma. According to
Turkish newspaper Daily Sabah, the transaction is valued at USD530
million, and will render Abdi Ibrahim the second-largest
shareholder in OM Pharma. Citing Nezih Barut, the chairperson of
Abdi Ibrahim, the source states that the investment will see the
two companies "jointly produce some chemicals and biotechnological
drugs". Abdi Ibrahim's investment in OM Pharma, which is the
Geneva-based biotech unit of the Vifor Pharma Group, will increase
the Turkish player's presence in the international
biopharmaceutical market and will add valuable biotech drugs to the
company's offering in the domestic Turkish market. The acquisition
of the stake reflects Abdi Ibrahim's focus on expanding its
biotechnology products portfolio; it also reflects the Turkish
government's focus on increasing the share of R&D-intensive
biological drugs in the domestic pharmaceutical market and on
boosting pharmaceutical sector exports. OM Pharma has a strong
global presence in the market for drugs used in the prevention of
recurrent respiratory and urinary tract infections, and is also
active in the vascular diseases therapeutic segment. The company
has a network of international partners, and R&D investment is
focused on immunotherapeutic products for acute and chronic
immunological disorders resulting from infections and inflammation.
(IHS Markit Life Sciences' Sacha Baggili)
Renewed pressures on the rouble and rising inflation deterred
the Bank of Russia from cutting its key interest rate on 18
September, in line with IHS Markit's expectations. (IHS Markit
Economist Lilit Gevorgyan)
In a press note and a follow-up statement by Governor of Bank
of Russia, Elvira Nabiullina, the central bank of Russia (CBR) gave
the reasons behind its decision to keep the policy rate unchanged
at 4.25%.
The Board of Directors admitted during its rate setting meeting
that there was room for more monetary easing. However two
short-term developments have put this process on hold.
Inflationary developments have been stronger than previously
projected by the Central Bank of Russia (CBR). Specifically, annual
consumer price inflation rose to 3.6% in August, from 3.4% in
July.
Unwinding the anti-pandemic restrictive measures has boosted
spending on both services and non-food products. Food prices also
contributed to rising inflation, according to the CPI breakdown by
the Russian federal state statistical service.
The pro-inflationary trend will continue. As of 14 September
the CBR estimates the CPI year-on-year changes will inch upwards to
3.7%. The CBR also noted that consumer and business expectations
remain elevated.
In addition, the real GDP fell only by 8.0% y/y in the second
quarter, which was milder than CBR expected. Smaller dip in the
second quarter and the ensuing rebound in the economic activity are
also adding to the inflationary pressures (see Russia: 11 September
2020: Russian Q2 real GDP 'flash' estimate revised upwards, but no
quick recovery in prospect).
The CBR referred to increased pressure on the rouble due to the
global financial markets' volatility and fresh geopolitical risks.
Nabiullina particularly highlighted the bank's concerns over the
pace of the global recovery, which is causing the volatility on
financial markets.
The CBR maintains its view that the consumer price inflation
will reach the full-year range of 3.7- 4.2% in 2020, before easing
to 3.5%-4.0% in 2020.
According to the latest national accounts data from the
National Statistics Office of Georgia (GeoStat), the economy in the
second quarter of 2020 contracted by 12.3% y/y, following growth of
2.2% y/y in the first quarter. Growth of the GDP deflator modestly
accelerated, to 6.3% y/y from 6.1% y/y in the first quarter. (IHS
Markit Economist Venla Sipilä)
The growth result comes just marginally above GeoStat's flash
estimate of -12.6%, while it implies contraction of around 5.6% for
the first half of the year.
Unsurprisingly taking into account of the timing of the global
spread of the COVID-19 virus pandemic, economic contraction was
extremely widespread. Manufacturing output registered a fall in
line with overall economic contraction, even against a favorable
base effect, while construction activity suffered a decrease of
around a fourth y/y.
Among key goods output sectors, the only bright spot was
agricultural output, which managed to growth at an accelerating
rate of 4.7% y/y. Also the mining and quarrying sector managed to
expand y/y; however, with this field only accounting for less than
2% of total value added, this had little impact on overall
growth.
The latest national accounts results come shortly after the
International Monetary Fund (IMF) announced on 15 September that it
had concluded a virtual staff visit to Georgia. While noting that
the health impacts of COVID-19 in Georgia have been well contained,
the pandemic has shown a considerable negative impact on the
economy, with the external position suffering particularly as
tourism revenues have all but dried up.
At 12.3% y/y, the second-quarter contraction comes very near
expectations; in our August forecast, we outlined contraction of
12.8% for April-June. Our current forecast of GDP contraction of
4.9% for Georgia this year still seems valid.
The South African Reserve Bank (SARB) left its key policy rate,
the repo rate, unchanged at 3.5% during the September meeting of
its monetary policy committee (MPC), held on 17 September. (IHS
Markit Economist Thea Fourie)
The MPC lowered the central bank's expectation for South
Africa's GDP in 2020 to a contraction of 8.2%, from a contraction
of 7.2% previously. In addition, headline inflation is expected to
average 3.3% in 2020, 4.0% in 2021, and 4.4% in 2022. The overall
risk to the inflation and growth outlooks appear to be balanced for
now, the SARB stated, but warned that global economic and financial
conditions could change rapidly in the current environment. This
combined with monitoring of the transmission effect of recent
policy adjustments to the broader economy and temporary price
shocks, and its second-round impact on prices, underlined the
unchanged interest rate stance, the MPC reported.
Future policy decisions will continue to be data dependent, the
MPC stated.
The Quarterly Projection Model implies a policy path of no
further repo rate reductions in 2020, and two rate increases in the
third and fourth quarters of 2021.
IHS Markit assumes no further cuts in the SARB's policy rate
for the remainder of 2020, with a 25-basis-point increase in the
second half of 2021. Headline inflation is expected to trend
upwards from the low of 2.1% in May to close to 3.4% at the end of
2020. For 2021 onwards, headline inflation is expected to edge up
further, averaging around 4.4% next year, higher than the SARB's
current inflation expectation of 4.0% in 2021.
Gabon's public-debt service cost is forecast to rise by 71% in
2020, driven by "higher amortization and financial expenses",
putting pressure on the country's liquidity position. Direct Infos
Gabon (DIG), referencing data from the Bank of Central African
States (Banque des États de I'Afrique Centrale: BEAC), the
Directorate-General of Debt (DGD), and the public Treasury
services, reported that Gabon's costs on servicing domestic and
external debt obligations are expected to increase to XAF1.28
trillion (USD2.31 billion) in 2020 from XAF749.2 billion in 2019.
(IHS Markit Economist Archbold Macheka)
External debt service is projected to jump from XAF404.9
billion in 2019 to XAF876.9 billion in 2020, owing to a 161.3%
growth in principal payments. Interest payments on external debt
obligations are expected to rise from XAF140.6 billion to XAF186.3
billion, representing a 32.5% surge between 2019 and 2020.
Domestic debt service is forecast to increase to XAF403.7
billion in 2020 from XAF344.3 billion in 2019, owing to debt
restructuring and new financial disbursements. Principal payments
will rise to XAF313.5 billion in 2020, representing a 20.6% jump.
Meanwhile, interest payments will grow by 7%, from XAF84.3 billion
in 2019 to XAF90.2 billion in 2020.
The DGD has estimated that Gabon's public debt was XAF5.6
trillion at the end of the first quarter of 2020. However, the
International Monetary Fund (IMF) expects total public debt to jump
to about 74.7% of GDP in 2020 and 74.4% of GDP in 2021, driven by
"the inclusion of validated past domestic arrears in the debt stock
in 2019", widening budget deficits, and weaker growth. The IMF
forecasts Gabon's economy to contract by 2.7% in 2020, before
registering a modest recovery of 2.1% in 2021 owing to the dual
COVID-19-virus pandemic and the terms-of-trade shocks.
IHS Markit assesses that Gabon's liquidity position remains
under pressure despite the USD1 billion Eurobond issuance in
February 2020 and the IMF's USD299.61-million Rapid Financing
Instrument disbursement to help to address urgent
balance-of-payment needs stemming from the COVID-19-virus pandemic.
Numerous external and domestic debt obligations falling in 2020,
renewed pressure on foreign reserves because of depressed oil
prices, the pandemic, and failing government revenues from weaker
economic activity will intensify liquidity pressures.
Asia-Pacific
APAC equity markets closed lower across the region; India
-2.1%, Hong Kong -2.1%, South Korea -1.0%, Australia -0.7%, and
Mainland China -0.6%.
China has announced new policies to support hydrogen fuel cell
vehicle (FCVs) sales and the development of the industry's supply
chain and technologies, reports Reuters citing information from the
Ministry of Finance. Local governments and companies need to prove
their joint projects are able to lower the price of hydrogen fuel,
increase the number of hydrogen-charging stations, enlarge FCV
fleets and improve related technologies. Authorities will offer
rewards to the projects after an assessment of these key
performance areas, the ministry said. FCVs have long been enjoying
subsidies from the government. Under policy guidance announced last
year, local governments are encouraged to provide subsidies to
promote the sales of FCVs and support the construction of hydrogen
refueling stations. According to the Reuters report, funds are
likely to be provided by the central government to support specific
FCV-related programs. The renewed effort will help China to boost
the number of FCVs on its roads to 100,000 units, a target set for
2025. Encouraged by government incentives, Chinese automakers,
including SAIC Motor, Great Wall Motor and Geely Auto, have
announced plans to introduced FCVs to the market. SAIC Motor, for
instance, has planned 10 new FCVs by 2025 in an effort to achieve a
market share of 10% in the segment in China. In May 2019, Geely
Auto launched its first hydrogen fuel-cell bus, The F12. The model,
the first commercial FCV under Geely's Yuan Cheng brand, was
developed by Geely's new energy commercial vehicle division. (IHS
Markit AutoIntelligence's Abby Chun Tu)
Hyundai Motor, Hyundai Engineering and Construction (E&C),
South Korea's telecom company KT Corporation, and the country's
Incheon International Airport Corporation have signed a memorandum
of understanding (MOU) to work together on developing the urban air
mobility (UAM) project, with plans to launch flying cars by 2025,
reports Korea JoongAng Daily. Under the latest MOU, Hyundai Motor
will develop, produce and commercialize UAM vehicles. Hyundai
E&C will build the infrastructure for vertiports, while KT will
construct the necessary telecommunications infrastructure,
including a traffic management system for unmanned aerial vehicles
(UAVs). The state-run airport corporation will build the relevant
infrastructure at Incheon International Airport and connect
existing air traffic management systems with the UAM traffic
management system. They will also jointly design a road map for the
urban air transportation industry. The latest development is in
line with the South Korean government's aim to commercialize UAM
services in 2025 in a bid to overcome the country's worsening
traffic congestion problem in 2040 and believes that UAM services
will help to transport passengers faster than buses and subways.
UAM services are designed to travel 30-50 km in urban areas while
providing interconnectivity with other modes of transport. The
sector will require a complete industrial ecosystem to promote its
growth, along with the provision of services such as repairs and
insurance. (IHS Markit AutoIntelligence's Jamal Amir)
Stradvision will use BlackBerry's QNX Software Development
Platform for advanced driver assistance systems (ADAS) and
autonomous vehicles (AVs) from South Korean automakers, according
to a company statement. BlackBerry is set to license its QNX
technology, including its QNX Software Development Platform (SDP)
7.0 to StradVision, for use in SVNet, an AI-based camera perception
software tool. It is expected to be adopted by automotive companies
in South Korea. "We are excited to work with StradVision to help
our automotive customers surpass their competition with our
reliable and secure QNX Neutrino Real-time Operating System. This
relationship further cements our leadership as a provider of secure
operating systems and foundational software solutions designed to
meet the evolving needs for connected, and autonomous vehicles
across the South Korea automotive industry," said John Wall, SVP
and cohead, BlackBerry Technology Solutions. SVNet, made up of
Stradvision's Deep Neural Network, allows vehicles to detect
objects, cars on the road, lanes, pedestrians, animals, signs, and
traffic lights. SVNet is operational even in harsh climate
conditions. The QNX Software Development Platform contains the QNX
Neutrino RTOS, QNX Momentics Tool Suite, and QNX Software Center to
provide a real-time OS and development tools. Last month,
StradVision teamed up with Japan-based system-on-chip (SoC)
supplier Socionext to bring its deep learning-based camera
perception software to SVNet to the global market. (IHS Markit
AutoIntelligence's Jamal Amir)
Mitsubishi Motors plans to end the production of the i-MiEV
electric vehicle (EV) as early as the end of fiscal year (FY) 2020
(April 2020 to March 2021), according to Nikkei Asian Review. The
decision is related to low sales volumes of the i-MiEV in recent
years and a lack of investment to support the development of EVs.
Mitsubishi Motors will be joining forces with Nissan to develop a
new electric mini-car to replace the i-MiEV. The two plan to
release the new model in 2023 at the earliest. Mitsubishi has begun
sales of the i-MiEV since 2009. However, according to IHS Markit
data, cumulative sales of the i-MiEV only reached around 24,000
units in the global market as of the end of 2019. With a range of
less than 200 km, the i-MiEV has lost its appeal to mainstream EV
buyers. To share hefty investment costs related to EV development,
the Renault-Nissan-Mitsubishi Alliance is formulating a plan to
strengthen their alliance by jointly developing EVs and autonomous
vehicle technologies. The Alliance aims to increase the number of
EV models to be launched through joint development across four
segments by FY 2023: mini-vehicles, compact vehicles, and large and
small sport utility vehicles (SUVs). The models are expected to
share electric motors and batteries, in addition to the chassis. As
part of the plan, Nissan will be responsible for the development of
a dedicated EV platform, which will be used by all Alliance brands.
(IHS Markit AutoIntelligence's Abby Chun Tu)
The Bangko Sentral ng Pilipinas (BSP) on 18 September asked
banks to implement a one-off 60-day loan moratorium before the end
of 2020. This is a blanket moratorium for all loans for individuals
and businesses, and banks will not be allowed to charge interest
during the moratorium. Borrowers can repay the interest for the
loans under moratorium in a "staggered" manner. The Inquirer
newspaper reported that the House of Representatives initially
wanted to implement a one-year loan moratorium. (IHS Markit Banking
Risk's Angus Lam)
Although the BSP has implemented Resolution 570 - which allows
banks to not classify bad loans as such until March 2021 for loans
located in areas affected by the COVID-19 virus, - some banks have
already unofficially awarded a loan moratorium to borrowers. This
recent official blanket loan moratorium is likely to reduce
instalment payment pressure for borrowers while the country is
experiencing its worst slump in history, with GDP plunging by 16.5%
year on year.
This is, however, likely to have an impact on banks'
profitability, especially in the fourth quarter of 2020 as banks
will have low interest income and repayments, which may affect
banks' ability to extend lending, despite the various policies to
boost lending, including the recent interest rate cut to 2.25% and
the various reserve requirement ratio cuts.
The advantage is that the moratorium will delay banks' need to
classify bad loans, especially since forward-looking data such as
past-due ratio, which take into account loans that are even one-day
overdue, had risen to 5.3% in July 2020 (compared with 2.9% at the
start of 2020), suggesting that more loans will be classified as
non-performing in the fourth quarter. However, since the central
bank has already introduced a calamity clause that reduced banks'
immediate capital needs from bad loans, the capital pressure is
likely to be limited, following the current mandated
moratorium.
Posted 21 September 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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