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US equity markets closed higher, while most APAC and European
markets closed modestly lower. US and European benchmark government
bonds continued their sell-off, with the 30yr US government bond
closing at its highest yield since mid-March. European iTraxx
credit indices closed wider, while North American CDX spreads were
close to flat on the day. The US dollar and oil were higher on the
day, while silver and gold were lower.
Americas
US equity markets closed higher; Russell 2000 +1.7%, S&P
500/DJIA +0.5%, and Nasdaq +0.2%.
10yr US govt bonds closed +5bps/0.87% yield and 30yr bonds
+4bps/1.68% yield, which are the highest closing yields since 8
June and 19 March, respectively.
CDX-NAIG flat/57bps and CDX-NAHY -1bp/375bps.
DXY US dollar index closed +0.5%/93.03.
Gold closed -1.3%/$1,905 per ounce and silver -2.1%/$24.71 per
ounce.
Crude oil closed +1.5%/$40.64 per barrel.
On Oct. 20, the U.S. District Court for the Northern District
of Georgia heard the first case against the US national moratorium
on evictions, Richard Lee Brown, et al. v. Secretary Alex Azar, et
al.. That challenge, brought by a nonprofit called the New Civil
Liberties Alliance, has been joined by the National Apartment
Association, which represents some 85,000 landlords responsible for
10 million rental units. Lawyers and scholars working on behalf of
plaintiffs in the cases say that the CDC lacks the constitutional
authority to enact a policy affecting rents. Such a decision could
trigger a surge in evictions: More than 6 million households missed
their rent or mortgage payment in September, according to an
analysis by the Mortgage Bankers Association. Recent surveys by the
Census Bureau show that as many as 11 million people living in
rental housing — 1 in 6 adult tenants — were late or behind
on rent as of last month. (Bloomberg)
US seasonally adjusted (SA) initial claims for unemployment
insurance fell by 55,000 to 787,000 in the week ended 17 October.
Initial claims remain at historically high levels, although well
below the all-time high of 6,867,000 in the week ended 28 March.
The not seasonally adjusted (NSA) tally of initial claims fell by
73,125 to 756,617. (IHS Markit Economist Akshat Goel)
Seasonally adjusted continuing claims (in regular state
programs), which lag initial claims by a week, fell by 1,024,000 to
8,373,000 in the week ended 10 October. Prior to seasonal
adjustment, continuing claims fell by 1,018,737 to 7,992,238. The
insured unemployment rate in the week ended 10 October was down 0.7
percentage point to 5.7%.
There were 345,440 unadjusted initial claims for Pandemic
Unemployment Assistance (PUA) in the week ended 17 October. In the
week ended 3 October, continuing claims for PUA fell by 425,820 to
10,232,853.
In the week ended 3 October, there were 3,296,156 such claims
for Pandemic Emergency Unemployment Compensation
(PEUC)benefits.
The Department of Labor provides the total number of claims for
benefits under all its programs with a two-week lag. In the week
ended 3 October, the unadjusted total fell by 1,046,493 to
23,150,427.
Technical note: California has completed its pause in
processing of initial claims for unemployment benefits. Numbers for
the two prior weeks have been revised to reflect the actual counts
for California. The previous week's level of initial claims was
revised down from 898,000 to 842,000.
US existing home sales soared 9.4% in September to a
6.54-million-unit annual rate—the highest reading since May
2006. Single-family sales climbed 9.7% to a 5.87 million rate;
condo/coop sales increased 6.3% to a 670,000 rate. Sales were up
20.9% from a year earlier and 13.5% from February—the month
before COVID-19 shut down vast swaths of the US economy. (IHS
Markit Economist Patrick Newport)
Inventory of single-family homes dipped to 1.24 million, by far
the lowest September reading on record. Our seasonally adjusted
single-family homes inventory estimate, 1.17 million, was an
all-time low. Unsold inventory of all homes amounted to a
record-low 2.7-month supply at the current sales pace, down from
3.0 in August. A 5.0-month supply is considered normal.
The National Association of Realtors' affordability index has
been dropping in recent months (housing has become less affordable)
as house price increases have offset falling mortgage rates; the
monthly mortgage payment used in the affordability index equation
has risen from $984.00 in February to $1,062.00 in August. We
expect September's reading to be similar to August's.
High-end homes are driving the numbers. Sales of homes in the
$1.0-million-plus category were up 107% from last September, while
those in the $750,000-1.0 million range increased 86%.
The Mortgage Bankers Association's seasonally adjusted purchase
index remains elevated, but has dropped four straight weeks,
suggesting that September may be a high point for sales.
Formosa is deferring major construction on the Sunshine
Project, its proposed olefins complex in St. James Parish,
Louisiana, until the COVID-19 pandemic has subsided or an effective
vaccine is widely available, according to a spokesperson for FG LA,
the subsidiary established to pursue the project. "The widespread
impacts of a global pandemic, including the challenge it creates in
evaluating construction costs and the restrictions it has placed on
international travel, are being felt across all industries and
businesses, including FG," the company says. The project, which is
still awaiting a final investment decision (FID), would be built in
two phases. The first phase includes an ethane cracker, propane
dehydrogenation (PDH) unit, and associated derivatives plants. The
second phase includes an ethane cracker and natural gas-fired power
plant. The company's statement notes that activities will continue
throughout the second half of 2020, including widening a highway
adjacent to the site, utility relocations, soil testing, placement
of test piles, and a pipeline removal. Several other North American
petrochemical projects have been slowed down by the COVID-19
pandemic. This summer Chevron Phillips decided to postpone FID on a
2-million metric tons/year ethane cracker complex being developed
along the US Gulf Coast in partnership with Qatar Petroleum. In
March, Pembina announced that it was freezing capital spending on
its PDH/PP plant in western Canada. Companies with construction
already under way, including Shell and Nova, have also reported
delays due to COVID-19.
GMC says that the USD112,595, Edition 1 version of the Hummer
EV sold out in less than 10 minutes of the company's website being
opened for customers to make USD100 reservations of the upcoming
electric pick-up. According to an Automotive News report, Buick-GMC
vice-president Duncan Aldred said that the company would sell the
electric vehicle (EV) using a no-haggle pricing model. He said,
"There will be no incentives. There will be no trickery. We are
trying to construct a dealer margin in such a fashion that it
really is a no-haggle price." GMC is looking to ensure dealers do
not add exorbitant mark-ups to an already expensive product,
risking alienating consumers. Although GMC has confirmed that the
Hummer EV Edition 1 sold out, and "thousands" of buyers reserving a
3X version have also put themselves on a waiting list for the
Edition 1, the company has not indicated the volumes involved. (IHS
Markit AutoIntelligence's Stephanie Brinley)
Tesla posted a profit for a fifth consecutive quarter in the
third quarter of 2020. The electric vehicle (EV) manufacturer
increased its vehicle deliveries in the third quarter, compared
with a year earlier, with the year-on-year comparison assisted by
production at its plant in Shanghai, China, and the Model Y
becoming available. (IHS Markit AutoIntelligence's Stephanie
Brinley)
Tesla released its third quarter 2020 results to shareholders
and held a conference call with analysts and the media, led by CEO
Elon Musk and chief financial officer (CFO) Zachary Kirkhorn.
In the conference call, Musk kicked off his comments by stating
that the third quarter was the best quarter in the company's
history. The CEO also thanked the company's team for being able to
deploy fully self-driving vehicles in beta form in October.
Musk expects broader deployment of self-driving vehicles by the
end of the year. He stated that the self-driving system is designed
to be able to drive the vehicle even with no connection to GPS or
cellular signal for map data.
Musk said that the company expects to begin delivering cars
from its production sites in Berlin, Germany, and Austin, United
States, in 2021; these factories are under construction. Musk also
said he expects that it will take 12 to 24 months for those two
plants to reach their production capacity.
In the third quarter, Tesla hosted its long-promised Battery
Day, during which the company announced plans to begin building its
own battery cells. Relating to the company's financials, Kirkhorn
stated that annual capital expenditure will increase to USD2-2.5
billion in 2021 and part of the increase will be on in-sourcing for
that production.
Kirkhorn also stated that the pay-off on that investment may
take longer to realize than the return on the investment in the
Shanghai plant.
As expected, Tesla's sales volume in the third quarter was
largely a function of production capacity. Although most OEMs are
concerned as much about weak global auto demand in the aftermath of
the COVID-19 pandemic as they are about lost production, Tesla has
increased its capacity and product offerings and is benefiting from
increasing global demand and increased capacity to deliver on that
demand.
Tesla continues to report that it has sufficient liquidity to
fund its current product roadmap, long-term capacity expansion
plans, and other expenses. Tesla did not provide detailed guidance
on its results in 2020, although it stated that, for the trailing
12 months, it has achieved an operating margin of 6.3% and expects
to see this continue to grow, particularly with its capacity
expansion and localization plans.
USDA's Food Safety and Inspection Service (FSIS) plans to
gather more information about cell-based meat and poultry products
before it issues labeling regulations. The agency on Thursday (Oct.
22) told IHS Markit that it intends to publish an Advanced Notice
of Proposed Rulemaking (ANPR) seeking public comments to inform
future labeling rules for cell-based meat and poultry products.
"The ANPR will help ensure that a public process, allowing
stakeholder comments, is used to develop labeling regulations,"
according to FSIS. (IHS Markit Food and Agricultural Policy's JR
Pegg)
The agency did not provide specifics on when it would release
an ANPR but said the rulemaking will be listed in the fall Unified
Regulatory and Deregulatory Agenda and then published in the
Federal Register. USDA's move to gather more information will be
welcomed by many industry stakeholders - earlier this week the
North American Meat Institute (NAMI) and a coalition of cell-based
meat and seafood developers called for it to issue an ANPR rather
than a proposed labeling regulation.
Information solicited through an ANPR will provide FSIS with
"substantive data" needed to better inform mandatory labeling rules
for cell-based meat and poultry products, NAMI and the Alliance for
Meat, Poultry and Seafood Innovation (AMPS Innovation) said in
their October 19 letter to USDA Under Secretary for Food Safety
Mindy Brashears.
Issuing an ANPR would appear to complement a decision made
earlier this month by FDA, which put out its own request for
information on labeling of cell-based seafood and is working with
FSIS to develop a joint regulatory framework for cell-based
products.
Under the terms of a Memorandum of Understanding (MOU) signed
in March 2019, FDA is set to serve as the primary regulator at the
beginning of the process and will oversee premarket consultations
as well as cell collection, development and production through the
time of harvest.
Once the cells are harvested, oversight will likely shift to
FSIS, which will regulate the production and labeling of cell-based
meat and poultry products.
The MOU gives FDA sole authority over any cell-based seafood
except for catfish, which is under USDA's jurisdiction, but FDA is
expected to develop its labeling rules in tandem with FSIS.
The agencies have set up three working groups to iron out
specifics - one led by FDA is focused on pre-market safety and a
second is exploring jurisdictional issues related to inspection
oversight. The third group, led by FSIS, is tasked with developing
joint principles for product labeling.
In its comments to IHS Markit, FSIS said the groups are still
completing their reviews and there is no timeframe for when their
work will be completed.
At least 20 US companies are developing cell-based products and
while none are yet commercially available, developers claim that
could change in the next year or so. But sizeable issues related to
scaling up production and crafting final products remain and the
bullish claims by companies may not match reality.
Colombia's ISE declined by 1.2% month on month in August. This
follows three months of consecutive monthly growth that the country
experienced after economic activity bottomed out in March and April
(contracting 7.8% and 15.1% m/m, respectively). (IHS Markit
Economist Lindsay Jagla)
The greatest drivers of change to Colombia's economic activity
are tertiary activities such as retail, food services,
transportation, and entertainment, among others. Tertiary
activities as a whole declined by 0.12% m/m in August.
Primary activities, which include agriculture, fishing, and
mining, faced the biggest monthly contraction: -4.57%. Secondary
activities, such as manufacturing and construction, continued to
grow m/m in August, but had fared significantly worse overall at
the height of the economic shutdown in April and May.
In yearly terms, economic activity, along with all
subcategories of activities, remains well below 2019 levels with
the overall ISE in August facing a -10.6% year-on-year
contraction.
August's monthly decline in economic activity signals a
slowdown in Colombia's overall economic recovery. This is in line
with IHS Markit's analysis of other high-frequency economic
indicators, such as industrial production and retail sales, which
also recorded monthly declines in August.
Europe/Middle East/Africa
European equity markets closed modestly lower except for UK
+0.2%; Spain -0.2% and Germany/Italy/France -0.1%.
10yr European govt bonds closed lower across the region; UK
+4bps, France/Spain +3bps, and Italy/Germany +2bps.
iTraxx-Europe closed +2bps/56bps and iTraxx-Xover
+7bps/334bps.
Brent crude closed +1.7%/$42.46 per barrel.
Autonomous vehicle trials are set to begin in Oxford (United
Kingdom) this week, reports The Times. The trials will involve six
autonomous Ford Mondeos driving a nine-mile round trip from Parkway
railway station to the main station. The vehicles have Level 4
autonomy deployed with Oxbotica's autonomous vehicle (AV) software
and will have a safety driver ready to take over if necessary.
These trials are part of Project Endeavour, a government-backed
research and development project that will run until 2021. The
project will involve AV live tests conducted in three major UK
cities, starting with Oxford. Laura Peacock, Innovation Hub manager
at Oxfordshire County Council, said, "It is exciting to be part of
Project Endeavour. Oxfordshire County Council's Innovation Hub has
been at the forefront of autonomous mobility for the last four
years. The progress that has been made in the Connected Autonomous
Vehicle ecosystem is huge, moving from simulation, trials in
isolated environments and now to the first live on-road public
trials in Oxford." Project Endeavour was part-founded by the Centre
for Connected and Autonomous Vehicles (CCAV) and Innovate UK. The
project consortium consists of Oxbotica, DG Cities, Immense,
Transport Research Laboratory (TRL), the British Standards
Institution (BSI), and Oxfordshire County Council. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
The BMW Group has said in a company statement that it will
begin manufacturing electric vehicle (EV) powertrain components at
its Regensburg plant from 2021. Battery cells for high-voltage
batteries will be coated at the facility from next year while
complete high-voltage batteries will be produced from 2022. BMW
will invest in the region of EUR150 million (USD177.6 million).
This is the latest investment push in BMW's EV program. In July,
the company opened the Competence Center for E-drive Production in
Dingolfing and doubled the production capacity of high-voltage
batteries at BMW Brilliance Automotive by opening another battery
center in China. Last month BMW announced it would be producing
battery modules at its facility in Leipzig from 2021 (see Germany:
24 September 2020: BMW announces EUR100-mil investment for e-drive
component production at Leipzig plant). BMW has also recently
announced a strategy for 50% of its global sales to be electric or
hybrid by 2030, which also means its production capacities will
need to increase. IHS Markit forecasts that by 2025, BMW's global
production will include 2.5 million units with hybrid, electric or
plug-in hybrid propulsion systems, while its production of vehicles
with only ICE stop/start systems will fall to 120,000 units. The
company's full electric production is forecast at about 451,000
units in 2025. (IHS Markit AutoIntelligence's Tim Urquhart)
France's business sentiment index has declined from 92 in
September to 90 in October. Sentiment had collapsed between March
and April (when the index fell to 53), but it had since recovered.
October's decline in the index is the first in six months. The
index sits below its long-term average of 100. (IHS Markit
Economist Diego Iscaro)
The tightening of containment measures in response to the
COVID-19 virus pandemic has had a particularly negative impact on
the service sector, with the related index declining from 94 in
September to 89, a three-month low. While service-sector providers
have reported improving demand over the previous three months, the
indices measuring their views on the general economic outlook,
expected activity, and demand have all collapsed. Confidence in the
accommodation/restaurants sector has fallen particularly sharply in
October.
Meanwhile, confidence in the manufacturing sector has declined
to a lesser extent, with the index waning by 1 point to 93. As in
the service sector, sub-indices measuring past activity have
improved, while expected demand and general production expectations
have worsened.
However, the extent of their deterioration has been
substantially less marked than in the service sector. The quarterly
business survey for the industrial sector also conveys a similar
message.
Meanwhile, confidence in the retail trade sector has remained
unchanged in October at a level well below its long-term
average.
Business sentiment is likely to remain closely linked to
developments on the pandemic front. Confronted with a rising number
of COVID-19 cases, the authorities have so far resorted to
localized containment measures. On 14 October, President Emmanuel
Macron imposed a state of emergency in the Paris region and another
eight cities for a minimum period of four weeks. Measures in these
regions include a night-time curfew and the closure of bars.
Renault Group has announced that it is involved in two new
electricity storage projects. According to a statement, the first
Advanced Battery Storage installation has been put in place at
Douai (France) facility by NIDEC. It is said to be based on a
combination of second-life and new electric vehicle (EV) batteries,
the latter planned to be future after-sales use. They are compiled
in containers and this location has an installed capacity of
4.7MWh. Renault added that it is eventually targeting an installed
capacity of nearly 50 MWh at several sites in France. The project
is being carried out in partnership with the Banque des
Territoires, the Ecological Transport Modernisation Fund managed by
Demeter and the German startup The Mobility House. The second
initiative is the SmartHubs project with Connected Energy, in West
Sussex (UK). This also uses second life batteries from Renault
vehicles and will be operated alongside other technologies as part
of a local energy system. The batteries will be installed in the
specially designed E-STOR systems, several of which will be
installed with 360kWh of capacity on industrial and commercial
sites. Some will be linked to solar panels and EV chargers. The
SmartHubs project is one of four UK government-initiated projects
to help design the energy systems of the future, and partners
include Moixa, PassivSystems, ICAX, Newcastle University, West
Sussex County Council, and Innovate UK. With the growing number of
EVs on the world's roads, there is now a great deal of
consideration over what to do with the batteries once they are at
the end of their effective lives in these applications. (IHS Markit
AutoIntelligence's Ian Fletcher)
A long-running investigation into a 'cold meat cartel' appeared
to be drawing to a close in July of this year, when French
Competition authorities dished out fines totaling EUR93 million to
some of the country's largest pork processors. Fast forward three
months however, and France's largest pig producer is refusing to go
down without a fight - saying it was effectively thrown under a bus
by a rival company and warning that the financial penalty could
force it to close some of its meat plants. Of the 12 companies
implicated in the case, Cooperl Arc Atlantique - France's leading
charcuterie firm - was hit hardest with a fine of EUR35.53 million.
France's Autorité de la Concurrence said the company had worked
with others to manipulate prices between 2010 and 2012. Cooperl
disputes this however, and says its conviction was based on
falsified records provided by the sales director of Aoste, a
subsidiary of the Campofrio group. Because it agreed to supply
information to investigators, Campofrio, which is owned by Mexico's
Sigma Alimentos, saw its own fine reduced to EUR1 million under
French leniency arrangements. Cooperl appealed the decision at the
end of September and plans to ask the Paris Appeals Court to delay
enforcing the fine until the case is heard. Interviewed on RTL this
week, Cooperl's general manager Emmanuel Commault said some of its
meat plants may have to close if the company is forced to pay the
EUR35.53 million fine in the coming days. He said costs to the
company could eventually be four times that amount as it would
undermine confidence in the company among financial institutions.
The French Economy Ministry took the threat seriously enough to
issue a statement promising to ensure that Cooperl's future is not
jeopardized by the ruling. If the fine stays in place, the ministry
says it would make sure that payment conditions will be set in a
way that "avoids risking the activity of the group and the
employment of its workers". (IHS Markit Food and Agricultural
Commodities' Max Green)
Dutch consumer confidence indicators are on a par with or even
below the level in April-May, during the first wave of the COVID-19
virus pandemic. As the Netherlands is one of the worst-affected
countries in Europe by the second wave, the key risk is negative
quarterly growth in the fourth quarter, driven by a drop in private
consumption. (IHS Markit Economist Daniel Kral)
The consumer confidence index compiled by Statistics
Netherlands (Centraal Bureau voor de Statistiek: CBS) declined
marginally from -28 in September to -30 in October. Among the main
sub-categories, there was a marked deterioration in expectations of
economic situation in 12 months, from -40 to -46, and assessment of
economic climate, from -58 to -61.
Given the timing of the survey, some of the pessimism may
capture the partial national lockdown imposed in mid-October. The
October reading of -30 is only marginally better than the record
low of -31 in May, at the peak of the first lockdown.
Balance of responses on the expectations of future unemployment
have hit a near-record low of -87. This is down from -81 in May and
-83 in August.
In a separate release, the CBS reports that number of employed
people dropped in September by 3,000, the first monthly decline
since May. However, the unemployment rate decreased marginally from
4.6% to 4.4% between August and September, as the participation
rate dropped by 15,000.
In another release, the monthly indicator measuring domestic
household consumption improved slightly in August. Based on
shopping-day-adjusted data from the CBS, it was down by 5.8% year
on year (y/y). However, this is a marked slowdown compared to the
improvements since April.
Poland's Unadjusted industrial production jumped 5.9% year on
year (y/y) in September, while output rose 3.0% month on month
(m/m) in seasonally adjusted terms. September output was driven by
the manufacturing sector (up 7.2% y/y), but mining and utilities
production continued to decline. (IHS Markit Economist Sharon
Fisher)
Within manufacturing, electrical equipment and rubber and
plastic products posted double-digit gains, while growth was also
strong in the metals and chemicals branches. Industrial producer
prices fell further into negative territory (down 1.6% y/y).
By industrial grouping, the production of consumer durables
surged 21.2% y/y. Also encouraging was a 2.6% y/y increase in
capital goods, the first rise since February.
The positive industrial output results were matched by a
stronger retail sales performance, rising 2.7% y/y in nominal terms
(including the automotive sector) and 2.5% in real terms. Key labor
market indicators also showed improvement, with enterprise wages up
5.6% y/y and employment falling just 1.2% y/y.
Construction was the one sector that continued to struggle in
September, although the decline in activity (at 9.8%) was somewhat
less steep than in August. While the modest recovery of capital
goods production in September indicated a possible revival of
investment, plunging civil engineering construction (down 14.5%
y/y) gave the opposite signal.
The September industrial output results were stronger than
expected, signaling a likely upgrade of our third-quarter forecast
in the November round. That could translate to an upgrade of our
full-year 2020 outlook for Polish GDP growth, which currently
stands at -4.5%, below the consensus figure.
Poland's retail pharmaceutical market returned to growth in
September, with total sales of pharmaceuticals in retail pharmacies
increasing by 4.4% year on year (y/y) to PLN3.206 billion (USD831.4
million), according to data from Polish pharmaceutical market
research organization PEX PharmaSequence. The largest growth was
registered in non-reimbursed prescription medicines, whose sales
were up 7.4% y/y to PLN727 million. Sales of reimbursed
prescription medicines reportedly grew by 2.9% y/y to PLN1.042
billion, and sales of non-prescription medicines increased by 4.0%
y/y to PLN1.412 billion. Growth in the retail market from January
to September was reported at 2.0% y/y, amounting to PLN27.777
billion. The market segment most negatively affected by COVID-19
was reimbursed prescription medicines, sales of which reportedly
declined by 1.4% y/y in January-September. After a dramatic surge
in sales in March (up 33% y/y), the subsequent five months
registered declines in the retail pharma market - although the
declines in July and August (3.2% y/y and 0.5% y/y respectively)
were considerably lower than those in April, May, and June. (IHS
Markit Life Sciences' Brendan Melck)
Asia-Pacific
APAC equity markets closed lower except for Hong Kong +0.1%;
South Korea/Japan -0.7%, Mainland China/India -0.4%, and Australia
-0.3%.
The flash au Jibun Bank manufacturing purchasing managers'
index showed a slight improvement for the sector, with the reading
rising to 48 from 47.7 previously, the slowest deterioration in
conditions since January. It remained below the 50-point level
which signifies expansion. "The recovery is slow-going and could
remain so in the coming months as a global resurgence of Covid-19
cases could weigh on Japanese economic activity, particularly in
the external-facing sectors," said Bernard Aw, principal economist
at IHS Markit, which compiles the survey. (FT)
China's public fiscal revenue growth fell by 0.8 percentage
point to 4.5% year on year (y/y) in September, according to release
by the Ministry of Finance (MOF) on 18 September. (IHS Markit
Economist Yating Xu)
The headline moderation was entirely driven by faster
contraction in non-tax revenue, while tax revenue growth rose to
8.2% y/y with broad-based acceleration across tax items. Domestic
value-added tax and domestic consumption tax increased at faster
rates with rising bases. Consumption tax and value-added tax of
imports rose significantly with rebound in imports.
Public fiscal spending deteriorated to 1.1% y/y contraction on
a high base effect, following two consecutive months of expansion
in July and August. Central government spending improved to a 12.9%
y/y expansion from contraction in August, while local government
spending fell. Transportation, agriculture, and debt interest
payment led the fiscal spending, while payments in social security
and employment, education, and healthcare declined.
Government fund revenue growth accelerated as land sales
revenue grew faster despite tightening financing policy on the
property market. Land sales revenue grew 18.7% in September,
compared with a 4.2% y/y expansion through August.
In the first three quarters, fiscal revenue declined 6.4% y/y
with a fall across sub-tax items except individual income tax and
stamp tax. Fiscal spending declined by 1.9% y/y through September
with decline in all sub-spending items except an increase in debt
interest payment, agriculture, social security, and
healthcare.
Fiscal revenue has stayed in y/y expansion for four consecutive
months under the sustained economic recovery since April. Growth
momentum is expected to continue into the fourth quarter and help
with the achievement of the -5.3% y/y fiscal revenue target.
Chinese electric vehicle (EV) startup Xpeng Motors has said
that its P7 high-performance electric sedan reached the 10,000-unit
production milestone on 20 October. Xpeng began P7 production at
its Zhaoqing plant in Guangdong in mid-2019. Deliveries of the P7
reached 2,573 units in September, accounting for 74% of Xpeng's
total deliveries that month. The base version of the P7 with a
70.8-kWh battery pack starts from CNY230,000 (USD34,525) after
subsidies. Xpeng has achieved this new milestone after launching
production of the P7 in China last year. The model, the second EV
from Xpeng, is gaining traction in the market thanks to its long
driving range, more spacious interior compared with Tesla's Model
3, and the application of an array of driver assistance
technologies. The P7 is also the first model Xpeng has produced at
its own manufacturing facility. The smooth ramp-up of production of
the P7 will help the startup to earn credit as a trusted EV
manufacturer and shorten production delivery times to enable it to
compete with its startup rivals, NIO and Li Auto. (IHS Markit
AutoIntelligence's Abby Chun Tu)
Chinese automaker BYD says that it entered into an agreement
with Japanese truck-maker Hino Motors yesterday (21 October) to
establish a joint venture (JV) in China in 2021 focusing on
electric commercial vehicle (CV) manufacturing. The 50:50 JV will
also be engaged in component manufacturing for electric vehicles
(EVs). The chief executive of the JV will be appointed by BYD,
while its president will be appointed by Hino, according to a
statement from BYD. and Hino have taken forward their plan to
jointly develop and produce electric CVs with the signing of this
JV agreement, although the production launch timeframe is unclear
at this stage. Leveraging Hino's expertise in medium and heavy-duty
CVs, BYD will be able to tap into the CV market where demand for
pure electric models is growing, fueled by government incentives
and economic benefits such as low operational costs that electric
CVs can offer to business owners. (IHS Markit AutoIntelligence's
Abby Chun Tu)
China's Hubei province has introduced supportive measures to
boost local consumption in auto and home appliance sectors,
according to the provincial government's news conference on 19
October. (IHS Markit Economist Lei Yi)
From October 2020 until March 2021, Hubei plans to offer a 3%
subsidy to passenger car buyers, as long as the vehicle is locally
produced, sold, and registered. In line with the nationwide support
for new energy vehicles, existing subsidy and tax exemption
policies will be extended until the end of 2022. To facilitate car
usage, restrictions for night parking on certain streets will be
eased, and existing parking facilities will be further
improved.
A three-year (2020-22) plan to promote home appliance upgrade
is also unveiled, in which Hubei aims to build an orderly and
efficient home appliance recycling system and realize a proper
recycling rate of over 50%. The local government will also build a
smart internet of home appliances, to facilitate the replacement
and recycling process.
Stimulus measures targeting big-ticket items could help further
revive local consumption. Furthermore, given Hubei's role as an
important manufacturing hub with auto manufacturing contributing
over 10% of industrial value-add, an unveiled policy could also
benefit local car producers and stabilize local employment.
Sluggish income growth remains the key hurdle for a substantial
consumption rebound in the near term. Through the end of the third
quarter, disposable income of Hubei's residents remains in a
year-on-year (y/y) contraction, with urban and rural residents
reporting a decline of 6.3% y/y and 4.5% y/y, respectively.
Great Wall Motor has signed an agreement with the municipal
government of Jingmen to set up a production base in the city. The
automaker will acquire an existing vehicle manufacturing facility
owned by the city government and invest in plant renovation for
expansion as well as a product line upgrade. The new production
base will be dedicated to the production of sport utility vehicles
(SUVs) and pick-up trucks. Great Wall has not released any details
regarding a production launch timeline for the new facility in
Jingmen. However, it could take a few years for the new plant to
reach a significant volume level. Great Wall has been expanding its
manufacturing footprint in China more aggressively than most other
Chinese automakers. This is in part intended to spread out the
automaker's production network beyond central China, where its
headquarters are located, and prepare new facilities for the
company's expanding product portfolio across its four brands -
Great Wall, Haval, Wey, and Ora. In 2020, Great Wall has begun
production of a new Ora electric vehicle at its Rizhao plant in
Shandong province. This plant is the newest addition to the
automaker's production network. According to IHS Markit forecasts,
Great Wall's Baoding plant in Hebei province will remain the
largest facility by output in the automaker's production network
through to 2023, with its annual output reaching more than 550,000
units in 2023. This site will be followed by the Chongqing plant as
the second-highest volume facility in Great Wall's production
network. <span/>(IHS Markit
AutoIntelligence's Abby Chun Tu)
Hong Kong SAR's labor market deteriorated in September, with
the unemployment rate reaching the highest reading of 6.4% in
almost 16 years, hit by the new wave of COVID-19 infections in July
and August and seasonal factors. With the tourism sector remaining
at a standstill, retail sales and the labor market will continue to
face a severe headwind in the near term until the pandemic comes
under control domestically and globally. (IHS Markit Economist
Ling-Wei Chung)
With the COVID-19 virus pandemic forcing consumption and
tourism-related activities into a standstill, while other
activities remain sluggish, the seasonally adjusted unemployment
rate skyrocketed to nearly a 16-year high in September of 6.4%. The
reading in September was the highest level since January 2005,
outpacing those reported during the 2008-09 global financial
crisis.
This came after the unemployment rate briefly eased to 6.1% in
July and August 2020 from 6.2% in June. The increase in the
September unemployment rate occurred across major economic sectors,
led by the sectors hard-hit by the pandemic.
The unemployment rate of the consumption- and tourism-related
sectors, including retail, accommodation, and food services
sectors, surged to 11.7%, marking the highest reading since the
severe acute respiratory syndrome (SARS) outbreak in 2003. Among
them, the jobless rate in the food and beverage service sectors
jumped to 15.2% in September 2020. The deterioration was also
registered in the arts, entertainment, and recreation sector. The
unemployment rate in the construction sector remained high at 10.9%
in September.
Concurrently, the number of unemployed persons (not seasonally
adjusted) rose by 11,500 in September. Total employment fell by
15,600, marking a 5.8% contraction from a year earlier.
The increase in the September jobless rate was partly
attributed to the new wave of COVID-19 infections in July and
August, which prompted the government to reimpose stricter
containment measures. Local infections eased in September and early
October, prompting a slight relaxation of containment measures,
including an increase in the limit of group gatherings from two to
four. That said, the remaining social distancing restrictions and
seasonal factors, such as students graduating from schools and
looking for jobs, pushed up the unemployment rate again in
September.
With the tourism sector remaining at a standstill, retail sales
and the labor market will continue to face a severe headwind in the
near term, despite the government's employment support scheme and
other relief measures to support job retention and creation.
Electric vehicle (EV) battery manufacturer LG Chem plans to
triple its production capacity for cylindrical batteries and is
considering expansion in Europe and North America to meet surging
demand, reports Reuters. The South Korean company, an EV battery
supplier to an array of major automakers including Tesla, Hyundai,
Renault, and General Motors, forecasts a further rise in its
battery sales and profit in the fourth quarter of 2020 after
posting record quarterly earnings in the third quarter thanks to
growing demand for EV batteries and home appliances. No investment
timeframe has been given at this stage for its plans to triple
cylindrical battery capacity. LG Chem has overtaken its main
rivals, Contemporary Amperex Technology Co. Ltd (CATL) and
Panasonic, this year to become the largest EV battery supplier in
the global market. According to SNE Research, LG Chem captured a
market share of 25% in the first eight months of 2020 as its sales
almost doubled to 15.9 gigawatt hours. That compares with a 10.7%
share a year earlier. A surge in EV sales in the European market
during 2020 has given LG Chem a boost and has also strengthened its
confidence to widen its customer base in certain regions,
especially Europe. CATL is also looking to start production in
Europe as early as 2021 in an attempt to secure the leading
position in the global market. The Chinese battery manufacturer has
already become a dominant player in the Chinese EV battery market,
although it faces fierce competition from LG Chem in terms of
shipments in overseas markets. In Europe, LG Chem's EV battery
plant in Poland is now operating in a stable manner as the defect
rate has declined and the company says it is on track to boost its
production capacity to 100 gigawatt hours by the end of 2020. (IHS
Markit AutoIntelligence's Abby Chun Tu)
The number of subscribers to Hyundai Motor Group's
connected-car services in South Korea has exceeded 2 million. This
figure includes subscribers to all of its connected-car services,
including Blue Link by Hyundai Motor, UVO by Kia Motors, and
Genesis Connected Service. The automotive group exceeded the
1.5-million threshold for connected-car subscriptions in April.
Hyundai plans to have all of its vehicles equipped with
connected-car solutions by 2022, with the aim of having 10 million
subscribers. Hyundai has outlined plans to increase connectivity
and reach a point of global leadership in the connected-car field,
through a concept it calls "transcend connectivity". The company's
vision is to take its cars past simple wireless communication,
enabling each car to become an edge cloud, communicating
bi-directionally with an external system. By 2022, Hyundai expects
to have the largest secure data in the world, and it has announced
that it will offer data to third-party collaborators. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
The global operations of India's Dr Reddy's Laboratories have
reportedly been hit by "a data breach" affecting the company's
servers. According to Indian news source TheEconomic Times, the
company has "shut down its global plants", with manufacturing sites
in the United States, the United Kingdom, Brazil, Russia, and India
all impacted. The company stated that "In the wake of a detected
cyber-attack, we have isolated all data center services to take
required preventive actions", according to the LiveMint news
service. Mukesh Rathi, the chief information officer, said that the
company is expecting all services to return to normal within 24
hours. Dr Reddy's is one of India's largest pharmaceutical
companies with extensive global reach. The company has stated that
it does not see any major impact on its operations from the
incident, but local news sources report that key plants in various
countries were shut down, which could adversely affect production
output if it is not fully rectified promptly. The incident occurred
days after Dr Reddy's received approval from the Drugs Controller
General of India (DGCI) to conduct an adaptive Phase II/III human
clinical trial for the Russian Gamaleya Institute's Sputnik V
(Gam-Covid-Vac) vaccine candidate in India. (IHS Markit Life
Sciences' Sacha Baggili)
Posted 22 October 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
