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Daily Global Market Summary - 22 October 2021

22 October 2021 Chris Fenske

Most major European equity indices closed higher on Friday, APAC was mixed, and most US markets closed lower. US government bonds closed sharply higher, while benchmark European bonds closed mixed. iTraxx-Europe and CDX-NAIG closed flat, while high yield indices iTraxx-Xover and CDX-NAHY were slightly wider on the day. The US dollar, oil, natural gas, silver, and gold closed higher, while copper was lower on the day.

Please note that we are now including a link to the profiles of contributing authors who are available for one-on-one discussions through our Experts by IHS Markit platform.

Americas

  1. Most major US equity indices closed lower except for DJIA +0.2%; S&P 500 -0.1%, Russell 2000 -0.2%, and Nasdaq -0.8%.
  2. 10yr US govt bonds closed -6bps/1.64% yield and 30yr bonds -8bps/2.07% yield.
  3. CDX-NAIG closed flat/52bps and +4bps/302bps, which is flat and +2bps week-over-week, respectively.
  4. DXY US dollar index closed +0.1%/93.64.
  5. Gold closed +0.8%/$1,796 per troy oz, silver +1.2%/$24.45 per troy oz, and copper -1.3%/$4.50 per pound.
  6. Crude oil closed +1.5%/$83.76 per barrel and natural gas closed +3.2%/$5.28 per mmbtu.
  7. U.S. private sector businesses recorded a sharp and accelerated upturn in output led by the service sector during October, with growth the strongest for three months, albeit still much weaker than seen earlier in the year. October also saw a survey-record rise in backlogs of work as firms struggled to meet demand due to supply chain bottlenecks and labor shortages, in turn driving the steepest rise in prices yet recorded by the survey. (IHS Markit Economist Chris Williamson)
    • Flash U.S. Composite Output Index at 57.3 (55.0 in September). 3-month high.
    • Flash U.S. Services Business Activity Index at 58.2 (54.9 in September). 3-month high.
    • Flash U.S. Manufacturing PMI at 59.2 (60.7 in September). 7-month low.
    • Flash U.S. Manufacturing Output Index at 52.3 (55.7 in September). 15-month low.
  8. Alongside its first annual update report (released on 13 October) on its G20-backed "Roadmap for Enhancing Cross-Border Payments" initiative to improve the cost, speed, access and transparency of global payments, the Financial Stability Board (FSB) has released quantitative targets. (IHS Markit Economist Brian Lawson)
    • The FSB specifies targets for the four areas, looking at wholesale, retail, and remittance flows.
    • The targets apply from end-2027, other than for remittances, where cost and speed objectives relate to end-2030.
    • For retail payments, the FSB specified that the average cost of payments should not exceed 1%, with no "corridors" costing above 3%, while for remittances the target is a 3% average and 5% maximum cost.
    • On speed, the goal is for 75% completion within one hour - and the remainder within a day - in all three categories.
    • For access, the FSB targets that all wholesale and retail users should have at least one option by end-2027 to send or receive cross-border payments (flagging that for retail users this should be electronic), while seeking access for 90% of individuals - including those without bank accounts - to an electronic remittance mechanism by end-2027.
    • Finally, in all three categories, all payment service providers should disclose the cost, duration, and their terms of service by end-2027.
  9. Dow posted net income of $1.7 billion compared with a $1.0-million loss in the year-ago quarter as strong demand and higher pricing more than offset significant storm-related supply disruptions. Net sales were $14.8 billion, up 53% year on year (YOY) and 7% sequentially, with gains in all operating segments and regions. Price was up 50% YOY and 5% sequentially over the second quarter with gains in all businesses, segments, and regions. Reported operating earnings was $2.75/share, up from 50 cts in the year-ago period and 6% above analyst estimates as reported by Zacks Investment Research. (IHS Markit Chemical Advisory)
    • "Despite higher energy costs and industry-wide value chain disruptions from hurricanes on the US Gulf Coast, our proactive storm preparations enabled us to maintain the safety of our team and operations, and recover quickly," says Dow chairman and CEO Jim Fitterling. "Coupled with our global footprint, feedstock flexibility, and structural cost advantages, we continued to capture robust end-market demand and price momentum."
    • Packaging & specialty plastics segment net sales were $7.7 billion, up 69% YOY. Operating EBIT was $2 billion, compared to $647 million in the year-ago period, reflecting strong margin improvement in the core business, which was up 1,110 basis points, Dow says. Local price increased 63% YOY due to tight supply and demand dynamics. Volume increased 5% YOY, as gains in energy and olefins were partly offset by lower polyethylene volumes due to weather-related supply constraints.
    • Industrial intermediates and infrastructure segment net sales were $4.5 billion, up 47% YOY. Segment operating EBIT was $713 million, an increase of $609 million YOY, primarily due to continued tight supply and demand dynamics in both businesses. Despite strong demand, segment volumes declined 4% YOY due to a planned transition of a low-margin coproducer contract, weather-related outages and third-party supply constraints.
    • Performance materials & coatings segment net sales were $2.5 billion, up 26% YOY. Operating EBIT was $284 million, compared to $75 million in the year-ago period. Margins increased 750 basis points due to strong price momentum and robust demand recovery for silicones and industrial coatings offerings. Local price increased 23% YOY due to tight supply and demand dynamics. Volume increased 2% year-over-year as stronger demand for mobility, electronics, personal care and industrial applications was partly offset by supply constraints for acrylic monomers and architectural coatings.
    • Higher raw material and energy costs are expected to reduce packaging and specialty plastics segment operating EBIT by approximately $350 million in the fourth quarter compared with the third quarter, partly offset by a benefit from $175 million in lower costs following the completion of a turnaround at a Canada cracker.
  10. US clinical-stage biotech F-star Therapeutics has announced that it has granted Johnson & Johnson (J&J, US)'s Janssen Biotech unit a worldwide, exclusive license to research, develop, and commercialize up to five novel bispecific antibodies directed at Janssen's therapeutic targets using F-star's proprietary Fcab and mAb2 platforms. Janssen will be responsible for all research, development, and commercialization activities. Under the terms of the agreement, F-star will receive upfront fees of USD17.5 million, as well as near-term fees and potential further milestones of up to USD1.35 billion. F-star is also eligible to receive tiered mid-single-digit royalties on annual net sales of any products developed via the collaboration. F-star's proprietary platform allows substitutions in the Fc region of a natural antibody, creating two additional distinct antigen binding sites. The resulting building blocks - known as Fcabs (Fc with antigen binding) - can be rapidly inserted into a natural IgG antibody format to create so-called mAb2 bispecific antibodies that simultaneously bind to two different antigens. F-star's mAb2 bispecific antibodies are designed to have minimal systemic toxicity, a low immunogenicity risk, and to be easy to manufacture. For F-star, the size of the deal comfortably eclipses a USD300-million collaboration signed in July with AstraZeneca (UK) for the development and commercialization of next-generation stimulator of interferon genes (STING) inhibitors. (IHS Markit Life Sciences' Milena Izmirlieva)
  11. The head of Ford Pro, the company's new commercial vehicle division said during an industry presentation that the company is seeing early resistance to electric vehicle (EV) trucks and vans from current commercial fleet owners. According to a Reuters report, executive Ted Cannis commented on the issue during a Reuters Events Automotive Summit. Cannis reiterated that the Lightning pick-up and the E-Transit van "are targeted at real people doing real work", but that some are taking a wait-and-see approach as a result of a lack of experience with EVs and a lack of clarity on government policy and regulation around them. However, Cannis was also cited as saying that Ford does not see these as insurmountable obstacles over the longer term. (IHS Markit AutoIntelligence's Stephanie Brinley)
  12. Autonomous truck startup Embark said that carriers participating in its partner development program has placed 14,200 non-binding reservations for its autonomous software equipped trucks. The reservations run from 2024, when its Embark Driver software is expected to be commercially available, through 2028. Embark, which recently announced that it is going public through a reverse merger agreement with a special-purpose acquisition company (SPAC), takes a different approach to autonomous trucking than other tech firms. Embark focuses on providing autonomous software as a service (SaaS) for the trucking industry, rather than building and running a fleet of trucks itself. Carriers and fleets can pay a per-mile subscription fee to access Embark's services. (IHS Markit Automotive Mobility's Surabhi Rajpal)
  13. Stellantis's Free2Move is expanding its presence by launching its mobility service in Denver, Colorado (United States). The company is to offer car-sharing, rental, and subscription services from a single app, accessible through the user's smartphone. Free2Move's Car on Demand service is the latest addition to its offerings, which include insurance, maintenance, and assistance with no hidden fees, it says. Over the next few months, the company plans to ramp up its fleet size to 160 Jeep vehicles in Denver, in services which will be available by the minute, by the day, and by the month. Rentals are charged either at a rate of USD0.49 per minute or USD89.99 per day. (IHS Markit Automotive Mobility's Surabhi Rajpal)
  14. UGI Utilities has received regulatory approval from the Pennsylvania Public Utility Commission (PAPUC) to purchase RNG and start a five-year pilot program. The pilot is the first of its kind in Pennsylvania, said the state's second-largest utility on 22 October. Earlier this year, UGI Utilities signed an interconnect agreement with Archaea Energy to accept delivery of RNG into its high-pressure natural gas pipeline that serves its distribution system. When fully operational, the system will be designed to take up to 16,000 mcf/d of RNG, making this the largest RNG supply point in the United States to-date. (IHS Markit PointLogic's Kevin Adler)
    • "The approval of this pilot program is a significant step forward as we continue to develop sustainable, environmentally responsible energy solutions for our customers," said Robert F. Beard, executive vice president - natural gas, global engineering & construction and Procurement. "UGI remains committed to developing renewable energy sources for the communities we serve."
    • In a joint statement, PAPUC Commissioners Ralph Yanora and John Coleman, Jr. said the program "represents an innovative economic model that balances environmental, customer, and gas supply requirements consistent with the Commonwealth's least-cost gas supply requirements."
  15. Health advocates are hailing a decision by a California court that ruled the state cannot penalize cities from enacting sugary drink taxes. In 2020, Cultiva La Salud, a California health equity group, and Martin Watkins, a Santa Cruz City Council member, sued the state in response to a 2018 state law that prevented cities from enacting new sugary drink taxes until 2031. Pressured by the beverage industry that had gained enough signatures to place on the ballot a measure that could have cut local governments' ability to raise revenue, the state legislature passed a bill in 2018 that put a freeze on local sugary drink taxes. Fearing the penalty provisions in the state law, the California city of Santa Cruz backed down from pursuing its drink tax. Earlier this month, the Sacramento County Superior Court ruled the penalty provision in the state law, California's Keep Groceries Affordable Act of 2018, is unconstitutional. (IHS Markit Food and Agricultural Policy's Joan Murphy)
  16. According to the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística: IBGE), the monthly index of economic activity for industrial production (MIEA) declined by 0.2% in August compared with July (month on month); this marks the third monthly decline in the first eight months of the year. MIEA has recorded five expansions, indicating some growth volatility, as different sectors re-adjust after the pandemic lockdowns and restrictions. (IHS Markit Economist Rafael Amiel)
    • Industrial production was down, mostly due to supply chain disruptions and shortages of semiconductors.
    • Retail sales contracted significantly in August after recording strong expansion in July, while sales of durable goods such as electronics, appliances, and automobiles were constrained by a lack of supply rather than a decline in demand. Sales of non-durable goods may have been constrained by the decline in income, as high inflation is hurting real wages.
    • IBGE also publishes an indicator of sales of non-financial services, which has been recovering strongly since the second half of 2020. IHS Markit assesses that there is still room for further expansion as reopening continues, especially in the hospitality and air transportation sectors.

Europe/Middle East/Africa

  1. Most major European equity indices closed higher except for Spain -0.4%; France +0.7%, Germany +0.5%, UK +0.2%, and Italy +0.2%.
  2. 10yr European govt bonds closed mixed; UK -6bps, Spain -1bp, Germany flat, France +1bp, and Italy +2bps.
  3. iTraxx-Europe closed flat/50bps and iTraxx-Xover +3bps/260bps, which is flat and +4bps week-over-week, respectively.
  4. The Office for National Statistics (ONS) has reported that the UK's 12-month rate of consumer price index (CPI) inflation fell to 3.1% in September from 3.2% in August, the highest rate since March 2012. (IHS Markit Economist Raj Badiani)
    • Restaurant and café prices increased by 5.0% year on year (y/y) in September, down from a gain of 8.6% y/y in August. The annual comparisons in August and September 2021 have been distorted by restaurant prices being artificially low in August 2020 when the government launched its 'Eat Out to Help Out' scheme offering diners discounted meals. The latest price developments compare prices to September 2020, after the scheme expired at the end of August.
    • Food prices rose at brisker rate, rising by 0.9% y/y in September from 0.2% y/y in August.
    • Energy-related prices continued to rise rapidly on an annual basis, with transport fuel and lubricant prices growing by 17.8% y/y, the sixth successive double-digit increase. This was in line with global crude oil prices rising by 82.1% y/y to average USD74.5 per barrel (pb) in September, the ninth successive y/y gain since February.
    • The ONS reported that average gasoline (petrol) prices stood at 134.9 pence a liter in September, compared with 113.3 pence a liter a year earlier.
    • A further rise in second-hand car prices occurred during September because of the shortage of semiconductor chips disrupting production of new vehicles.
    • All-services price inflation retreated to 2.6% in September from 3.0% in August; for goods, it stood at 3.4%, up from 3.3% in August.
    • Core inflation, excluding energy, food, alcoholic beverages, and tobacco prices, moved down to 2.9% in September from 3.1% in August.
  5. The IHS Markit/CIPS flash manufacturing PMI rose to 57.7 in October from 57.1 in September. However, dig down into the components of the PMI and we can see worrying signals about the health of manufacturing in the UK. (IHS Markit Economist Chris Williamson)
    • Drilling down into the reasons provided by those manufacturers who reported a fall in production during October, some 43% reported that output had been hit by shortages of components or supply chain delays. These shortages were highlighted by the survey's suppliers' delivery times index falling further in October, indicating the greatest lengthening of supply lines since the initial global factory closures seen at the start of the pandemic. Worst affected were food & drink producers and manufacturers of electrical and electronic goods.
    • However, more worryingly, almost one-in-three firms (some 29%) simply reported that their output had decreased due to weakened demand. Although the survey's new orders index picked up slightly during the month, it remained far below levels seen in the six months prior to September, suggesting the UK factory sector has seen a downshifting of demand growth since the summer. Although some pull-back in spending on goods was to be expected as the service sector continues to open up from COVID-19 restrictions, this weakening of demand growth can also be linked to a second consecutive monthly fall in new export orders during October, which fell at the fastest rate since the January lockdown. Analysis of the reasons cited for falling export orders in October shows that one-in-three firms blamed Brexit.
  6. A project that intends to undertake large scale-electric vehicle (EV) battery manufacturing in Coventry (UK) has revealed its plans. Known as the West Midlands Gigafactory, its facility will be built at Coventry Airport and will eventually cover over 500,000 square meters and will have the capacity to deliver up to 60GWh of batteries per annum following investment of around GBP2.5 billion. It is also expected to create up to 6,000 highly skilled jobs. It also aims for electricity to be supplied from 100% renewable resources through a combination of solar panels and grid supply. The first phase of the project is hoped for completion in 2025. (IHS Markit AutoIntelligence's Ian Fletcher)
  7. The headline IHS Markit Eurozone Composite PMI® fell for a third successive month in October, according to the 'flash' reading*, dropping from 56.2 in September to 54.3. The decline indicates a further cooling of the rate of expansion from July's 15-year high. (IHS Markit Economist Chris Williamson)
    • Growth slowed especially sharply in Germany, down to the lowest since February, and slipped to the weakest since April in France. The rest of the region as a whole also recorded the slowest expansion since April.
    • By sector, services outperformed manufacturing output for a second month running, the factory sector having now reported a slowdown in growth for a fourth straight month to register the weakest increase in production seen over the past 16 months.
    • Hiring was stepped up as firms sought to clear backlogs, resulting in a jobs gain that matched July's two-decade high. Jobs growth accelerated in both Germany and France, and notably was one of the fastest in 21 years in the rest of the region.
    • Shortages were meanwhile once again seen as the key driver of higher prices for many goods and services in October, leading to a survey record increase in firms' input costs. An unprecedented input cost increase was recorded in manufacturing while service sector costs rose at the sharpest rate since September 2000.
  8. Tesla's plan to begin trial production at the company's plant in Grünheide (Germany) next month appears likely to be halted by another bureaucratic delay, according to a Reuters report. The company undertook an online consultation of local citizens before beginning production. However, this process now apparently has a second stage, which is likely to delay the beginning of production beyond November. The second stage, which is only open to those who expressed an objection in previous rounds, will run from 2-22 November, the statement said. CEO Elon Musk said recently that he hoped that the facility would begin trial production this month. (IHS Markit AutoIntelligence's Tim Urquhart)
  9. Air Liquide reports a 17% rise year on year (YOY) in sales to €5.83 billion ($6.79 billion) for the third quarter, beating analysts' consensus estimate of €5.78 billion, with the company flagging growth in activities across all divisions and regions. The third-quarter sales figure is also up sequentially from €5.51 billion in the second quarter. Air Liquide has not provided quarterly earnings figures. Revenue at the company's gas and services business, which accounts for 96% of overall sales, rose almost 17% YOY to €5.58 billion, slightly higher than consensus of €5.53 billion, provided by Vara Research (Frankfurt, Germany). Air Liquide says the higher group revenue figure confirms an upward trend seen in the first half of the year, and that its gas and services business sales benefited from a strong energy effect of 9.3%. Activity was supported in particular by momentum in the electronics industry, continued recovery of the industrial merchant business, and robust healthcare activities, it says. (IHS Markit Chemical Advisory)
  10. CGG GeoSoftware and Amazon Web Services (AWS) are expanding their collaboration in the global E&P industry to China to bring out benefits of cloud computing technologies. The strong collaboration between CGG GeoSoftware and AWS has resulted in cloud computing deployment which can support in resolving common reservoir modeling challenges in China, owing to complex geology, thin layers, and strong heterogeneity within reservoirs with greater precision required in estimating uncertainty to reduce risk. By combining Jason inversion technology within GeoSoftware11.0 with the ability to scale and access vast computing resources it is possible to understand more modeling scenarios with greater complexity and simultaneously generate hundreds of realizations from geostatistical seismic inversion. (IHS Markit Upstream Costs and Technology's Lopamudra De)
  11. Poland's unadjusted industrial output rose by 8.8% year on year (y/y) in September, the weakest figure since February. Nevertheless, results were positive in seasonally adjusted terms, with production rising by 0.9% month on month (m/m). (IHS Markit Economist Sharon Fisher)
    • September's industrial output growth benefited from growth in all three sectors: mining, manufacturing, and utilities. Coal mining surged by 19.5% y/y, as soaring natural gas prices have increased demand for other energy sources.
    • Manufacturing output was boosted by double-digit growth in several branches, including metal products, chemicals, and construction materials. Motor vehicles production plunged by 17.3% y/y owing to supply-chain challenges.
    • By industrial group, Poland reported double-digit y/y gains in energy and intermediate goods, alongside more moderate growth in consumer goods production. Only capital goods output declined in September (down by 0.8% y/y).
    • Industrial producer prices continued to surge in September, rising by 0.7% m/m and 10.2% y/y, the highest figure since 1997.
    • Although industrial output results were broadly in line with expectations in September, construction activity disappointed on the downside, rising by 4.3% y/y but falling by 2.0% m/m in seasonally adjusted terms. Specialized construction activities were the main driver of September growth (up by 21.7% y/y), while civil engineering works rose modestly (up by 1.2% y/y) and building construction dropped by 3.6% y/y.
    • Retail sales (including the automotive sector) rose by 5.1% y/y in real terms, while high inflation pushed up nominal growth to 11.1% y/y. In seasonally adjusted terms, real sales rose by 0.2% m/m.
    • By category, the largest increase in real retail sales came in clothing and footwear (up by 14.5% y/y). In contrast, car sales fell by 4.1% y/y.
    • On the labor front, enterprise employment edged downwards in August-September (reaching 0.2% below the July high), signaling that layoffs may be occurring in certain sectors as government stimulus measures are phased out. Employment growth slowed to 0.6% y/y in September.
  12. Norway's Labour Party has formed a minority coalition government with the Centre Party after winning a plurality of votes in the 21 September general election. The new center-left coalition has pledged support for the existing offshore exploration framework, which is likely to ensure oil policy continuity over the near-to-medium term. The formation of a minority center-left coalition should reduce the risk of major upstream policy shifts, despite the need for ad-hoc parliamentary support from opposition parties to advance legislation. According to the Hurdal Platform (the governing program of the Labour and Centre Parties), the new government plans to continue to develop the hydrocarbon industry as a key contributor to Norway's economy. The center-left government has ruled out any plans to phase out oil and gas production on the Norwegian Continental Shelf (NCS) and is likely to pursue generally favorable policies in line with the Energy White Paper that was proposed by the previous Conservative-led coalition. To ensure a stable oil policy framework, the ruling coalition is likely to negotiate its legislative proposals with the opposition parties, as the Labour and Centre Parties are nine seats short of a majority (85 seats) in parliament. With smaller left-leaning and centrist parties favoring a more restrictive approach to the upstream sector, the center-left coalition is likely to seek support from the Conservative Party, which remains a strong proponent of E&P activity on the NCS. (IHS Markit E&P Terms and Above-Ground Risk's Aliaksandr Chyzh)
  13. The Central Bank of the Republic of Turkey (TCMB) cut its main policy rate, the one-week repo rate, by 200 basis points, to 16.0%, at its regularly scheduled, 21 October meeting of the Monetary Policy Committee. The cut was the second consecutive move following a 100-basis-point reduction at the September meeting. (IHS Markit Economist Andrew Birch and Banking Risk's Alyssa Grzelak)
    • The TCMB took action despite annual consumer price inflation that stood at 19.6% as of September 2021 and likely further accelerated in October. With this rate cut, the main policy rate is now 360 basis points below the prevailing headline inflation rate. In September, TCMB Governor Sahap Kavcioǧlu shifted the guidance of its future cuts from the headline inflation rate to the lower, core inflation rate. However, the main policy rate is now 100 basis points below even the prevailing annual core inflation rate, which stood at 17.0% as of September.
    • It was clear that the TCMB would be cutting rates once again at the October meeting - particularly after President Recep Tayyip Erdoǧan removed three Monetary Policy Committee members that had resisted further rate cuts. However, the size of the cut was surprising given the core inflation rate. IHS Markit had forecast a 50-point cut while many other observers had expected a 100-point cut, a move that would have put the repo rate right at the prevailing rate of core annual inflation.
    • Turkey's grey-listing and its now lower interest rates will decimate inflows of foreign capital, destabilizing the lira and thus, enflaming consumer price inflation. After peaking at over USD3 billion in June, the net inflow of portfolio investment trailed off significantly in July (USD1.9 billion) and August (USD1.3 billion). Judging by exchange-rate fluctuations in September and October, portfolio investment flows either further deteriorated or even turned outward on a net basis during those two months. In our view, the October rate cut and Turkey's being added to the FATF's grey list will trigger net portfolio outflows in November and December - potentially totaling USD2 billion or more each month, based on previous shocks - with net losses likely to continue into early 2022.
  14. Acino (Switzerland) and Aspen Pharmacare and its subsidiaries (Aspen, South Africa) have signed an agreement for the Swiss firm to acquire six selected prescription medicine brands from Aspen for over EUR105 million (USD123 million). The portfolio to be acquired includes medicines for the treatment of gastroenterology, erectile dysfunction, and cardiovascular conditions; the brands encompassed by the deal are Trustan (esomeprazole), Altosec (omeprazole), Zuvamor (rosuvastatin), Ciavor (tadalafil), Grantryl (granisetron), and Aspen Granisetron (granisetron). The parties have also signed a manufacturing and supply agreement "in terms of which Aspen will supply the Aspen manufactured products to Acino for a period of seven years", according to a press release. The acquisition of these brands will strengthen Acino's footprint in the South Africa market by expanding the company's product offering in these therapeutic segments, and it underscores the Swiss firm's long-term expansion strategy in South Africa. For Aspen, the deal reflects the company's strategy of refining its product portfolio in the domestic market, and it is in line with previous measures taken in the past two years to reduce its debt. (IHS Markit Life Sciences' Sacha Baggili)

Asia-Pacific

  1. Major APAC equity indices closed mixed; Hong Kong +0.4%, Japan +0.3%, Australia/South Korea flat, India -0.2%, and Mainland China -0.3%.
  2. The power crunch and real estate moderation, which were two major drivers for Mainland China's economic deceleration in the third quarter, marginally eased in the short term due to the government's interventions; while those are expected to remain headwinds for economic recovery in the fourth quarter. (IHS Markit Economist Yating Xu)
    • The average mortgage rates in 90 major cities for first-home and second-home purchases in October were both 1 basis point down from the previous month, reports Caixin citing BeiKe Research Institute. It was the first monthly drop since the beginning of the year. The mortgage rate decline was sharper in the tier-one cities of Guangzhou and Shenzhen in the southern Guangdong province.
    • Mainland China's coal stockpiles at key power plants rose by more than 10 million tonnes from September, according to data from the National Development and Reform Commission (NDRC). Meanwhile, the NDRC is reviewing measures to tamp down high prices that are threatening energy security and economic growth.
  3. China's cybersecurity regulator has reportedly suggested that ride-hailing firm Didi Global Inc. (DiDi) and two other US-listed tech companies should explore listings in Hong Kong SAR. The Cyberspace Administration of China (CAC) introduced this proposal in recent conversations with executives from DiDi, logistics platform Full Truck Alliance, and online recruitment firm Kanzhun Ltd, reports Reuters. The three firms, which went public in June, were being investigated by the CAC as China is tightening scrutiny of technology firms on a range of issues, including data security, customer privacy, and anti-competitive practices. (IHS Markit Automotive Mobility's Surabhi Rajpal)
  4. Hai Long Offshore Wind Power has appointed Offshore Wind Consultants (OWC) as one of the owner's engineers (OE) to provide technical advisory and coordination services for the 1,044 MW Hai Long 2 and 3 offshore wind farm (OWF) projects in Taiwan. OWC's services will work throughout the development and construction phases of the wind farm projects. OWC set up an office in Taiwan to support the offshore wind sector in 2018, followed by added offices in Japan and South Korea. The Hai Long OWF project is jointly developed by Northland Power, Yushan Energy, and Mitsui. It has three separate grid allocations comprising Hai Long 2A (300 MW), Hai Long 2B (232 MW), and Hai Long 3 (512 MW) wind farms. Financial close for Hai Long is expected in 2022 and project construction is due to be completed by 2026. (IHS Markit Upstream Costs and Technology's Jie Sheng Aw)
  5. Japan's CPI rose by 0.4% month on month (m/m) on a seasonally adjusted basis and by 0.2% year on year (y/y) in September. The CPI, excluding fresh food (core-CPI), notched up by 0.1% m/m and 0.1% y/y in September. The CPI, excluding food and energy (core-core CPI), held at the August level in September, but deflation continued at a 0.5% y/y drop. (IHS Markit Economist Harumi Taguchi)
    • The first y/y increase since August 2020 largely reflected a 2.2% y/y rise in fresh food prices due to bad harvests caused by unusually heavy rainfall in August 2021. Faster rises in electric and gas charges also contributed to lift the CPI. However, those increases were largely offset by declines in mobile-phone charges.
    • The September results were in line with IHS Markit's expectations. Although fresh food prices are expected to stabilize in the coming months, energy prices are likely to lift Japan's CPI inflation at a faster pace than expected, reflecting surging crude oil prices and yen weakening. However, inflation will probably remain moderate over the short term. Inflationary pressures from higher energy prices and the weak yen will be largely offset by the negative effects of lower mobile-phone charges (through March 2022) and the expected reintroduction of travel subsidies.
  6. The Japanese transport ministry has amended the country's automatic braking system safety provisions to include protection for bicycle riders from July 2024, according to the Asahi Shimbun. While automatic emergency braking (AEB) systems are currently only required to prevent collisions with vehicles and pedestrians, the new provisions will require the systems to stop a car running at 38 kmph from colliding with a bicycle crossing the road at 15 kmph. They will also be required to sound an alarm before the brakes are applied. The amended provisions will be applicable to all new passenger car models with a seating capacity of up to nine people and truck models with a deadweight of 3.5 tons or less made after July 2024. Additionally, existing car models that remain in production in 2024 will be required to be upgraded to meet the standard by July 2026. (IHS Markit AutoIntelligence's Jamal Amir)
  7. Stellantis and Samsung SDI have announced a memorandum of understanding (MoU) for battery production in North America, targeted to start production in 2025. According to a statement emailed to IHS Markit, the plant is expected to start with capacity for 23 gigawatt hours, with the ability to increase to 40 gigawatt hours "in the future." In combination with a similar deal announced with LG Energy Solutions (LGES) on 18 October, Stellantis says it is now "well advanced" in the process of securing annual production capacity for electric vehicle (EV) batteries. The plants coming through both the Samsung SDI and LGES will meet the needs for Stellantis plants in the US, Canada and Mexico, the company says. This is part of the company's earlier announcement of investment of EUR30 billion through 2025 into electrification and software development. (IHS Markit AutoIntelligence's Stephanie Brinley)
  8. Reliance Industries says that EBITDA grew 43.9% year on year (YOY) in its oil-to-chemicals (O2C) business, to 127.2 billion Indian rupees ($1.6 billion), in its fiscal second quarter ended 30 September. Quarterly sales for the sector were Rs1.2 trillion, up 58.1% YOY on the back of higher crude prices and increased volumes. (IHS Markit Chemical Advisory)
    • In the polymers business, the company says that domestic polymer demand rebounded during the quarter as COVID-19 related restrictions eased. Overall polymer demand grew 14% on quarter on quarter [QOQ] and 7% YOY. Polypropylene (PP), polyethylene (PE) and polyvinyl chloride (PVC) prices increased YOY by 30%, 26% and 54% respectively.
    • The company says PVC prices rose at the end of the quarter amid availability issues due to tropical storm Ida in the US and production restrictions on coal-based capacities in China due to energy shortage. PVC margins over naphtha and ethylene dichloride rose 3% YOY ($565/metric ton). PE margins over naphtha weakened by 11% ($426/metric ton). PP margins over naphtha remained stable ($532/metric ton). "However, margins were hurt quarter on quarter due to strong feedstock prices and restart of US supply post arctic freeze," the company says.
    • In intermediates, the company says markets witnessed healthy recovery during the second quarter YOY and strong energy prices supported growth. Para-xylene (p-xylene) prices grew by 72% YOY in line with higher crude price. Prices of purified terephthalic acid (PTA) increased by 78% YOY, in-line with firm p-xylene prices. Monoethylene glycol (MEG) prices increased 52% YOY in line with higher feedstock prices, and margins improved 27% YOY to $238/metric tons due to firm polyester demand.
    • In the polyesters business, the company says that domestic markets revived after the second COVID-19 wave in the first quarter of this year in trend with the rise in manufacturing activities across the country. Domestic polyester demand surged 41% QOQ and 39% YOY driven by firm retail demand and increased downstream operating rates, it adds. Polyethylene terephthalate (PET) prices increased by 47%, while margins declined by 36% YOY and 33% QOQ to $101/metric tons with higher feedstock prices. Prices of polyester fiber (PSF) increased by 38%, while margins declined by 78% YOY and 36% QOQ to $34/metric tons due to higher feedstock prices. It adds that prices of polyester filament yarn (PFY) increased by 51% in line with higher PTA and MEG prices, while margin declined by 5% YOY and 15% QOQ to $191/metric tons.
  9. The latest IHS Markit Flash Australia Composite PMI showed that private sector output returned to expansion in October with the PMI printing 52.2, up from September's final reading of 46.0. This was the first expansion since June 2021, prior to when the Australian economy was hard-hit by the latest COVID-19 Delta wave. (IHS Markit Economist Jingyi Pan)
    • Input price inflation notably accelerated to the fastest on record, supported by higher rates of price increases across both manufacturing and service sectors in October. Higher input costs were often associated with supply delays, as reflected in the continued lengthening of suppliers' delivery times in the manufacturing sector, which does not come as a surprise amid recent reports of supply issues across the globe. As such, firms were seeing both longer lead times and higher delivery costs which, alongside issues of input shortages and higher wages, offered no reprieve for the inflation situation in October.
    • Concurrently, output price inflation picked up from September and printed the third-highest rate of inflation in the survey history. The wider expectation remains one of transitory inflation even as the June quarter saw inflation rising above the upper bank of the RBA's 2.0%-3.0% target in Australia. That said, the first Q4 indication of prices once again spiking warrants further scrutiny on where prices are headed for the Australia economy.

Posted 22 October 2021 by Chris Fenske, Head of Fixed Income Research, Americas

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.


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