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US equity markets closed higher on the day, while APAC markets
were lower and Europe was mixed. European government bonds closed
mixed and US bonds were slightly lower on the day. iTraxx and CDX
IG indices closed flat, while high yield was modestly wider. The US
dollar and oil were higher on the day and gold sold off for a
second consecutive day. Increases in COVID-19 infections in Europe
are creating growing concerns that business closures may be
required to slow the spread as we enter the fall season.
Americas
US equity markets closed higher on the day, despite all major
indices intermittently entering negative territory earlier in the
day; Nasdaq +1.7%, S&P 500 +1.1%, Russell 2000 +0.8%, and DJIA
+0.5%.
10yr US govt bonds closed +1bp/0.68% yield and 30yr bonds
+1bp/1.43% yield.
CDX-NAIG closed flat/52bps and CDX-NAHY +4bps/368bps.
DXY US dollar index closed +0.4%/93.99.
Gold closed -0.2%/$1,908 per ounce.
Crude oil closed +0.7%/$39.80 per barrel.
The U.S. House passed a stopgap funding bill to keep the
government operating through Dec. 11 after both parties in Congress
and officials at the White House struck a deal to provide aid to
farmers and food assistance for low-income families. The 359-57
vote on Tuesday night now sends the temporary spending bill to the
Senate for a vote before the fiscal year ends on Sept. 30. Final
passage would avert a government shutdown just before the Nov. 3
general election. (Bloomberg)
US existing home sales edged up 2.4% in August to a
6.0-million-unit annual rate—the highest reading since December
2006. Single-family sales increased 1.7% to a 5.37 million rate;
condo/coop sales shot up 8.6% to a 630,000 rate. Sales were up
10.5% from a year earlier and 4.2% 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 1.27 million, by far
the lowest August reading on record. Our seasonally adjusted
single-family homes inventory estimate, 1.19 million, was an
all-time low. Unsold inventory of all homes amounted to a
record-low 3.0-month supply at current sales pace. A 5.0-month
supply is considered normal.
Record-low interest rates and inventories have led to bidding
wars, rising sales, and higher home prices. Fueling the flames are
bidders who are re-entering the market after withdrawing earlier in
the year. The median price has risen 11.4% from last August—and
more than 10.0% in all four regions.
High-end homes are driving the numbers. Sales of homes valued
under $100,000 were down 20.5% from a year earlier, and those in
the $100,000-250,000 range were down 8.9%; meanwhile sales in the
$1.0-million-plus category were up 44% from last August, while
those in the $750,000-1.0 million increased 34.5%.
The Mortgage Bankers Association's seasonally adjusted purchase
index remains elevated, suggesting that September's existing home
sales numbers will remain near current levels.
Next-generation sequencing (NGS) company Illumina (US) has
entered into a definitive agreement to acquire cancer screening
company GRAIL (US) for USD8 billion in a cash and stock
transaction. GRAIL shareholders will also be eligible to receive a
tiered single-digit percentage of revenues from GRAIL products,
including Galleri, its multi-cancer screening test that is
anticipated to launch in 2021. Specifically, shareholders will have
contingent value rights that entitle them to 2.5% of the first USD1
billion in revenues each year for 12 years, and 9% for revenues
above USD1 billion during the same period. According to Illumina,
an earlier version of Galleri was able to detect over 50 cancer
types, including more than 45 with currently no recommended
screening test in the US. GRAIL also has other cancer diagnostic,
and post-treatment monitoring blood-based tests in development. The
transaction is anticipated to be accretive to Illumina revenue
starting from 2021, and is expected to help accelerate revenue
growth over time. It has been approved by the Boards of Directors
of both companies and is anticipated to close in the second half of
2021, subject to customary closing conditions. (IHS Markit Life
Science's Margaret Labban)
Koppers (Pittsburgh, Pennsylvania) says strong demand for
residential lumber drove year-over-year (YOY) sales growth in its
performance chemicals segment during August. Sales in the carbon
materials and chemicals segment and the railroad and utility
products segment continued to fall short, however. Sales in
performance chemicals totaled $46.5 million during August, up 8.4%
YOY. Koppers says several trends related to the COVID-19 pandemic
have helped boost demand for residential lumber in the US. "First,
with virtual work environments becoming more prevalent, people now
have more options regarding where to live and many appear to prefer
a suburban environment," the company suggests. "That has helped to
drive a robust market for existing-home sales, which closely
correlate with home repair and remodeling projects." Homeowners who
are not relocating are diverting spending from travel and leisure
to home improvement, the company adds, while pent-up demand is
driving growth in international markets. Sales in the railroad and
utility products segment totaled $64.2 million, down 5.3% YOY,
mainly on lower crosstie volumes in the US. Sales in carbon
materials and chemicals totaled $31.4 million, down 10.3% YOY;
primary markets served by the segment, such as aluminum, steel,
energy, and construction, are likely to remain volatile into 2021,
says Koppers.
Shell eggs, certain fish, leafy greens, tomatoes, fresh-cut
fruit and vegetables, and fresh herbs are among some of the
commodities that would be considered high-risk and demand stricter
recordkeeping requirements, according to a sweeping rule proposed
by FDA and released Monday (Sept. 21). FDA rolled out the list of
16 high-risk foods and a nearly 200-page proposed traceability
rule, all of which were required by the Food Safety Modernization
Act (FSMA) and pushed out to meet a court deadline. The Center for
Food Safety (CFS) sued the agency in 2018 for delaying the FSMA
high-risk foods list that Congress required by January 2012, along
with a recordkeeping rule by January 2013. Under the court
settlement, FDA agreed to designate the foods by September 2020 and
establish final reporting requirements by November 2022. The
much-anticipated "Food Traceability List" includes the following
foods the agency views as high-risk: Cheeses (except for hard
cheeses); shell eggs; nut butter; cucumbers; herbs (fresh); leafy
greens; melons; peppers; sprouts; tomatoes; tropical tree fruits;
fruits and vegetables (fresh-cut); finfish (including smoked
finfish); crustaceans; mollusks, and ready-to-eat deli salads.
"While limited to certain foods, this proposed rule would create a
first-of-its-kind standardized approach to traceability
recordkeeping, paving the way for industry to adopt and leverage
more digital, tech-enabled traceability systems both in the near
term and the future," said Frank Yiannas, FDA's deputy commissioner
for food policy and response. Yiannas has been a staunch proponent
of leaning on technology to improve traceability to not only help
consumers but also industry. The latest rule is a beachhead in his
New Era of Smarter Food Safety plan. Officials arrived at the list
by creating a risk-ranking model - also released by the agency -
that scored factors such as frequency of outbreaks, likelihood of
contamination, consumption patterns and illness costs. In the
proposed rule, FDA recounted scores of investigations, such as
those on leafy greens and papayas, where poor records hindered the
agency's ability to identify specific lots or growers of
contaminated product. The agency acknowledged traditional "one-up,
one-back" recordkeeping methods have not offered enough information
to quickly link food shipments throughout the supply chain. (IHS
Markit Food and Agricultural Policy's Joan Murphy)
Working with Electrify America, Volkswagen (VW) of America will
provide an unlimited charging plan for owners of the 2021 ID.4 EV
for three years. According to a VW of America statement, an
unlimited number of DC fast charging sessions will come at no
additional cost to the purchase price of the ID.4, whether the
vehicle is leased or purchased. Owners will be able to charge at
the existing 470 charging stations or more than 2,700 DC fast
chargers, as well as new stations Electrify America is working on.
VW owners will manage their charging plan through an Electrify
America app. By December 2021, according to the statement,
Electrify America plans to install or have under development 800
charging stations with about 3,500 DC fast chargers. Among the
elements slowing EV adoption is the smaller charging
infrastructure, for US buyers used to having access to many fuel
stations and refueling in minutes. As a result, most automakers
with new EVs are announcing various partnerships or efforts to make
it as easy as possible for owners to be able to charge, going back
as far as Nissan when it introduced the Leaf and charging was
notably more difficult to find than today. Electrify America is one
of several charging network companies, and was born from the
settlement that VW came to with the US and the US state of
California over its admission of diesel emissions test defeat,
though the entity is automaker-agnostic, public and can be accessed
by any vehicle with a compatible charger. (IHS Markit
AutoIntelligence's Stephanie Brinley)
Uber CEO Dara Khosrowshahi is under pressure from investors
over the progress of the self-driving unit, according to a media
report. Bloomberg reports that the company's two largest
shareholders, SoftBank and venture firm Benchmark, have encouraged
Khosrowshahi to find more investors for the self-driving division.
According to the Bloomberg report, citing people familiar with the
situation, the division could run out of funds by the end of 2021.
The report, which cites people speaking anonymously, says that Uber
may consider accelerating the project's progress by open sourcing
to coders, or continue building a proprietary car with funding from
Toyota and Denso, existing partners, as well as new partners. In
2019, Uber put its self-driving business into the Advanced
Technologies Group division, with its own set of investors, which
took the project off of Uber's balance sheet. Uber's development of
self-driving technology slowed because of a number of factors,
including a fatal pedestrian accident in 2017 and a change of the
company's leadership from founder Travis Kalaneck to Khosrowshahi.
Uber has had partnerships with several companies, including
Daimler, to move its technology development forward, although the
report states that the work with Daimler has stalled. (IHS Markit
AutoIntelligence's Stephanie Brinley)
The Central Bank of Brazil (Banco Central do Brasil: BCB) has
left the policy rate at 2.0% and stated that it does not foresee
further cuts in the policy rate using the same forward guidance
language implemented in August. (IHS Markit Economist Rafael Amiel)
Still, it did not say that the easing cycle had come to an end.
Annual inflation has increased in the past three months and,
although still low at 2.4%, it is higher than the policy rate.
Prices in the food and beverages category jumped 0.8% in
August, while the cost of services continued to decline (down
0.5%). Another driver of inflation in the past three months has
been the correction of gasoline (petrol) prices, driven in turn by
international oil prices.
At current levels, the policy rate is at a record low. The BCB
is targeting inflation of 4.0% +/-1.5 percentage points.
The bank assesses that in the short term inflation will
continue to increase, driven by higher food prices. The BCB
assesses that the current policy rate is below its structural
value; this value is relatively high as it is pushed up by a
sizeable fiscal deficit and high debt that needs to be financed and
rolled over, offering higher rates. However, the very weak state of
the Brazilian economy justifies a strongly stimulative monetary
policy. IHS Markit assesses that current monetary policy is only
relatively stimulative as the rates commercial banks charge for
their loans to corporations and consumers are still sizeable.
Producer prices have increased substantially in the past three
months and some of these increases may eventually pass onto
consumer prices. On a positive note, a stable exchange rate with a
slight bias towards appreciation may help the stability of consumer
prices.
Europe/Middle East/Africa
European equity markets closed mixed; Spain -0.7%, France
-0.4%, Germany/UK +0.4%, and Italy +0.5%.
10yr European govt bonds closed mixed; Italy -7bps, Spain
-2bps, Germany +3bps, and UK +5bps. 10yr Italian bond yields are
near their lowest point in almost one year.
iTraxx-Europe closed flat/58bps and iTraxx-Xover
+4bps/331bps.
Brent crude closed +0.7%/$41.72 per barrel.
The BoE's Monetary Policy Committee (MPC) voted unanimously to
maintain the Bank Rate at 0.1% at its meeting ending on 16
September. (IHS Markit Economist Raj Badiani)
The MPC voted unanimously for the BoE to continue with its
existing programs of UK government bond and sterling non-financial
investment-grade corporate bond purchases, financed by the issuance
of central bank reserves, maintaining the target for the total
stock of these purchases at GBP745 billion (USD964 billion) by the
latter stages of this year. As of 16 September, the total stock of
the Asset Purchase Facility (APF) was GBP662 billion, representing
a rise of GBP230 billion as part of the programs of asset purchases
announced on 19 March and 18 June.
The BoE argues that the economy is less weak than had been
expected in the August report. Nevertheless, the bank still expects
the United Kingdom's GDP in the third quarter of 2020 to be around
7% below its fourth-quarter-2019 level.
The bank expects the economy to contract by 9.5% in 2020 as
opposed to the 14% figure published in May. The upward adjustment
is because the recovery has occurred "earlier" and has been "more
rapid" than it had assumed in May. Key factors are the faster
easing of the lockdown restrictions and a return to pre-coronavirus
disease 2019 (COVID-19) virus levels for spending on clothing and
household furnishings. However, the BoE acknowledges that leisure
spending and business investment remain subdued, which will weigh
down on the recovery.
The BoE advocates a relatively brisk recovery, with the economy
projected to expand by 9% in 2021 and 3.5% in 2022, implying a
return to its pre-COVID-19-virus level by the end of 2021. In
addition, it is above market consensus for UK GDP growth, at -10.1%
for 2020 and 6.1% for 2021 in August.
The latest spike in infections in Spain again highlights the
continued uncertainty about how the COVID-19 virus will behave in
the next few months. In addition, lockdown in parts of Madrid
highlights considerable risks to the recovery after the economy
contracted by 22.7% in the first half of this year when compared to
end-2019. (IHS Markit Economist Raj Badiani)
Spain has reported approximately 31,428 new COVID-19 infections
since 18 September. Spanish health officials have warned that the
country is in the middle of a second wave of the pandemic.
The capital city Madrid is worst affected, and the regional
government has told 850,000 people or 13% of the city's population
told not to leave their local areas unless for essential reasons,
namely for work, education or similar reasons.
In addition, Health Minister Salvador Illa says all people in
the city should "restrict to the maximum" their movement to stop
further infection.
Isabel Díaz Ayuso, the President of the Community of Madrid,
argues the region has been worst affected because of "its
population density, its style of life and its role as a transport
and business hub."
Troops could be deployed to Madrid to help enforce a strict new
lockdown after thousands of residents took to the streets in
protest. Prime Minister Pedro Sánchez has already put around 1,000
military officials at the disposal of the regions to help with
their struggling efforts to track and trace the virus.
Groupe PSA will hire 40 more staff at its Vigo (Spain) site to
support the assembly of battery packs. According to Metropolitano,
the workers will be employed at the Vigo Center Battery Workshop on
a new shift that is intended to lift output to 300 units per day.
The new workers will result in 160 staff working. Assembly of
battery packs at this site began in January, and despite a stoppage
as a result of the coronavirus disease 2019 (COVID-19) virus
pandemic, output has progressively increased. This reflects the
demand for the battery electric vehicles (BEVs) in its line-up. The
site supplies packs for the recently introduced Peugeot e-2008,
Opel Corsa-e and Citroën e-C4, which are all built in Spain, and
will also supply the battery electric versions of the Citroën
Berlingo, Opel Combo and Peugeot Rifter/Partner. The latest intake
should bring the site closer to its total capacity of 80,000 units
per annum (upa). (IHS Markit AutoIntelligence's Ian Fletcher)
Germany's Federal Statistics Office (FSO) reports that growth
of real monthly earnings in the whole economy in the first quarter
(including employees in the public sector, including bonus
payments, and assuming for analytical purposes that the employment
structure of the previous year has remained constant) plunged from
0.4% y/y in the first quarter to -4.7% y/y in the second quarter of
2020. This decline is almost twice as large as the previous record
of -2.7% measured in the third quarter of 1997 and it compares with
a historic (1992-2019) average of 0.5%. (IHS Markit Economist Timo
Klein)
Nominal wage growth posted -4.0% y/y after 2.1% y/y in the
previous quarter. Deterioration is therefore even more pronounced
in nominal terms, reflecting the partially offsetting influence
(for real wages) of a softening of consumer price inflation from
1.6% to 0.8%. The nominal drop of -4.0% compares to a previous
record low of -0.7% (second-quarter 2009), a long-term average of
2.2%, and a series high of 4.0% (second-quarter 2011; this ignores
1992-93 data that are statistically distorted by
unification-related structural adjustments).
The breakdown for different types of employment shows that
nominal wage growth (total: -4.0% y/y) was depressed the most for
the holders of so-called mini jobs (-4.8%, down from -0.7% in the
first quarter). This reflects that activities in the recreation and
entertainment business, or in the catering sector, where a
significant part of the workforce consists of such people, was hit
particularly hard by administrative restrictions. Earnings of
full-time employees declined by 4.3% (following an annual increase
of 1.8% in the first quarter), whereas those of part-time employees
fared best in relative terms (-2.1%, down from a rise of 3.4% in
the first quarter).
The breakdown by skill level (which excludes the mini-job
segment) shows that the largest annual declines were registered for
semi-skilled workers (-8.9% y/y), followed by unskilled workers
(-7.4%) and employees with average skills (-4.8%). Skilled
employees with special qualifications (-2.4% y/y) and leading
employees (-2.0%) fared best, signaling a sharp rise in income
inequality.
A separate data set for earnings of full- and part-time
employees (including bonus payments) that is not adjusted for
structural shifts in employment - based on euro amounts instead of
indices - shows a similar plunge in nominal monthly gross earnings
from 2.2% y/y in the first quarter to -3.4% y/y in the second. The
split between full-time employees (-3.7%) and part-time employees
(-0.4%) shows a large divergence this time, reflecting the much
greater need to put full-time employees on short-time work
programs.
The equivalent concept in hourly rather than monthly terms (for
full- and part-time employees combined) actually shows a marginal
increase from 2.8% to 2.9% y/y, proving that - at least in the
short run - only the sharp drop in hours worked caused earnings to
decline, not softer wage agreements. It is important to keep in
mind that short-time work subsidies are not included in the
earnings aggregate, and employees who were furloughed, i.e.
effectively put on 0% short-time, were ignored in this statistic
altogether.
BASF says it will reduce the number of employees in its global
business services unit, which it established at the start of this
year, by up to 2,000, almost 24% of the unit's total, by the end of
2022. The decision follows the bundling of services and resources
and the implementation of a wide-ranging digitalization strategy,
BASF says. From 2023, the unit expects to achieve annualized cost
savings of more than €200 million ($235 million) from the move, the
company says. Details of the planned worldwide workforce reduction
will be worked out in the coming months with employee
representatives involved, according to local rules and regulations,
it says. "Overall, with these planned measures, we will make a
considerable contribution to BASF group's efficiency," says Marc
Ehrhardt, head/global business services at BASF. As part of the
restructuring, more services than before will be bundled in hubs,
which will offer as many services as possible for the units in the
BASF group, the company says. BASF's global business services unit
was established on 1 January 2020 as part of the implementation of
BASF's corporate strategy. As of that date, about 8,400 employees
worldwide transferred to the new unit and since then have been
providing services for BASF's other business units, ranging from
financial and logistical processes to services in the areas of
communication, human resources, environment, health and safety, the
company says.
As expected, the Riksbank announced that it will continue with
the support measures announced earlier in the year, while keeping
the repo rate and path at zero. It notes that extensive fiscal and
monetary policy support will be needed for an extended time. (IHS
Markit Economist Daniel Kral)
The Swedish central bank (Riksbank) kept the policy rate (repo
rate) unchanged; the last move was a rise of 25 basis points, to
0%, in December 2019. The emergency liquidity operations and
large-scale asset purchases from earlier in the year are to
continue as planned.
The Riksbank assesses that the Swedish economy "seems to have
left the acute crisis situation of the spring and started to
recover slightly faster than expected" although it also notes that
"the situation on the labor market is worrying" due to a sharp drop
in employment.
The Executive Board assesses that "the combination of measures
taken by the Riksbank during the spring and summer is the most
effective way" of preventing a tightening in financial conditions.
These measures include, among others, a lower interest rate on its
standing facility and large scale asset purchases of not just
government bonds.
As in its previous communications, the Riksbank stresses that
it is prepared to use all tools at its disposal, including a repo
rate cut back to negative territory "if this is assessed to be an
effective measure, particularly if confidence in the inflation
target were to be threatened."
Next year, Russians may face a limited of ice cream range or
higher prices, due to the introduction of mandatory labelling,
drafted by the agriculture ministry, on products weighing less than
100 grams. Market players sent a request to the ministry to exclude
ice cream weighing up to 100g from the labelling system for
economic and technological reasons, the Izvestia newspaper reports.
It cites a letter from Unilever chief executive Regina Kuzmina,
supported by the Chistaya Liniya company, as well as the Union of
Ice Cream Manufacturers, whose members include, in particular, the
Iceberry and Aiskeik-ECO companies. According to the draft
government decree prepared by the Ministry of Industry and Trade,
ice cream will be included in the labelling scheme from January 20,
2021. Already in operation for several other agricultural products,
such as dairy, labelling should minimize the proportion of illegal
and counterfeit products on the market, with a special barcode
allowing to track the product's full manufacturing cycle. Gennady
Yashin, deputy chairman of the board of the Ice Cream Union, said
the introduction of labelling would lead to 2.5-6% increases in
production costs, while the final cost of ice cream may increase by
25-30%. The total costs for companies involved in ice cream
production in the first year would reach RUB9.0 billion (USD 101
million). Kuzmina indicated that most of the ice cream produced in
Russia (around 80%) weighs less than 100g, and profit margins are
extremely low: 90% of the market comprises products that cost no
more than RUB70, while the level of counterfeiting in the industry
is negligible, the letter says. Unilever's estimated cost of
introducing ice cream to the labelling system could reach RUB1.2
bln, and a further RUB300,000 yearly, slowing down the company's
production. (IHS Markit Food and Agricultural Commodities' Jana
Sutenko)
ODE, part of the DORIS Group, has been awarded a contract by
Baltic Power to undertake the initial technical design and building
permit design for the Baltic Power offshore wind farm. Baltic Power
holds a license to construct wind farms in the Baltic Sea with an
aggregate capacity of up to 1.2 GW. The license area is located
approximately 23 km north of the Polish coastline. ODE will be
supporting Baltic Power across multiple technical areas, including
technical designs of the offshore site, turbines layout, energy
production calculations, budget and schedule of the project and
supporting analysis. The offshore site includes wind turbine
generators (WTG), WTG foundations, inter-array cables and the
offshore substation platform, among other infrastructure. This
contract will be executed from ODE's London (Wimbledon)
headquarters with local technical support in both Warsaw and
Gdansk. Design work is due to start immediately, with construction
targeted to start in 2024. (IHS Markit Upstream Costs and
Technology's Jie Sheng Aw)
Saudi Industrial Investment Group (SIIG; Riyadh) and National
Petrochemical Co. (Petrochem; Jubail, Saudi Arabia) say they have
started talks over a potential merger of the two companies. SIIG
and Petrochem have issued statements saying their boards have
approved initial discussions between the companies to study the
"economic feasibility" of a possible merger. No agreement has been
reached on the final structure of any merged business, they note.
SIIG currently owns 50% of Petrochem. The two companies are listed
on the Saudi stock exchange. Entering into the talks "does not
necessarily mean that the deal will take place between the two
parties," they state separately. If a deal is agreed on, it will be
subject to the conditions and approvals of the competent
authorities, and the approval of the extraordinary general assembly
of each company, they say. Any developments in the talks will be
announced later, they say. The two companies previously held merger
discussions in 2011, with those talks eventually postponed to allow
Petrochem's petchems facility at Jubail to reach production
capacity and provide better valuations of the companies, SIIG said
at the time. SIIG was established in 1996 and Petrochem was formed
in 2008. SIIG had total assets of 19.2 billion Saudi riyals ($5.1
billion) at the end of June, and Petrochem had SR16.4 billion in
total assets. Petrochem owns 65% of Saudi Polymer Co. at Jubail,
which produces more than 1.7 million metric tons/year (MMt/y) of
polymers, it says. The complex at Jubail is designed to produce
1.22 MMt/y of ethylene, 440,000 metric tons/year of propylene, a
combined 1.1 MMt/y of high-density polyethylene (HDPE) and
low-density polyethylene (LDPE), 400,000 metric tons/year of
polypropylene (PP), and 100,000 metric tons/year of hexene-1. The
units are fed by a steam cracker using ethane and propane as
feedstock.
Cameroon plans to build a USD3-billion hydropower plant, which
is expected to start generating power by 2028. The Grand Eweng
hydropower plant is expected to gradually increase capacity from an
initial 810 megawatts (MW) to more than 1,000 MW by 2035, making
Cameroon an electricity exporter. (IHS Markit Economist Archbold
Macheka)
The country plans to export power to its regional counterparts
such as the Central African Republic, Chad, and Nigeria.
The hydro dam will be constructed on the Sanaga River. The
project is a partnership venture between the Cameroonian government
and Hydromine, a US-based energy company. It was initially
earmarked to provide electricity to the aluminum sector, but rising
nationwide demand has meant the plant will also supply electricity
to the general public.
The project is expected to be financed through a combination of
equity, ranging between 20% and 25%, and about 80% debt. National
utility provider Energy of Cameroon (ENEO) will be the sole
offtaker of the power, with the bulk likely to be sold to the
aluminum sector, which has been restricted by a power deficit for
some time.
Opposition to the project stems from concerns around
environmental damage and the potential hazard to Cameroon's fauna
and flora. The Grand Eweng hydropower plant will be the fifth
project on the Sanaga River, with the fourth being the 420-MW
Nachtigal hydropower plant currently under construction. Nachtigal
is expected to begin operations in 2023. Strong support for the
project include the need to eliminate the country's polluting
thermal power projects.
Cameroon currently boasts 1,300 MW of installed power capacity,
with most of the output coming from hydropower plants. With demand
for electricity rising, the Ministry of Water Resources and Energy
forecasts that demand will to grow to 3,000 MW by 2035, the
government has done well to prioritize new large-scale hydropower
plants such as Grand Eweng and Nachtigal. Nonetheless, hydropower
generation remains susceptible to adverse weather conditions that
could undermine electricity production and supply. Other downstream
effects include affecting manufacturing, commercial agriculture,
services, and mining activities.
Asia-Pacific
APAC equity markets closed lower across the region for the
second consecutive day; South Korea -2.4%, Mainland China -1.3%,
Hong Kong -1.0%, India -0.8%, and Australia -0.7%.
The headline au Jibun Bank flash Composite PMI, compiled by IHS
Markit and based on 85-90% of responses received from the monthly
surveys, edged up from 45.2 in August to 45.5 in September. The
index signaled a further marked decline in private sector output
across both manufacturing and services but with the rate of decline
easing slightly. (IHS Markit Economist Bernard Aw)
While the latest survey data pointed to a slow pace of recovery
from the COVID-19 downturn, particularly in light of stronger
recoveries observed in other advanced economies, the picture for
Japan's economy was much improved in the third quarter when
compared to the height of the pandemic during the second
quarter.
At 45.2, the average PMI for the three months ending September
was the highest so far this year, and noticeably higher than the
31.5 recorded in the second quarter.
The survey also revealed some positive signs:
Overall employment moved closer to stabilization in September,
with only a marginal drop in workforce numbers that was the weakest
fall seen in the current sequence of job shedding.
Business sentiment improved to the strongest since the start of
the year, rising especially among manufacturing firms.
The level of optimism in the manufacturing sector rose to the
highest for just over two years.
The resumption of business activity in Japan remains gradual,
as uncertainty over the course of the pandemic trajectory continues
to weigh on investment and poses as a key risk for Japan's economic
recovery. Meanwhile, weakened labor market prospects and wage
declines (due partially to reduced working hours), alongside social
distancing practices, will constrain consumer spending in the
months ahead.
China's public fiscal revenue increased 5.3% year on year (y/y)
in August, the third consecutive month of expansion, according to
release by the Ministry of Finance (MOF) on 18 September. Tax
revenue increased by 7% y/y with broad based expansion across tax
items. Domestic value-added tax increased for the first time since
the beginning of the year, reflecting continuous recovery in
industrial production. Corporate income tax accelerated to 14.1%
y/y, driven by the acceleration in industrial profit growth.
Individual income tax kept double-digits growth. Non-tax income
contracted at a slower pace and the third consecutive month of
recovery. (IHS Markit Economist Yating Xu)
Public fiscal spending growth slowed from 18.5% in July to 8.7%
year on year in August with deceleration in both central and local
government spending. Particularly, people's livelihood spending
such as social security and healthcare slowed following rebound in
July, and spending on environmental protection, community affairs
and agriculture fell. Positive aspect is that spending on
transportation improved to double-digit expansion as the negative
from flood gradually fades.
By the end of August, CNY735.8 billion of direct support funds
for local government amid the CNY1.7 trillion quota has been
allocated and used, with city and county level governments
accounting for 96.8% of the spending.
The year-to-date fiscal revenue stayed in 7.5% year on year
contraction with continuous decline across all sub-tax items except
individual income tax and stamp tax, as well as vehicle tax
improving from contraction to expansion. Fiscal spending declined
by 2.1% year on year through August with decline in all
sub-spending items except increase in people's livelihood related
spending and debt payment.
Mainland China's State Council approved three new pilot
free-trade zones (FTZ) in inland regions including Beijing, Hunan,
and Anhui, as well as the FTZ expansion plan in eastern coastal
Zhejiang Province on 21 September. (IHS Markit Economist Lei Yi)
Each of the newly approved FTZ will have its own policy focus
tailoring to its comparative advantage. Specifically, the Beijing
FTZ will focus on scientific innovation, services trade, and
high-end industries, while supporting the coordinated development
in the Beijing-Tianjin-Hebei region. Cross-border finance will be
facilitated with further financial sector opening-up, and fintech
innovations will be promoted including setting up an experimental
zone for the fiat digital currency.
Located in the midstream Yangtze River and on the north of
Guangdong Province, the Hunan FTZ will better leverage its strength
in equipment manufacturing to boost investment along the Yangtze
River Economic Belt and the Greater Bay Area. Additionally, the
Hunan FTZ also aims to promote international economic cooperation
especially with African countries.
The Anhui FTZ, part of the Yangtze River Delta, plans to
further develop local "strategic emerging" sector. This covers
high-end manufacturing, integrated circuit, artificial
intelligence, and cross-border e-commerce. While the expanded area
of Zhejiang FTZ will build the zone into a global shipping hub as
well as an allocation base for oil and gas resources.
Chinese electric vehicle (EV) startup WM Motor has raised CNY10
billion (USD1.47 billion) in its latest funding round, reports
Reuters. Investors in WM's latest funding round include the
Shanghai state-owned asset regulator's investment firms, as well as
SAIC Motor. WM did not disclose its valuation after the funding. WM
currently has two electric sport utility vehicles (SUVs) on the
market. The EX5 and EX6 are both targeted at mass-market EV buyers.
The startup is expected to unveil a mid-size electric SUV later
this month, followed by an electric sedan slated for market launch
in 2021. The funds raised in the funding round will help WM further
develop intelligent vehicle technologies and expand its sales
channels. Bloomberg reported earlier that the WM Motor is planning
an initial public offering (IPO) on the Shanghai Stock Exchange
Sci-Tech Innovation Board, also known as the STAR Market. WM's
rivals, including Xpeng, Li Auto, and NIO, have successfully
launched IPOs in the United States. (IHS Markit AutoIntelligence's
Abby Chun Tu)
India's headline Consumer Price Index (CPI) inflation came in
at 6.69% y/y in August, which was marginally lower than July's
6.73% y/y but was still above the upper band of the central bank's
6% inflation target range. (IHS Markit Economist Hanna
Luchnikava-Schorsch)
The food component of the CPI (excluding beverages) stood at
9.1% y/y as a result of recent floods in eastern India and
coronavirus disease 2019 (COVID-19) virus pandemic-related supply
and transportation issues. A good summer crop after a favorable
monsoon season may ease some of these pressures, but rising
COVID-19 infections in rural areas may yet lead to spikes in food
prices.
Wholesale Price Index (WPI) inflation turned positive in August
for the first time since March, edging up to 0.6% y/y from a
negative 1.8% y/y in July and thus indicating some recovery in
producer pricing power. The latest IHS Markit India Manufacturing
PMI survey also reported rising input prices during August due to
higher raw material costs stemming from supplier shortages and
transportation delays amid the COVID-19 virus pandemic.
In a separate data release, the double-digit contraction in
industrial output continued for a fifth consecutive month in July -
although the pace of contraction slowed to 10.4% y/y from June's
15.8% y/y. On a use-based approach, production of consumer
non-durables was the only category that recorded growth but it has
more than halved since June. Production of capital goods and
consumer durables remained in deep contraction, which suggests that
any meaningful recovery in discretionary spending and investment
could still be months away.
India's industrial capacity has been slowly recovering
alongside the gradual lifting of restrictions after a strict
national lockdown in March-May. The recovery in July may well
expand into August, with IHS Markit's India manufacturing PMI for
August showing expansion at 52 points, up from 47 in July. However,
the pace of recovery will flatten from the second half of 2020 with
domestic demand remaining weak and India facing another rise in
COVID-19 infections, together with a wave of new localized
lockdowns in several areas.
Tata Motors rolled out a limited-period subscription offer for
the Nexon electric sport utility vehicle (SUV), according to
company statement. The Nexon is available for an all-inclusive
fixed rental price starting at INR34,900 (USD474.4) per month.
Available for the first 100 subscribers, the offer is valid until
30 November. Tata Motors has partnered with Orix Auto to offer the
subscription package in Delhi-NCR, Mumbai, Pune, Hyderabad, and
Bengaluru. Launched in January, the Nexon electric vehicle (EV)
features Tata's new ZIPTRON EV technology and is powered by a
30.2-kWh lithium-ion battery that generates 129 PS of power and 245
Nm of torque. Earlier this month, Tata won a tender floated by
Energy Efficiency Services Ltd (EESL), a joint venture (JV) between
public-sector undertakings under the Indian Ministry of Power, to
supply 150 Nexon EVs to the Indian government. The automaker also
recently passed the 1,000-unit production milestone for the Nexon
EV. (IHS Markit AutoIntelligence's Isha Sharma)
Tesla has reportedly initiated talks with the Karnataka state
government to establish a research and development (R&D) center
in Bengaluru, reports the Economic Times. A follow-up meeting is
scheduled to take place by the end of this month, during which the
state officials could discuss a detailed proposal for the research
center. "Tesla has shown initial interest to invest in a research
and innovation center in Karnataka and the talks are at a
preliminary stage," said an unnamed source with knowledge of the
matter. India has emerged as an ideal investment destination for
R&D thanks to factors such as policy support from the
government, cost efficiency, technical competency and a highly
scalable and low-cost workforce. Karnataka state seeks to become
the electric vehicle (EV) capital of the country and was the first
state to roll out an EV policy, called the Electric Vehicle and
Energy Storage Policy 2017, hoping to attract investment worth
INR310 billion (USD4.2 billion) in R&D and manufacturing of
EVs. The state government has been exploring plans to set up EV
clusters in nearly 600 acres of land around Bengaluru. In 2018,
Mahindra Electric opened a new electric technology manufacturing
hub in Bengaluru (see India: 16 November 2018: Mahindra Electric
opens new electric technology manufacturing hub in Karnataka). If
finalized, India will become the second country outside the United
States where Tesla will have a research center. (IHS Markit
AutoIntelligence's Isha Sharma)
The IHS Markit Flash Australia Composite PMI, covering both the
manufacturing and service sectors, rose just one point from 49.4 in
August to 50.5 in September. That said, by registering above the
no-change 50.0 level, the latest reading indicated a marginal
increase in private sector output, bringing welcome signs of
stabilization after a brief slide back into contraction in August.
Furthermore, the average PMI reading for the third quarter (52.5)
not only showed a marked improvement from the severe downturn seen
in the second quarter (34.2), but also represented the first
quarterly growth for a year. (IHS Markit Economist Bernard Aw)
The overall upturn in the Australian private sector economy was
driven by a sustained recovery in the manufacturing sector during
September. Production and sales both rose solidly, with the latter
increasing at the sharpest pace since January 2019, supported by
renewed growth in export orders.
With the widening performance gap in business activity and
sales between manufacturing and services, their employment trends
also diverged in September. Cuts to workforce numbers were limited
to the service sector, while manufacturers added more workers.
Factory employment rose for the first time in ten months,
increasing at the fastest rate since early 2019 amid a growing lack
of operating capacity.
Australian private sector firms faced a further increase in
input costs during September, with manufacturing reporting a
noticeably sharper rate of input price inflation due to greater
costs of raw materials and increased freight fees. Goods producers
were able to pass some of the rise in costs on to their customers.
On the other hand, services providers not only had to absorb higher
expenses amid subdued demand, but anecdotal evidence suggested that
some firms even provided discounts to boost sales.
Bank Indonesia (BI)'s Board of Governors has left the seven-day
reverse repo rate on hold at 4.00% following its September meetings
in the interest of maintaining rupiah stability, indicating that it
will continue to focus its efforts on boosting economic growth
through existing liquidity-boosting measures. With elevated fiscal
deficits and debates around the central bank's future in
parliament, BI is unlikely to ease monetary policy further in 2020.
(IHS Markit Economist Bree Neff)
While the Board of Governors assessed that it was prudent to
leave the policy rate on hold, it indicated that the central bank
would continue to focus on its efforts to ensure adequate liquidity
to the economy. These include the various means through which it is
providing liquidity to the government, with the central bank
indicating that it has purchased IDR143.5-trillion (USD98.1
million) worth of debt through 15 September as part of the debt
burden sharing arrangement agreed to with the government in
July.
As for liquidity to other parts of the economy, the central
bank announced a six-month extension of the 50 basis-point cut to
the reserve requirement ratio to June 2021 for lending by banks to
micro, small, and medium-sized enterprises (MSMEs), non-MSMEs in
priority sectors, and export-oriented firms.
The central bank highlighted in its statements that the
near-term economic outlook is highly dependent on the public
getting out and about again, the speed of government (local and
central) budget spending, and progress in loan restructuring and
guarantee programs. However, it refrained from providing current
GDP growth estimates.
Considering private consumption accounts for 55-58% of GDP
annually, BI is hoping that improvements in consumer sentiment and
government social aid disbursements over the past month will
translate into improved spending. Considering the sustained
weakness in real retail sales (still down an estimated 10% year on
year [y/y] in August) and consumer price inflation (fresh low of
1.3% y/y in August), private consumption is still struggling to
gain momentum.
Posted 22 September 2020 by Chris Fenske, Head of Capital Markets Research, Global Markets Group, S&P Global Market Intelligence
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