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European equity markets closed higher, while APAC was mixed and
the US sharply lower. iTraxx closed slightly wider across IG/high
yield, while CDX had one of its worst days since June across both
IG and high yield. US government bonds were almost unchanged on the
day and the US dollar closed higher. Gold and silver continued to
sell-off today, while Brent and WTI both closed higher on the
day.
Americas
Most major US equity indices began the trading session modestly
higher, but all gradually sold off as the day progressed and ended
the day sharply lower; Nasdaq/Russell 2000 -3.0%, S&P 500
-2.4%, and DJIA -1.9%.
10yr US govt bonds closed flat/0.68% yield and 30yr bonds
-1bp/1.42% yield.
CDX-NAIG +5bps/57bps and CDX-NAHY +24bps/392bps.
DXY US dollar index closed +0.4%/94.34.
Gold closed -2.1%/$1,868 per ounce.
Silver closed -5.8%/$23.11 per ounce and is 23% below the 10
Aug recent peak of $29.26 per ounce.
Crude oil closed +0.3%/$39.93 per barrel.
California Gov. Gavin Newsom signed an order Wednesday that
aims to end the sale of new gasoline and diesel-powered passenger
cars in the state by 2035. More than 11% of all light vehicles in
the U.S. last year were registered in California, according to IHS
Markit. California is the first state in the nation to commit to
such a goal, but could serve as a spark for other left-leaning
states to follow, given its size and historic leadership on
regulatory issues. Internationally, 15 other nations have committed
to phasing out gas-powered cars according to Mr. Newsom, including
Canada, the U.K. and France. (WSJ)
The Federal Housing Finance Agency (FHFA) House Price Index
(HPI) increased 1.0% for the second straight month in July; the
2.1% increase over the last two months is a record (the index dates
back to 1991—but even if it dated back to 1891, the 2.1%
increase would still likely be a record.) (IHS Markit Economist
Patrick Newport)
All nine Census divisions posted solid gains, ranging from 2.0%
from the New England Division (Connecticut, Maine, Massachusetts,
New Hampshire, Rhode Island, and Vermont) to 0.6% from the West
North Central Division (Iowa, Kansas, Minnesota, Missouri,
Nebraska, North Dakota, and South Dakota).
For the first time since the mid-2000s, all nine division
indexes are at all-time highs.
Adjusted for inflation, the national index and four of nine
divisions are at all-time highs.
The index is up 6.5% from July 2019.
Our seasonally adjusted estimates of the median and average
single-family home prices have shot up 10.5% and 8.6% in the three
months ending in August. This suggests that the FHFA index will
post another strong gain next month. Indeed, the conditions are
ripe for double-digit growth over the next few months: mortgage
rates and inventories are at record lows, and demand from
teleworkers has picked up.
This last driver—telework, which is here to stay—is a
wild card. Many teleworkers, particularly those living in cities
where real estate is expensive, can now move to places where
housing is less expensive (a bigger home, a smaller mortgage
payment, and zero traffic). As this takes place, home sales and
housing starts will pick up. It is difficult to quantify the exact
impact of telework on the surging housing market today.
Adjusted for seasonal factors, the IHS Markit Flash U.S.
Composite PMI Output Index posted 54.4 at the end of the third
quarter, down slightly on 54.6 seen in August. The index's
quarterly average was the highest since the opening three months of
2019. (IHS Markit Economist Chris Williamson)
New orders increased for the second successive month, growing
at the fastest rate since February 2019. The strong expansion was
largely linked to an acceleration in the pace of new business
growth at service providers. Companies continued to report a
recovery in foreign client demand, notably for services, although
the overall pace of new export order growth eased following a
slowdown in manufacturers' foreign sales.
The seasonally adjusted IHS Markit Flash U.S. Services PMI™
Business Activity Index registered 54.6 in September, down slightly
from 55.0 in August. Nonetheless, the rate of expansion was the
second-fastest since March 2019 and solid overall.
Employment continued to increase solidly, albeit at a softer
pace than in August following a slower upturn in backlogs of work.
Business expectations also moderated amid election and COVID-19
uncertainty.
Electric vehicle (EV) manufacturer Tesla hosted its Battery Day
event on 22 September, outlining a new approach to battery-cell
design and manufacturing, the type of materials used, and
cell-vehicle integration. Among the benefits of the new approach,
Tesla claims it will create opportunities for increasing EV range
by 54%, reducing costs per kilowatt-hour by 56%, and reducing
investment per gigawatt-hour by 69%. In addition, Tesla confirmed
that it is working on a "truly affordable" USD25,000 compact
electric car and a smaller version of the Cybertruck for
international markets. Although Tesla announced what it said was a
major step forward in vertical integration of some steps it has not
previously been involved with, the company also stated it will
continue to source battery cells and packs from current partners.
Tesla expects demand to be high enough that it will not be able to
meet the demand solely from taking this development in-house,
although it does expect it will reduce costs. In a Twitter post
ahead of the event, Musk wrote, "We intend to increase, not reduce
battery cell purchases from Panasonic, LG & CATL (possibly
other partners too). However, even with our cell suppliers going at
maximum speed, we still foresee significant shortages in 2022 &
beyond unless we also take action ourselves." The CEO continues to
note the difficulties involved in reaching sufficient scale,
stating that building a few prototypes is vastly easier than
expanding that to production at sufficient scale and volume, a
requirement of automotive development and manufacturing well known
to traditional automakers. On Twitter, Musk also wrote, "The
machine that makes the machine is vastly harder than the machine
itself." (IHS Markit AutoIntelligence's Stephanie Brinley)
Argentina's National Institute of Statistics and Census's
latest data show that GDP decreased by 19.1% year on year in the
second quarter of 2020. Despite the recent agreement with private
bondholders, there are no concrete signals of a boost in confidence
in Argentina's economic policy direction, thus keeping recovery
expectations down. (IHS Markit Economist Paula Diosquez-Rice)
According to the latest data released by Argentina's National
Institute of Statistics and Census (Instituto Nacional de
Estadística y Censos: INDEC), GDP decreased by 19.1% year on year
(y/y) in the second quarter of 2020. Correcting for seasonality,
GDP during the quarter decreased by 16.2% quarter on quarter (q/q)
after declining 4.2% q/q in the previous quarter, according to the
revised figures.
The estimate for the GDP deflator in the second quarter of 2020
shows a rise of 39.6% y/y, while the private-sector consumption
deflator increased at a higher rate of 47.1% y/y during the same
period.
By sector, the GDP data show mostly double-digit declines in
the second quarter of 2020. For example, the manufacturing sector
decreased by 20.8% y/y, the wholesale and retail sales sector fell
by 16.9% y/y, the construction sector shrank by 52.1% y/y, the
transport and communication sector dropped by 22.5% y/y, the
non-profit and social services sector contracted by 67.7% y/y,
hospitality and restaurants posted a decline of 73.4% y/y, and
fishing was down by 14.0% y/y.
Only two sectors recorded a single-digit decline in annual
terms. Activity in the financial intermediation sector decreased by
1.2% y/y, and the utilities sector declined by 3.3% y/y. The
education sector also posted a slower decline in the second
quarter.
On the demand side, real exports of goods and services
decreased by 11.7% y/y. There were declines in private-sector
consumption, which fell by 22.3% y/y, driven by the country's
COVID-19 virus-related lockdown and the high inflation rate; and
public-sector consumption, which decreased by 10.1% y/y as the
inflation rate outpaced the increase in nominal spending.
Gross fixed-capital formation decreased by 38.4% y/y; this drop
was driven by the construction sub-sector, which was down by 47.6%
y/y, while the machinery and durable equipment category decreased
by 27.9% y/y. The transport equipment sector declined by 25.1% y/y,
with the most severe drop recorded in the imported transport
equipment sub-component.
Meanwhile, imports of goods and services decreased by 30% y/y
in the second quarter of 2020 as the lockdown was compounded by the
steep annual drop in the value of the local currency, which
increased the cost of imported goods.
Europe/Middle East/Africa
European equity markets closed higher; UK +1.2%, France +0.6%,
Germany +0.4%, Italy +0.2%, and Spain +0.1%.
10yrEuropean govt bonds closed mixed; Italy -2bps, France -1bp,
Spain/Germany flat, and UK +2bps.
iTraxx-Europe closed +1bp/58bps and iTraxx-Xover
+4bps/334bps.
Brent crude closed +0.1%/$41.77 per ounce.
The flash IHS Markit Eurozone Composite PMI fell for a second
successive month in September, dropping from 51.9 in August to
50.1, indicating only a very marginal increase in business
activity. Having rebounded sharply in July and, to a lesser extent,
August from COVID-19 lockdowns during the second quarter, the PMI
has since indicated a near stalling of the economy at the end of
the third quarter as rising infection rates and ongoing social
distancing measures curbed demand, notably for consumer-facing
services. (IHS Markit Economist Chris Williamson)
Employment was meanwhile cut for a seventh successive month.
Although the rate of job losses moderated further from April's
record peak, the pace remained higher than at any time since June
2013 prior to the pandemic. An easing in manufacturing job cutting
to the lowest since February contrasted with a slight increase in
the rate of job losses in services, reflecting the divergent
business activity trends between the two sectors. Reduced staff
cuts in Germany and France were partly countered by greater job
losses in the rest of the region.
Average prices charged for goods and services meanwhile fell at
the steepest rate since June, down on average for a seventh month
running as firms increasingly reported the need to offer discounts
to stimulate sales.
The drop in charges occurred despite costs rising again.
Average input prices increased for a fourth consecutive month in
September, albeit only modestly and at a slightly reduced rate
compared to August.
Looking ahead, business expectations about the coming 12 months
hit the highest since February, improving in both manufacturing and
services and across Germany, France and the rest of the euro area
as a whole. But this optimism often rests on infection rates
falling, which remains far from guaranteed for the coming
months.
At 55.7 in September, the headline seasonally adjusted IHS
Markit/ CIPS Flash UK Composite Output Index - which is based on
approximately 85% of usual monthly replies - remained above the
50.0 no-change mark for the third consecutive month, to signal a
sustained increase in private sector output. (IHS Markit Economist
Chris Williamson)
The latest reading was down from a 72-month high of 59.1 in
August and the lowest since June, indicating a marked slowing in
the rate of expansion. Prior to the pandemic, the 3.4-point drop in
the index was the largest seen since 2016.
Worryingly, jobs continued to be cut at a fierce rate in
September as firms sought to bring costs down amid weak demand,
meaning unemployment is likely to soon start rising sharply from
the current rate of 4.1%.
A steadying of backlogs of work after steep falls in prior
months suggest that capacity and order books are now coming more
into line, which would normally lead to a further easing in the
need to cut jobs.
The indication from the survey that recovery momentum is
quickly lost when policy support is withdrawn underscores our
concern over the path of the labor market once the furlough scheme
ends next month, and raises fears that growth could fade further as
we head into the winter months, especially as lockdown measures are
tightened further amid the recent rise in COVID-19 case
numbers.
UK Prime Minister Boris Johnson has warned that the United
Kingdom could be heading into a second wave of the COVID-19 virus
pandemic and has introduced new restrictions, which could be in
place for the next six months. He has also warned that the
government will introduce further restrictions if the new measures
are not adhered to. (IHS Markit Economist Raj Badiani)
The UK's COVID-19 virus alert level recommended by the Joint
Biosecurity Centre has been raised from 3 to 4, signaling that the
rate of transmission is "high or rising exponentially".
Furthermore, the government's chief scientific adviser Sir Patrick
Vallance warns that without further action there could be 50,000
new COVID-19 cases per day by mid-October, potentially leading to
more than 200 deaths per day by mid-November.
The government has announced new COVID-19 virus restrictions
but they fall short of a reintroduction of a national lockdown.
Boris and Chancellor of the Exchequer Rishi Sunak agree that a
second national lockdown would be a disaster for the economy and
are determined to keep businesses and schools open. The new
measures are as follows:
All pubs, bars, restaurants, cafes, and other hospitality
venues in England and Scotland must close at 10.00 pm from 24 and
25 September, respectively.
All venues in England will only provide table service except
for takeaways. A table booking is limited to six people.
Businesses are legally required to take customers' contact
details so that they can be traced if there is an outbreak.
Businesses can be fined up to GBP10,000 (USD12,775) if they
take reservations of more than six, do not enforce social
distancing, or do not take customers' contact details.
Staff in hospitality venues must wear masks, as must customers
when not seated at their table to eat or drink. The penalty for not
wearing one or breaking the 'rule of six' has doubled to GBP200 for
a first offence.
Shop workers will also have to wear a face covering.
Furthermore, the UK government now advises that people in
England should work at home if they can. This represents an
about-turn after Boris had pleaded people to "start to go back to
work now if you can" in July followed by the government launching a
campaign to encourage workers back to offices.
The new COVID-19 virus restrictions, and the prospect that they
will remain in place for six months, provide support to our
assessment that the recovery will lose significant momentum from
the final quarter of this year.
MG Motors has announced that it is launching the plug-in hybrid
variant of the HS crossover in the UK. In a statement, the company
said that the vehicle combines a gasoline (petrol) 1.5-litre
turbocharged engine with a 90kW electric motor that together
develop 258PS. The battery is said to offer a range of 32 miles on
WLTP, while CO2 emissions on the WLTP cycle stand at 43 g/km. The
vehicle is said to feature a 10-speed transmission which combines a
six-speed automatic transmission for the internal combustion engine
and a four-speed electronic drive unit for the electric motor, with
the power being sent to the front wheels. The vehicle also includes
many of the same features available in the standard HS, including
the MG Pilot driver assistance system. The vehicle is available in
two specifications: the Excite which costs GBP29,995 and the
Exclusive price at GBP32,495. The company has also confirmed the
specifications of the new MG 5 EV. The battery electric vehicle
(BEV) uses a 115kW electric motor combined with a 52.2kWh battery
pack to give a range under WLTP of 214 miles, while for city
driving, this is said to rise to 276 miles. It can also achieve a
charge of around 80% in around 50 minutes using a fast charger. The
vehicle has an estate body that offers space for five and luggage
space of up to 578 liters with the rear seats up, and 1,456 liters
with them down. The Excite variant is priced at GBP24,495 including
the UK government's GBP3,000 Plug-in Car Grant (PICG), while the
Exclusive is priced at GBP26,995 including the PICG. MG has already
had some success with the BEV variant of the ZS, and this has led
it to expand its offering. The MG 5 EV is seen as a strong prospect
for the company car market given that it will be eligible for a
benefit in kind of 0% in the 2020/21 tax year, rising to 1% and 2%
in the following years, at an exceptionally competitive price
point. (IHS Markit AutoIntelligence's Ian Fletcher)
Dutch consumer confidence improved by just one point in
September and remains at very low levels; and the new restrictions
on activity present a downside risk for our forecast for the
tail-end of the year. (IHS Markit Economist Daniel Kral)
The consumer confidence index compiled by Statistics
Netherlands (Centraal Bureau voor de Statistiek: CBS) improved
marginally from -29 in August to -28 in September. There were no
notable changes compared to August in any of the sub-categories,
with several remaining at extreme lows.
The assessment of the current economic climate is at -58,
compared to -59 in August. The forward looking sub-categories
improved marginally with expectations of economic situation in the
next 12 months at -40, up from -43, and expected financial
situation in next 12 months at 0, up from -2 in August.
In a separate release, the monthly indicator measuring domestic
household consumption improved further in July. Based on
shopping-day-adjusted data from the CBS, it was down by 6.2% year
on year (y/y). However, this is a marked slowdown compared to the
improvements between April-May and May-June.
The number of employed people rose in August by 4,000, the
third consecutive month of growth. However, the unemployment rate
increased marginally from 4.5 to 4.6% between July and August, as
the participation rate continued to recover earlier losses.
The weak consumer confidence and expectations may further
deteriorate in October, as new restrictions to contain the spread
of the COVID-19 virus without an end-date were recently imposed in
six regions, including Amsterdam and Rotterdam. More regions may
face similar restrictions in the coming weeks, weighing down on
confidence and spending in the coming months.
Elderberry concentrate prices have jumped this year and
supplies are all but obtainable, except for a few stray tons here
and there. According to one source, who described the situation as
a "disaster", there are two main reasons for the shortage. The
first is a report which appeared in the US, extolling the health
benefits of elderberry and the second was a poor harvest in
Austria. This was apparently due to the depredations of an insect
pest, and the harvest is reported to be just 40% of the expected
volume. "It's nice to see elderberry finally being appreciated for
what it is," he observed, "but demand tripled just as supplies
shrank." He added that 65 brix elderflower concentrate (55 brix is
also made) was now priced around EUR9.00-10.00 per kilo
(USD10.65-11.84/kg) ex-works for bulk standard concentrate. Another
source reckoned that prices were even higher, quoting EUR11.00/kg.
Last year's prices were around EUR6.00-7.00/kg. Blackcurrant
concentrate prices are also extremely high. At the end of last
year, concentrate was around EUR3.00/kg but has now doubled. IHS
Markit has been told that Poland is sold out, though (again) there
may be a few tons here and there. There are no quotes yet for new
season Canadian blueberry concentrate. The harvest has been dogged
by the same problems that struck Poland (a late frost followed by a
long hot dry period) and suppliers are assessing the situation
before offering. (IHS Markit Food and Agricultural Commodities'
Neil Murray)
Kenyan banks have reported a pre-tax profit decline of 23%.
Profit before tax fell from KES70 billion (USD645.8 million) in May
2019 to KES53.9 billion in May 2020. The main reason cited by banks
for the decline in earnings is an increase in impairments owing to
challenging macroeconomic conditions, forcing banks to increase
their loan loss provisions. The sector's provisions also increased
from KES10 billion to KES39 billion between January and June 2020.
(IHS Markit Banking Risk's Ana Souto)
As previously noted, IHS Markit expects non-performing loans
(NPLs) to increase as economic hardship stemming from measures to
contain the spread of the COVID-19 virus pandemic ripples through
key sectors such as manufacturing, trade, real estate, and
financial services, thus reducing borrowers' ability to service
their debts.
The NPL ratio stood at 13.1% in June 2020, compared with 12% in
December 2019. In March, the Central Bank of Kenya (CBK) granted
banks flexibility with regards to loan classification to borrowers
affected by the COVID-19 virus pandemic. Such forbearance measures
will contain the increase in NPLs in the near term.
However, owing to increased credit risks, we assess that growth
in private-sector lending by banks is also likely to ease. We
project that year-on-year (y/y) credit growth will be muted in
2020, at about 8.6%, compared with 8.1% in 2019, mostly supported
by public-sector lending.
The muted y/y loan growth, increasing impairments and
provisions, coupled with the fact that banks have also had to
restructure loans and grant temporary holiday payments to support
borrowers and the low interest-rate environment, will continue to
put pressure on the sector's earnings.
Asia-Pacific
APAC equity markets closed lower mixed; Australia +2.4%,
Mainland China +0.2%, Hong Kong +0.1%, South Korea flat, Japan
-0.1%, and India -0.2%.
Chinese president Xi Jinping, in an address delivered by video
link Tuesday to the United Nations (UN) General Assembly, declared
that China would aim to become carbon neutral by 2060. He also said
that the country would reach peak greenhouse gas (GHG) emissions
before 2030. "We aim to have CO2 emissions peak before 2030 and
achieve carbon neutrality by 2060," Xi told the assembly. "We call
on all countries to pursue innovative, coordinated, green, and open
development for all. "China is the biggest emitter of GHGs mainly
due to its widespread use of coal and accounts for an estimated 28%
of worldwide CO2 emissions. The country had not, until now,
committed to a long-term emission-reduction target. Xi called for
all countries to honor the 2015 Paris climate agreement. He said
that China would increase its nationally determined contributions
under the agreement by adopting new policies and measures. The UN's
climate negotiations are currently stalled with the next UN climate
meeting, called COP26, postponed until 2021 due to COVID-19. Xi
also said that a "green revolution" was needed to preserve and
protect the environment as the world recovers from COVID-19. "The
Paris agreement on climate change charts the course for the world
to transition to green and low-carbon development," he said.
Beijing has announced plans to finish setting up a connected
cloud-controlled high-level demonstration zone for autonomous
vehicles (AVs) by the end of 2020, according to Gasgoo. The project
began on 19 September. The plan is to create an industrial
ecosystem at the zone to develop Level 4-or-above AVs, integrating
various businesses of electronics, communications, artificial
intelligence, big data, and automotive manufacturing. The
demonstration zone is expected to feature mature systems of
intelligent roads, smart vehicles, real-time cloud control, a
reliable network, and precise maps by 2022, and will possess a
city-level engineering testing platform so as to make the AV
technologies commercially viable. The Chinese government is heavily
backing the use of AV technology and has authorized the testing of
autonomous cars, taxis, and buses, among other vehicles. The
overall aim is for China to showcase to the world that it is a
leading player in new technology, with a focus on electric vehicles
(EVs) and AVs. Beijing was one of the earliest of China's cities to
implement policies for AVs, first announcing them in December 2017.
Currently, Beijing has a total of 151 roads allocated for AV
operation in four districts, covering a total distance of 503.68
kilometers (km). In 2019, road tests covering a total of more than
1.04 million km were driven by 77 AVs from 13 companies in the
city. The city has established three closed testing grounds for
AVs. (IHS Markit Automotive Mobility's Nitin Budhiraja)
Groupe PSA has repurchased 10 million of its own shares from
China's Dongfeng Motor Group. According to a statement released by
the French automaker, the deal fulfills a share repurchase
agreement signed last year, and represents 1.1% of the share
capital in PSA. The company added that it paid EUR16.385 per share
today (23 September) through an off-market transaction, and said
that the shares will be cancelled following settlement, in
accordance with its buyback program. The agreement to repurchase
shares from Dongfeng was made to support the merger between PSA and
Fiat Chrysler Automobiles (FCA) to create the new Stellantis
organization. The terms of the merger required Dongfeng to sell
30.7 million shares to give it an ownership stake of 4.5% in the
merged business; it is hoped this will allow the deal to overcome
certain regulatory hurdles. At the time, the agreement said that
PSA would acquire all the shares, which would then be cancelled by
the company. The latest statement states that subject to final
approval by the boards of Dongfeng, PSA, and FCA, the agreement
will be amended for the remaining 20.7 million shares, Dongfeng
will be able to sell these shares to one or more third parties in
one or more transactions by the end of 2022 if these shares have
not been acquired by PSA or to one or several third parties before
the end of 31 December 2020. (IHS Markit AutoIntelligence's Ian
Fletcher)
Panasonic is evaluating options for new electric car battery
production with Tesla after the latter announced a plan to increase
output and halve the cost of the batteries, according to Reuters. A
Panasonic spokesperson said, "We are considering a variety of
options, but nothing has been determined at this time… We value our
relationship with Tesla and look forward to enhancing our
partnership." Tesla hosted a Battery Day event yesterday (22
September), outlining a new approach to cell design, materials, and
vehicle integration. Tesla claims that the new approach will create
opportunity for a 54% increase in range, a 56% reduction in cost
per kWh, and a 69% reduction in investment per GWh. Tesla also said
that getting to full electric vehicle (EV) penetration will require
TWh-scale battery production, compared with today's GWh factories.
Recently, Panasonic announced plans to add a 14th production line
at the Tesla Gigafactory in Nevada (United States), which will
start operations in 2021, increasing the plant's capacity by about
10%. Along with the new production line, Panasonic is reportedly
planning upgrades to the existing facilities to accommodate new
battery technology. (IHS Markit AutoIntelligence's Nitin
Budhiraja)
Indian Oil Corp. Ltd. (IOCL; Delhi) plans to invest about $2.4
billion to boost crude-processing capacity at its Gujarat refinery
at Vadodara, India, as well as build polypropylene (PP) and base
oil plants to integrate the complex better. The project will raise
refining capacity to 18 million metric tons/year (MMt/y), or about
360,000 b/d, from 13.7 MMt/y and also add a 500,000-metric
tons/year PP unit as well as a 235,000-metric tons/year lube oil
base stock plant, says the company. It has not specified a start
date. Market sources earlier predicted a March 2023 completion.
"The project would be a building block for production of niche
chemicals in future with a potential to increase petchem and
specialty products integration index on incremental crude oil
throughput, which would enhance the corporate margins of IOC," it
adds. The company says that more focus will be paid to better
integrate its refining facilities to improve profitability by
moving further down the value chain in embracing petrochemical
production. To this end, with an outlay of about $3.9 billion, the
company is working on an ethylene glycol project and a
para-xylene/purified terephthalic acid (p-xylene/PTA) plant at its
Paradip site. It is also working on an acrylics/oxo-alcohol
facility at the Gujarat facility and expansions to the naphtha
cracker and p-xylene/PTA complex at Panipat. The company's refining
complexes at Panipat and Barauni are also slated for a similar
petchem integration and capacity boost with crude processing
soaring to 500,000 b/d from 300,000 b/d at Panipat and to 180,000
b/d from 120,000 b/d at Barauni. The Panipat project is likely to
begin construction in 2023 and works at Barauni may be completed in
the same year. The company expects gasoline and diesel demand to
reach pre-COVID-19 levels this quarter following strong growth in
the first half of September. Diesel sales by the company rose 22%
from the previous two weeks but were down 9% from a year ago while
gasoline gained 9% month on month and 1% from a year ago, according
to local media. As a group, diesel sales by Indian Oil, Bharat
Petroleum Corp. Ltd. (BPCL), and Hindustan Petroleum Corp. Ltd.
(HPCL) edged up 19.7% from the first half of August to 2.13 MMt,
and gasoline and jet fuel rose 7.2% and 21.3% to 965,000 metric
tons and 125,000 metric tons, respectively, data from the suppliers
showed.
The Philippine current account reversed to a surplus during the
second quarter of 2020 for the first time in three years, mainly
prompted by a sharp narrowing of the goods trade shortfall. The
collapse in domestic demand amid strict COVID-19 virus-containment
measures and severe disruption to business activities led to a
worse contraction in imports than exports. The strong result for
the second quarter suggests that an upward revision to the forecast
for this year could be possible. (IHS Markit Economist Ling-Wei
Chung)
The current-account balance returned to a surplus in the second
quarter of this year, amounting to USD4.4 billion, reversing a
deficit of USD23 million posted during the first quarter and also
marking a turnaround from a shortfall of USD930.7 million recorded
during the same quarter of 2019. The revised figures show that the
current account recorded its first surplus since the third quarter
of 2017 and the largest since the central bank's statistics began
in 1999.
The second quarter's record current-account surplus was mainly
down to a sharp moderation in the goods trade shortfall, which
narrowed by 55.2% year on year (y/y) to just USD5.4 billion in the
second quarter from USD12.1 billion a year earlier. This came on
the back of an abrupt decline in imports that outpaced the drop in
exports.
Goods imports plunged 43.6% y/y in the second quarter as the
COVID-19 virus pandemic and the extended virus-containment measures
during most of the quarter severely disrupted business operations
and dampened consumer and business sentiment. The resulting
collapse in all-important domestic demand in turn led to a plunge
in import demand across the board.
Imports of capital goods slumped 47.2% y/y in the second
quarter, driven by a 48.4% y/y drop in power-generating machines
and a 79.2% y/y plunge in land transport equipment. This was
followed by a 46.1% y/y drop in imports of consumer goods as
imports of passenger cars tumbled 82.7% y/y and purchases of
miscellaneous manufactures slumped 60.0% y/y.
Imports of raw material and intermediate goods contracted 31.9%
y/y in the second quarter, dragged down by falling imports of
manufactured goods, chemicals, and petroleum crude.
Concurrently, exports of goods dropped 33.3% y/y in the second
quarter as the worldwide city lockdowns amid the COVID-19 virus
pandemic severely disrupted global supply chains and resulted in
serious damage to overseas demand.
Exports to the country's major trading partners, from the
United States and mainland China, to Europe, all reported
double-digit contractions, ranging between 10% y/y and 50%
y/y.
By product, the major drag on exports of goods came from a
37.5% y/y slump in exports of manufactures, driven by a 32.5% y/y
drop in shipments of electronic products, including semiconductors
and electronic data processing, and a 59.1% y/y plunge in shipments
of other electronics.
Exports of other manufactures, including machinery and
transport equipment, chemicals, and garments, contracted at a
double-digit pace as well, although they were partly offset by a
surge in shipments of petroleum products.
Monthly figures show that the trade deficit has slowly widened
once again after hitting the lowest reading in five years in April.
On the external front, the gradual reopening of business activities
in other parts of the world has helped slow the decline in exports,
which narrowed to 9.6% y/y in July, compared with a 13.3% y/y drop
in June and as much as a 50.8% y/y plunge in April. Although a
further improvement could be possible in the coming months, worries
about the new wave of global infections, the fallout of the
pandemic, and lingering geopolitical tensions will remain the main
downside risks.
The Indonesian government has approved LG Chem and Hyundai
Motor Group's joint plan to set up an electric vehicle (EV) battery
plant in the country, reports The Korea Times. LG Chem is close to
announcing its plan to build the EV battery plant in which Hyundai
will have a sizeable stake. General terms of the plan have been
agreed upon, but some details need to be fine-tuned before an
official announcement, highlights the report. The investment will
be substantial as the Indonesian government has guaranteed
preferential tax treatment for startups. The government plans to
grant both LG Chem and Hyundai tax exemptions on imported
construction materials for at least seven years. Both LG Chem and
Hyundai also requested for preferential customs-procedure
treatment, which has also been approved. Hyundai's plans to produce
EVs at its new Indonesian plant are in line with the Indonesian
government's aim to increase the adoption of electrified vehicles
in a bid to reduce the country's carbon footprint (see Indonesia: 9
August 2019: Hyundai to build vehicle manufacturing plant in
Indonesia). It is no surprise to see the joint venture (JV) with LG
Chem, as the automaker needs to procure battery cells and packs. LG
Chem has been an important partner of Hyundai for EV production.
The company has supplied lithium-ion (Li-ion) car batteries to
Hyundai's all-electric vehicles, such as the Kona EV and the Ioniq
Electric. (IHS Markit AutoIntelligence's Jamal Amir)
Posted 23 September 2020 by Chris Fenske, Head of Capital Markets Research, Global Markets Group, S&P Global Market Intelligence
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