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All major US equity indices closed higher, while APAC and
European markets were mixed. US and benchmark European government
bonds closed higher. European iTraxx and CDX-NA credit indices
closed modestly tighter across IG and high yield. The US dollar and
natural gas closed lower, while oil, silver, copper, and gold
closed higher on the day.
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Americas
Major US equity indices closed higher and all traded in
positive territory the entire session; Nasdaq +1.4%, S&P 500
+1.0%, DJIA +0.5%, and Russell 2000 +0.5%.
10yr US govt bonds closed -2bps/1.60% yield and -2bps/2.30%
yield.
CDX-NAIG closed -1bp/51bps and CDX-NAHY -3bps/291bps.
DXY US dollar index closed -0.2%/89.84.
Gold closed +0.4%/$1,885 per troy oz, silver +1.5%/$27.91 per
troy oz, and copper +1.0%/$4.53 per pound.
Crude oil closed +3.9%/$66.05 per barrel and natural gas closed
-0.6%/$2.96 per mmbtu.
In a press release, Cabot Oil & Gas Corporation announced
the signing of an agreement to acquire Cimarex Energy Co. in an
all-stock transaction valued at $9.61 billion. The transaction is
expected to close by the end of the fourth quarter of 2021. (IHS
Markit Upstream Companies and Transactions' Karan Bhagani)
Under the deal, Cimarex shareholders will receive 4.0146 common
shares of Cabot for each Cimarex share. Based on Cabot's closing
price on 21 May 2021 and 102.8 million Cimarex shares outstanding
at 30 April 2021, the total equity offer value is $7.35 billion or
$71.50 per share. The offer price is a 0.44% premium to the 21 May
closing price of Cimarex.
The total transaction value includes the assumption of
Cimarex's 31 March 2021 working capital surplus of $102.07 million
and $2.36 billion of long-term debt and liabilities.
On closing, Cabot shareholders will own approximately 49.5% and
Cimarex shareholders will own approximately 50.5% of the combined
company on a fully diluted basis. The combined company will operate
under a new name, Cabot said.
The combined company expects the merger to generate annual
synergies of approximately $100 million within 18 months to two
years.
Cimarex holds approximately 560,000 net acres in the Permian
and Anadarko basins. The Permian operations in Texas and New Mexico
cover the Delaware Basin Wolfcamp Shale and Bone Spring Sands, with
the Anadarko assets in the Woodford and Meramec Shales in Western
Oklahoma. Net proved reserves were 531 MMboe (57% oil and NGLs; 84%
developed) at year-end 2020 and net production averaged 219,683
boe/d (58% oil and NGLs) during the first quarter of 2021.
The trend in restaurant activity has continued to improve in
recent days. Averaged over the week ending yesterday, the count of
seated diners on the OpenTable platform was only 14% below the
comparable period in 2019. This is a vast improvement from earlier
this year, as restrictions on restaurants continue to be relaxed
and as an increasing share of the population becomes vaccinated.
Meanwhile, gross movie receipts last week were 84% below the
comparable week in 2019. Movie-theater activity remains depressed
but has shown signs of life, unevenly, over the last couple of
months. (IHS Markit Economists Ben
Herzon and Joel
Prakken)
The Governor of California, Gavin Newsom, has released the May
Revision of California's state budget for 2021-22, which proposes
removing the exclusion of income-eligible undocumented seniors
(aged 60 and over) from the state Medicaid program, known as
Medi-Cal. As noted by California's Health Consumer Advocacy
Coalition, Health Access, which welcomed the proposed expansion,
other proposed measures include taking back more than USD700
million in state subsidies for those with insurance coverage in
California. Health Access suggested that these subsidies "could
have furthered lower premiums and deductibles for hundreds of
thousands of Californians". Health Access also criticized the
proposed budget's failure to eliminate the Medi-Cal asset test that
excludes some seniors and people with disabilities. An expansion
for undocumented seniors had previously been included in Governor
Newsom's initial 2020 state budget, but had been withdrawn in the
face of a forecast downturn in the budget that did not ultimately
materialize. (IHS Markit Life Sciences' Milena
Izmirlieva)
Fisker has announced it will deliver a version of the Ocean EV
utility vehicle modified for papal transportation, including
modifications for the Pope's ability to greet crowds. The company
claims this will be the first all-electric vehicle (EV) for the
Pope. In a Fisker statement, Henrik Fisker said, "I got inspired
reading that Pope Francis is very considerate about the environment
and the impact of climate change for future generations. The
interior of the Fisker Ocean papal transport will contain a variety
of sustainable materials, including carpets made from recycled
plastic bottles from the ocean." The modified Ocean promises the
"first exhaust-free and emissions-free experience for those
gathered for blessings by His Holiness." The car will have an
all-glass, bulletproof cupola for accessibility and visibility of
the Pope. Fisker plans to deliver the vehicle in 2022, presumably
after regular production starts. (IHS Markit AutoIntelligence's Stephanie
Brinley)
Environmentalists have filed a petition with EPA calling on the
agency to revamp its pesticide risk assessment process to fully
consider the potential harms to soil ecosystems. The Center for
Biological Diversity and Friends of the Earth contend the current
process falls far short, underestimating the risk of pesticides to
soil invertebrates and microorganisms and failing to address the
indirect effects that loss of soil life can have on ecosystems. The
34-page petition notes that EPA estimates 50-100% of agricultural
chemicals end up in the soil and that overuse of pesticides has
been identified as a major cause of soil biodiversity loss. The
environmental groups also cite a peer-review paper they published
earlier this month - along with researchers from the University of
Maryland - that found widespread harm to beneficial soil
invertebrates from pesticides. (IHS Markit Food and Agricultural
Policy's JR Pegg)
The US state of California's Department of Motor Vehicles (DMV)
has issued a permit to startup Pony.ai to test its autonomous
vehicles (AVs) without a human back-up driver, reports TechCrunch.
The new permit allows the company to test its six AVs without a
driver behind the wheel on designated streets in Fremont, Milpitas,
and Irvine. The vehicles can operate on roads with posted speed
limits not exceeding 45 miles per hour in clear weather and light
precipitation. Significance: Pony.ai is the eighth company after
Waymo, Nuro, AutoX, Zoox, Cruise, Baidu, and WeRide to receive a
permit from the DMV for driverless testing. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
IHS Markit has analysed the main banking indicators for Costa
Rica, El Salvador, Guatemala, Honduras, Mexico, and Nicaragua. Our
key findings indicate that credit growth remains depressed in most
of the region; in addition, profitability continues to be contained
and impairment is increasing slowly. During the rest of 2021, we
expect a very moderate recovery in credit growth and profitability,
although impairment will continue to rise. All averaged figures
presented here are calculated by simple (non-weighted) averages.
(IHS Markit Banking Risk's
Alejandro Duran-Carrete)
Credit continued to be either stagnant or contracting during
the first quarter of 2021. In March 2021, the average credit growth
in the region was -2.4% year on year (y/y), replicating the
contraction observed at the end of 2020. The sharp economic
downturn of all these countries continued leading a credit decline
in the region.
Non-performing loans (NPLs) continue to remain low, but are
increasing slowly. In the first quarter of 2021, NPLs remained at
an average of 2.5% of total loans, up by 0.2 percentage point when
compared with the first quarter of 2020. Forbearance measures
instituted in these sectors are likely to be maintaining this, not
reflecting the real impairment.
Capital ratios remain adequate, but Honduras's leverage ratio
is a key risk to watch in future. With an average capital adequacy
ratio of 17.0% in March 2021, the region continues to display
strong capital ratios. These indicators were also maintained over
the ratio of non-weighted shareholders' equity to total assets at
11.5% in the regional average.
Europe/Middle East/Africa
European equity markets closed mixed; UK +0.5%, France +0.4%,
Spain flat, and Italy -0.3%.
10yr European govt bonds closed higher; Italy/UK -2bps and
Germany/France/Spain -1bp.
iTraxx-Europe closed -1bp/52bps and iTraxx-Xover
-4bps/257bps.
Brent crude closed +3.0%/$68.37 per barrel.
According to the UK Office for National Statistics (ONS), the
number of workers on payroll grew for the fifth successive month
when rising by 97,000 month on month (m/m) during April. (IHS
Markit Economist Raj
Badiani)
Nevertheless, the number of payroll workers remained 772,000
below February 2020, its pre-coronavirus disease 2019 (COVID-19)
virus pandemic level, with the ONS reporting the "largest falls in
payrolled employment have been in the hospitality sector, among
those aged under 25 years, and those living in London."
The ONS reports that total UK employment (all aged 16 plus)
increased by 84,000 quarter on quarter (q/q) or 0.3% q/q to 32.4
million in the three months to March 2021, compared with the three
months to December 2020.
The number of unemployed people based on the Labour Force
Survey (LFS) or the International Labour Organization (ILO) measure
decreased by 121,000 in the three months to March, standing at
1.675 million.
The UK unemployment rate stood at 4.8%, down from 5.1% in the
three months to December 2020. This was partly due to the rising
economic inactivity rate during the third national lockdown, which
started in early January.
Furthermore, the number of vacancies continued to recover,
averaging 657,000 over the three months to April; the ONS's
experimental monthly vacancy statistics for April itself were "at
near pre-pandemic levels".
Total pay in real terms rose by 3.1% y/y in the three months to
March, which was the seventh successive gain.
UK logistics businesses have been resilient since the pandemic
started. Logistics UK, the trade association, has warned that the
logistics costs are likely to increase in the short to medium term.
Elizabeth de Jong, Logistics UK's policy director, stated at the
group's launch of its annual Logistics Report 2021: "A reduction in
supply of international shipping containers, and ships to carry
them, led to significant rises to the cost of moving goods and
services internationally; by the end of 2020, shipping container
rates had increased by 185% year-on-year and air freight costs rose
significantly when cargo space was constrained due to the grounding
of passenger flights. Many logistics businesses are already
operating on very tight profit margins of only 2%, or just 1% for
those in road transport. These rises will make it harder to find
the funds they need to develop their operations by investing in
green technology, such as in alternatively fueled vehicles,
upskilling the existing workforce or funding new recruits while
continuing to pay wages and other business costs. (IHS Markit Food
and Agricultural Commodities' Hope Lee)
UK-based connected-car data startup Wejo is planning to go
public through a reverse merger deal with Virtuoso Acquisition
Corp, a special purpose acquisition company (SPAC). It could value
the startup at USD1 billion, reports Reuters. The deal's terms can
be still altered as it has not been closed yet, and the funds
raised through investors involved in Private Investment in Public
Equity (PIPE) have also not reached an agreement. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
German lawmakers have passed a bill that will allow Level 4
autonomous vehicles (AVs) to operate on public roads, reports
Automotive News Europe (ANE). Vehicles with Level 4 autonomous
capability require no human intervention, but their applications
are limited to specific conditions. The bill requires the vehicles
to have a human operator to check in case of an emergency, either
by sitting inside it or accessing it remotely. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Tesla CEO Elon Musk has said that he is looking into the
possibility of opening a production site for the brand in Russia,
according to a Bloomberg report. Musk was speaking at a
Kremlin-backed educational forum where he made an online appearance
for 45 minutes. He said, "I think we're close to establishing a
Tesla presence in Russia, and I think that would be great. Over
time, we will look to have factories in other parts of the world,
potentially Russia at some point." Tesla is currently trying to
complete its first production site in Germany but has faced delays
on environmental legal challenges. It is unlikely to face the same
level of bureaucracy in Russia but it is more likely, at this stage
at least, that Musk was simply attempting to charm his hosts with
the idea of establishing production in Russia. (IHS Markit
AutoIntelligence's Tim Urquhart)
Nigeria's real GDP slowed by 14.1% quarter on quarter (q/q) but
increased by 0.5% year on year (y/y) during the first quarter of
2021. Oil-GDP expanded by 35.6% q/q but was still 2.2% below its
level a year ago. Non-oil GDP fell by 17.1% q/q, but increased by a
modest 0.7% y/y. (IHS Markit Economist Thea
Fourie)
Non-oil GDP found support from a 2.2% y/y expansion in
agricultural output, with all sub-components recording positive
annual growth: crop production was up by 2.3% y/y followed by
livestock (up by 1.6% y/y), forestry (up by 1.2% y/y) and fishing
(up 3.2% y/y).
Other sectors which contributed to the positive non-oil GDP
growth performance included manufacturing (up 3.4% y/y),
construction activity (up 1.4% y/y) and services, particularly
electricity, gas, stream and air (up 8.6% y/y) and water supply,
sewerage and waste management (up 14.7% y/y). The IT and
communication sector expanded by 6.4% y/y while health and social
services accelerated by 4.6% y/y during the first quarter of
2021.
Demand lagged behind supply in the economy, as suggested by the
weak performance of the wholesale and retail trade sector, with
output falling by a further 2.4% y/y during the first quarter.
Output in the transport and storage sector fell by 21.8% y/y, with
road transport slowing by 23.7% y/y, rail down by 7.3% y/y, water
transport down by 6.4% y/y, and air transport down by 11.7% y/y.
The finance and insurance industry also contracted by 0.5% y/y
during the first quarter of 2021.
Zambia's authorities expect the country's GDP to recover with
growth in 2021, following the 3.0% contraction recorded in 2020,
according to the statement of the Bank of Zambia (BoZ) following
the MPC meeting on 17-18 May. (IHS Markit Economist Thea
Fourie)
The economy will benefit from a strong performance in the
electricity sector, combined with a recovery in education and
public administrative output.
The impact of the COVID-19 pandemic was still prevalent in the
domestic economy during the first quarter, the MPC warns, with
output in the copper mining industry, retail trade sales, and
international passenger arrivals on a declining trend.
The MPC expects that headline inflation will remain above the
BoZ's inflation target range of 3-6% over the medium term.
Nonetheless, the MPC has toned down its medium-term inflation
expectations in view of the good crop harvest expected for the
2020/21 agricultural year, which will limit food price inflation,
combined with the benefits of higher copper prices and a return of
non-resident interest in government securities on the exchange
rate.
Risk to the inflation outlook remains high, of which rising
fiscal deficits, higher global oil prices, and rising inflation in
major trading partners pose the most prominent. An increase in
energy prices (fuel and electricity costs) and the evolving
COVID-19 pandemic in the region also pose near-term risks to the
BoZ's inflation outlook.
Asia-Pacific
APAC equity markets closed mixed; Mainland China +0.3%,
Australia +0.2%, India +0.2%, Japan +0.2%, Hong Kong -0.2%, and
South Korea -0.4%.
The European Parliament on 20 May adopted a non-binding
resolution stating that the ratification process of the EU-China
Comprehensive Agreement on Investment (CAI), agreed in principle in
December 2020, would be "frozen" by the Parliament while Chinese
sanctions remain in place. It also criticized Beijing's
"confrontational approach" and "unsubstantiated and arbitrary"
sanctions against European individuals and entities. The resolution
was widely supported by EU parliamentarians, being approved by 599
to 30 votes with 58 abstentions. China's Foreign Ministry Spokesman
Zhao Lijian told a 21 May press conference that the European Union
was interfering in China's domestic affairs, and that he hoped the
bloc would abandon "confrontational actions". China has not yet
announced specific additional measures in response to the European
decision. The likelihood of China reversing its sanctions to
facilitate ratification of the CAI within its original schedule
will remain low if the EU continues to challenge Beijing on
politically sensitive areas such as human rights, a stance that has
consistently triggered adverse reactions and retaliatory measures
by China. However, the Chinese response to the European
Parliament's resolution has so far been relatively measured, with
state media outlet Xinhua highlighting that the Chinese legal
review and the translation process for the CAI are still proceeding
normally, while suggesting that its ratification process could
continue in the future. (IHS Markit Country Risk's Petya
Barzilska and David
Li)
BYD has secured an order for the supply of 50 units of its
40-foot, low-floor electric bus model from public transport
operator Gruppo Torinese Trasporti (GTT) in the city of Turin,
Italy. According to a company statement, the two parties have
reached a framework agreement for the supply of an additional 50
BYD 40-foot buses after deliveries of the first batch are
completed. The majority of these buses are to be built at BYD's
production facility in Komárom, Hungary. (IHS Markit
AutoIntelligence's Nitin Budhiraja)
Geely has acquired, through one of its subsidiaries, a 40%
stake in semiconductor company Guangdong Xinyueneng Semiconductor,
reports Gasgoo. The company has registered capital of CNY400
million (USD62 million) and focuses on the design, manufacturing,
and sale of integrated circuits and manufacturing of discrete
semiconductors. (IHS Markit AutoIntelligence's Nitin
Budhiraja)
Renault-Nissan, while rejecting claims from an employee union
that COVID-19 safety protocols were being ignored at its Oragadam
plant in Tamil Nadu (India), has told an Indian court that there
was a "compelling need" for the automaker to continue production at
its plant to fulfil pending export orders of about 35,000 vehicles,
and 45,000 pending domestic orders of Nissan Magnite and Renault
Kiger cars, reports Reuters. The Renault-Nissan workers have
petitioned a court to stop operations since social distancing norms
were not being followed properly and company-provided health
benefits were outweighed as compared to the risk to their lives.
(IHS Markit AutoIntelligence's Tarun Thakur)
Credit rating agency S&P Global Ratings (S&P) has
shifted the outlook for Vietnam to Positive, while affirming the
rating at BB (equivalent to 47.5 on the IHS Markit numerical
scale). The country's economic resilience to the COVID-19 virus
pandemic-induced shock and an improving track record in the
government's administrative capacity were the key factors driving
the outlook change. (IHS Markit Economist Jola
Pasku)
S&P expects Vietnam's economy to rebound to 8.5% in 2021,
with support from export-oriented manufacturing and strong domestic
demand. In its view, Vietnam's increased competitiveness as a
manufacturing hub combined with a young, educated and competitive
workforce should ensure robust growth over the medium and long
term.
S&P assesses that the delay of the government debt
repayment obligation in October 2019 was due to administrative
capacity constraints and not because of financial resource stress.
The introduction of a directive in January 2020 that empowers
Vietnam's Ministry of Finance to make full and immediate payment of
guaranteed government debt obligations directly to the creditors is
an indication of improved administrative processes, according to
S&P.
The rating agency maintains that Vietnam's fiscal metrics have
remained stable, despite increased pressure on revenue collection
and accelerating expenditures related to the pandemic. S&P
projects Vietnam's fiscal deficit to expand to over 4% of GDP in
the near term due to lingering risks associated with the global
pandemic while also recognizing that Vietnam is equipped with
adequate fiscal buffers.
Posted 24 May 2021 by Chris Fenske, Head of Fixed Income Research, Americas
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