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Most APAC equity markets closed higher, the US was mixed, and
all major European indices closed lower. US and benchmark European
government bonds closed sharply higher. European iTraxx closed
wider across IG and high yield, while CDX-NA was almost flat on the
day. Oil closed higher, copper flat, and gold/silver were lower.
COVID-19 hospitalizations continue to decline in the US, which has
led California to lift regional stay-at-home orders today and other
states like New York are also easing certain restrictions.
Americas
US equity indices closed mixed; Nasdaq +0.7%, S&P 500
+0.4%, DJIA -0.1%, and Russell 2000 -0.3%, with the NASDAQ and
S&P 500 reaching new record high closes. The S&P 500
declined 1.5% between 10:48-11:10am EST, before turning course and
ending the day at the new record high close.
10yr US govt bonds closed -6bps/1.03% yield and 30yr bonds
-5bps/1.80% yield.
CDX-NAIG closed +1bp/52bps and CDX-NAHY +2bps/307bps.
DXY US dollar index closed +0.2%/90.39.
Gold closed -0.1%/$1,855 per ounce, silver -0.3%/$25.48 per
ounce, and copper flat/$3.63 per pound.
Crude oil closed +1.0%/$52.77 per barrel.
COVID-19 hospitalizations in the U.S. fell to their lowest
level since mid-December, while newly reported infections continued
to decline, falling below 200,000 for the eighth consecutive day.
California, a hotspot in the fall surge, ended regional
stay-at-home orders as intensive-care capacity improved. (WSJ)
Moderna plans to begin human studies of a booster shot for its
vaccine to help protect against a more-transmissible South Africa
virus variant, after a test showed it may be less potent against
that strain. Even with the lower antibody levels, the existing
vaccine should offer protect against the South Africa strain,
Moderna said. But study results may indicate that immunity will
wane faster, the company said. (Bloomberg)
Ford is idling its Louisville Assembly plant in the United
States for two weeks from today (25 January) over a semiconductor
shortage. This is the second time this month that Ford has
introduced downtime at the plant over the issue. The automaker
produces the Ford Escape and the Lincoln Corsair at the plant,
which was idled for a week over parts issues earlier this month.
Automotive News reports that a Ford spokesperson confirmed the
introduction of the downtime at the plant, as well as that hourly
workers will receive 75% of their gross pay during the downtime. At
the time of the shutdown earlier this month, Ford indicated that it
would bring forward a previously planned week of downtime at the
plant, but that is not part of the latest downtime. When the supply
of semiconductor chips resumes at the plant, it should be early
enough in the year for Ford to recover the lost production. Of the
situation overall, IHS Markit executive director Mark Fulthorpe
said that, as of 22 January, "The situation remains highly fluid
and we continue to track the impact of these developments.
Currently, there are varying estimates as to the length of the
semiconductor shortage, with some suggestions that the situation
will improve from the second quarter onwards, while some of the
lower level disruption could even be recovered within the current
quarter. Overall, the global volume at risk has risen to 628,000
units with this update, up from 498,000 units previously. At this
level we still expect the majority of volume can be recovered
across the balance of the year, so we think of the impact of the
current shortages to be more of a seasonal, with volume lost in the
first quarter, displaced to later in the year. We expect this
rather than an absolute reduction to the 2021 calendar year
forecast." (IHS Markit AutoIntelligence's Stephanie Brinley)
EPA last week launched a regulatory process to develop national
drinking water standards for two per- and polyfluoroakyl substances
(PFAS), handing a surprising win to environmentalists and public
health advocates who have long clamored for stricter oversight of
the "forever chemicals." In an announcement made in the final hours
of the Trump presidency, EPA issued the final regulatory
determinations for PFOA and PFOS, triggering the start of a
rulemaking to set standards for the two chemicals under the Safe
Drinking Water Act (SDWA). The agency will now begin work on a
maximum contaminant level (MCL) for PFOA and PFOS and has also
proposed requiring public water utilities to test for the presence
of 29 other PFAS chemicals. In addition, EPA issued an advanced
notice of proposed rulemaking (ANPR) to get data and public
comments on whether it should take any additional steps to address
PFAS contamination in the environment. Now-former EPA Administrator
Andrew Wheeler said the sweeping proposal reflects the Trump
administration's effort under its PFAS Action Plan to address the
public health concerns from the widely-used industrial chemicals.
There are some 5,000 PFAS chemicals, widely considered a potential
public health risk because of studies linking exposure to a range
of serious health problems, including cancer, thyroid disease, and
autoimmune disorders. The chemicals - used in an array of
industrial applications including non-stick cookware and food
packaging - are virtually indestructible, sparking concern amid
evidence of widespread groundwater contamination, largely from
manufacturing plants and from use in firefighting foams on military
bases across the country. Tests by EPA and state agencies have
found the chemicals in drinking water supplies for 16 million
Americans in 33 states and the extent of the pollution is likely
far greater. (IHS Markit Food and Agricultural Policy's JR
Pegg)
Baker Hughes has announced an order with Petrobras to provide
digital solutions across Petrobras sites in Brazil. (IHS Markit
Upstream Costs and Technology's Helge Qvam)
Baker Hughes will support Petrobras' thermal plants,
refineries, gas treatment units, production plants, offshore
platforms, FPSOs, all ensuring the latest regulatory requirements
are achieved.
The order includes flare monitoring and calibration
technologies, cybersecurity and remote monitoring services, and
interconnected machinery protection systems and sensors. Baker
Hughes use real-time analytics to help improve machinery health,
eliminate unplanned outages, reduce downtime, and avoid
catastrophic failures. The scope with Petrobras includes:
Bently Nevada's Orbit 60 system, System 1 software licenses,
and remote monitoring services for industrial asset
management.
Panametrics' Flare IQ flare gas monitoring and optimization
system, and FlareCare services and parts for reduced carbon and
methane emissions.
Nexus Controls' distributed control systems, cybersecurity
services and human-machine interface upgrades for more reliable
operations.
Nicaragua's monthly index of economic activity (IMAE) in
November contracted by 4.7% month over month (m/m) primarily
because of the devastation caused by Hurricanes Eta and Iota. (IHS
Markit Economist Lindsay Jagla)
This is the first monthly contraction since the height of the
COVID-19-virus pandemic in March and April, when economic activity
contracted by 4.8% and 7.2% m/m, respectively.
The driver of this contraction was fishing and aquafarming at
-43.7% m/m, which was directly hit by the hurricanes. Other
sectors, such as the mining and hospitality industries, including
hotels and restaurants, continue to suffer from low export demand
and the lack of tourism amid the global pandemic.
Nicaragua is one of few countries to not implement strict
lockdown procedures during the initial outbreak of the pandemic.
This did not prevent economic activity from contracting
significantly, and it has remained below 2019 levels for a
prolonged period.
The global pandemic has lowered demand for Nicaraguan exports,
while the spread of domestic COVID-19 cases has damaged consumer
activity even without official isolation measures.
Still, the lack of government-mandated isolation measures
allowed Nicaragua's economic activity to return to pre-COVID-19
levels in October - earlier than most countries. Hurricanes Eta and
Iota reversed much of this recovery in November, bringing economic
activity down to its lowest level since June.
IHS Markit expects economic activity in Nicaragua to rebound
following the external shocks of the hurricanes, but overall
economic recovery will remain muted in 2021 at 1.7% year on year
(y/y). The country is coming off of its third consecutive year of
economic contraction, and lack of significant government stimulus
coupled with the continued risks from COVID-19 virus will result in
a more prolonged damage to the economy.
France's President Emmanuel Macron stated on 13 January that
the country should reduce its dependency on imports of Brazilian
soy to avoid contributing to further deforestation of the Amazon.
Brazilian President Jair Bolsonaro and Brazilian Vice-President
Hamilton Mourão have responded, denying that soy production
contributes to Amazon deforestation. (IHS Markit Country Risk's
Ailsa Bryce and Bibianna Norek)
Soy is primarily produced in the Cerrado area rather than in
the Amazon region. Data from ABIOVE, the Brazilian Association of
Vegetable Oil Industries, show that roughly 50% of Brazilian of the
2018/2019 soy crop was cultivated in the Cerrado region, the single
largest soy producing area, and that in this region, 93% of the
growth in soy crops took place on land cleared before 2013.
Despite Brazil's continued participation in the Paris Climate
Agreement and formally rigorous environmental laws, President
Bolsonaro's actions demonstrate ideological opposition to
environmental controls. Brazilian law states that, in the Amazon
region, agricultural producers must preserve 80% of all native
forest on their land, using only 20% of land for cultivation.
However, Bolsonaro pledged in 2019 to open the Amazon to
agribusiness and mining, while Environment Minister Ricardo Salles
has sought to deregulate environmental practices, claiming that
this will reduce poverty in the region. As a result, enforcement of
existing regulations had been weak, giving scope for soy grown by
unregistered growers operating in the Amazon and contributing to
deforestation to enter agribusiness supply chains.
President Macron's comments or a decision by France to boycott
Brazilian soy products are unlikely to cause a significant drop in
Brazil's exports. The EU receives under 10% of Brazil total soy
exports, with 73% going to China. The EU, including France,
primarily imports soymeal for animal feed, with the EU accounting
for 49.5% of Brazil's soymeal exports.
Macron's remarks on deforestation risks in the Amazon align
with his administration's focus on ecological transition,
compounding existing pressure against the EU-Mercosur deal.
Even without a drive for official EU regulation, companies face
growing pressure from NGOs, consumers and ESG-oriented shareholders
to demonstrate deforestation-free supply chains for agricultural
products, with increased focus on environmental sustainability
threatening Brazilian exports. High-profile comments such as those
by Macron are likely to encourage shareholder activism,
particularly by French ESG funds (such as Amundi and AXA, already
high-profile exponents of shareholder activism), increasing
pressure on major food companies to prove that supply chains are
ESG-compliant, even without regulatory changes.
Europe/Middle East/Africa
European equity markets closed lower; Germany/Spain -1.7%,
France/Italy -1.6%, and UK -0.8%.
10yr European govt bonds closed higher; Italy -6bps, Spain/UK
-5bps, and France/Germany -4bps.
iTraxx-Europe closed +2bps/51bps and iTraxx-Xover
+10bps/264bps.
Brent crude closed +0.5%/$55.68 per barrel.
The UK's Office for National Statistics (ONS) has reported that
UK public-sector net borrowing (excluding public-sector banks; PSNB
ex) stood at GBP270.8 billion in the first nine months
(April-December) of the current fiscal year (FY). This was up from
GBP58.1 billion a year earlier and was the highest borrowing in any
April-December period since the records began in 1993. (IHS Markit
Economist Raj Badiani)
Central government net cash requirements (excluding UK Asset
Resolution Limited and Network Rail) were GBP333.6 billion in
April-December 2020, up from GBP30.6 billion in the equivalent
period a year earlier.
Central government finances are displaying considerable stress
from the COVID-19 virus crisis. Substantial fiscal costs are
resulting from the public health measures and policies deployed to
support businesses and households. The Office for Budget
Responsibility (OBR) estimates that the cost of COVID-19 virus
support measures to assist public services, households, and
businesses now stands at GBP280 billion this year.
The ONS also reported that general government borrowing (PSNB
excluding public-sector banks) stood at GBP34.1 billion in December
2020, GBP28.2 billion higher than a year earlier. This was the both
the highest December borrowing and the third-highest borrowing in
any month since the monthly records began in 1993.
Central government receipts collected by HM Revenue &
Customs fell for the 11th straight month and at a brisker pace in
December 2020. They declined by 2.8% year on year (y/y) to GBP60.2
billion because of lower-than-normal economic activity, job losses,
and companies deferring tax payments.
Central government expenditure increased by 43.5% y/y to
GBP26.1 billion in December 2020. This partly reflects the still
rising cost of the Coronavirus Job Retention Scheme (CJRS) and
Self-Employment Income Support Scheme (SEISS).
The furlough schemes (the CJRS and SEISS) added GBP66.1 billion
to borrowing in April-December 2020. In December, the total cost of
the CJRS and SEISS was GBP9.3 billion.
The UK's net debt position increased by 15.3 percentage points
over the year, standing at 99.4% of GDP in December 2020 (see chart
below), the highest level since 1962. In monetary terms, it was at
a record high of GBP2.312 trillion, GBP333.5 billion more than in
October 2019.
According to IHS Markit's January forecast, general government
borrowing requirements in the current FY (April 2020 to March 2021)
are likely to be around GBP400 billion or 19% of GDP. Meanwhile,
the fiscal watchdog, the OBR, suggests that borrowing in the FY
could be GBP394 billion.
The balance of risks is probably tilting to the downside. The
pace of government borrowing could accelerate in the next few
months because of rising COVID-19 infections, the imposition of
tighter restrictions on the hospitality and retail sectors, and the
prospect of renewed GDP losses in late 2020 and early 2021. Indeed,
the government has pledged extra money to provide support for
hospitality businesses forced to close across the UK, giving them
new scope to furlough workers until the end of April 2021.
In January, Germany's headline Ifo index, which reflects
business confidence in industry, services, trade, and construction
combined, has resumed the downward correction observed since
October 2020 after only a short-lived rebound in December. It
declined from 92.2 in December (revised up from 92.1) to 90.1 in
January, thus remaining well below the February 2020 pre-pandemic
level of 95.8 and its long-term average of 97.0. Although the
latest level is still far above the all-time low of 75.5 in April
2020, the Ifo institute confirms what we had expected: "The second
wave of coronavirus has brought the recovery of the German economy
to a halt for now." (IHS Markit Economist Timo Klein)
There was no material difference between the respective
developments of current conditions and expectations in January.
Business expectations deteriorated from 93.0 (revised up from 92.8)
to 91.1, while current conditions declined from 91.3 to 89.2.
Expectations worsened across the board, led by retail trade,
whereas current conditions in the manufacturing sector improved
against the general trend. The latter underlines that this sector
is the least vulnerable to the strict lockdown measures that were
imposed in mid-December and that have been tightened during January
- manufacturing exports to Asia (and especially China) are still
booming. In contrast, the forced closure of non-essential shops and
services have hit retail and (to a lesser extent) service-sector
optimism hard - they had come too late to much affect the December
numbers already.
January's breakdown of overall indices by sector, which
combines expectations and current conditions, shows that business
confidence remained roughly stable in the manufacturing sector, as
worsened expectations and improved current conditions offset each
other. At the opposite end, retailer confidence plummeted, led by
current conditions, and the business climate among wholesalers,
service-sector providers, and construction firms all posted
moderate declines. In level terms, the manufacturing climate now
markedly outperforms that in all other sectors, contrasting with
underperformance between early 2018 and mid-2020, and it also is
the only one with a positive balance between optimists and
pessimists.
The Ifo graph portraying the cyclical position of the diffusion
index of the headline measure - setting the current conditions and
expectations balances against each other - signals that the economy
has reversed course. Although it had still been in downswing
territory in December, it was directionally pointing towards boom
territory - now it has moved back towards the recession field,
although the improvement in the current conditions component in
manufacturing has prevented it from entering recession ground
already. The assessment of current conditions fell back from 8.2 to
3.2, while expectations moved more deeply into the red (from -5.1
to -9.0). This reflects the recent extension and in part even
tightening of COVID-19 related restrictions until
mid-February.
January Ifo survey results have demonstrated that the December
rebound was misleading, as most survey responses had been handed in
before the strict lockdown implemented in mid-December had become a
reality. Nevertheless, it is noteworthy that business expectations
(defined as "for the next six months") did not show a larger
decline than current conditions in January. This indicates that
most businesses still see the light at the end of the tunnel but
have had to scale back their optimism in view of ongoing
uncertainty about how long the phase of tight restrictions will
need to last.
The Volkswagen (VW) Group is looking to claim damages against
some of its suppliers which have caused temporary production
stoppages due to a shortage of semiconductors, reports Reuters,
citing an article in Automobilwoche. (IHS Markit AutoIntelligence's
Ian Fletcher)
The German trade publication has been told by sources that this
type of action is being considered against Bosch and Continental so
that they can share the burden of costs related to alternative
sourcing of these components, which is expected to be more
expensive. A Bosch company source added to Automobilwoche that the
supplier was ready to discuss the matter directly with its
customers and suppliers in due course. A VW Group spokesperson
declined to comment on the matter to Reuters, and the suppliers did
not respond to requests for comment.
In an attempt to ease the supply shortage of semiconductors to
the automotive industry, the German government has sought to use
diplomatic channels. According to a letter seen by Reuters,
Germany's Minister for Economic Affairs and Energy, Peter Altmaier,
has written to Wang Mei-hua, Taiwan's Minister for Economic
Affairs, to address the issue in talks with Taiwan Semiconductor
Manufacturing Co Ltd (TSMC). He said, "I would be pleased if you
could take on this matter and underline the importance of
additional semiconductor capacities for the German automotive
industry to TSMC," adding that the aim was to have additional
capacity and deliveries in the short-to-medium term.
Production disruptions related to the shortage in
semiconductors for the automotive sector began to emerge late in
2020, but have accelerated significantly during the first quarter
of 2021. The shortage is linked to stronger-than-expected demand in
the second half of 2020 in the wake of COVID-19 virus-related
production stoppages and demand disruption.
The problem is also exacerbated by strong demand experienced by
consumer electronics firms.
Although a wide array of global OEMs have been hit to varying
degrees, VW Group seems to be one of the worst affected. IHS Markit
intelligence suggests that eight of its plants in Europe will be
hit at some point during the first quarter, alongside both its key
Chinese joint ventures (JVs), FAW-VW and SAIC-VW will be hit by
stoppage and reductions of output.
Germany's Federal Motor Transport Authority
(Kraftfahrt-Bundesamt: KBA) is said to be looking into the safety
issues related to the touchscreen used on certain Tesla models,
reports Reuters. A spokesperson for the KBA was quoted as telling
the Bild am Sonntag newspaper that it was in contact with the US
National Highway Traffic Safety Administration (NHTSA) and Tesla,
asking for more information. The representative added that the KBA
was also launching its own investigation, and that the results are
"still pending". The investigation in Germany is related to a
request by the NHTSA for Tesla to recall about 158,000 units of
model year (MY) 2012-18 Model S and the MY 2016-18 Model X to
address touchscreen failures related to an NVIDIA processor.
Specific issues that have been raised by the NHTSA include the fact
that the failure results in the loss of the rear view/reversing
camera as well as heating, ventilating, and air conditioning (HVAC)
controls, including defogging and defrosting setting controls. The
agency also states that the failure has an adverse impact on the
Autopilot system, turn signal functionality (the loss of audible
chimes), and alerts associated with these functions. It is unclear
whether any of these issues have emerged with German owners or
whether it has been alerted by the NHTSA recall, but it remains to
be seen whether it plans to implement a similar recall. (IHS Markit
AutoIntelligence's Ian Fletcher)
According to a Bloomberg report, energy company Petronas (Kuala
Lumpur, Malaysia) is a possible contender to acquire Lonza's
specialty ingredients division. Petronas is working with an adviser
as it considers a second-round bid for the Lonza Specialty
Ingredients (LSI) division, which is up for sale, says the report.
Lonza has asked interested parties to submit second-round bids by
early February, the report says. Petronas Chemicals Group (PCG),
the chemicals subsidiary of Petronas and one of the largest
producers of petrochemicals in Southeast Asia, tells CW that it
"regularly evaluates potential business opportunities, however, as
a matter of practice we do not comment on speculation." Lonza told
CW recently that it is in discussions with potential buyers for the
LSI business, but does not "comment on speculation," and that "as
soon as we have more information, we will share it with the
markets." Lonza earlier declined to comment on reports that Lanxess
and private equity groups including Advent International, Carlyle
Group, Partners Group, and a consortium comprising Bain Capital and
Cinven had been shortlisted for the second round of bidding for
LSI. The Bloomberg report says that the LSI division could fetch
about 3.5 billion Swiss francs ($3.9 billion). Sazali Hamzah,
managing director and CEO of PCG, told CW in December that the
company continues to focus on its growth ambitions and is extending
further in the downstream value chain by venturing into derivatives
and specialty chemicals to cement its position as a regional leader
in the chemicals market. PCG in September 2019 acquired specialties
company Da Vinci (Amsterdam, Netherlands). (IHS Markit Chemical
Advisory)
Swiss start-up Mirai Foods has raised USD2.4 million in seed
funding to prepare the commercialization of cultivated meat.
High-profile backers include Finnish food company Paulig Group and
technology investment company Team Europe. Mirai is the only
cultivated meat player in Switzerland and claims to be one of the
few globally that do not genetically manipulate their cells but
keeps the cells as they naturally occur in the animal. "Our mission
is to accelerate the world's transition to producing food that is
environmentally, ethically and economically sustainable," says
Christoph Mayr, Mirai co-founder and CEO. "And we want to do it as
cleanly and naturally as possible since this is important to many
consumers and regulators, particularly in Europe." Mirai says the
benefits of cultivated meat also include controlling the
composition of fatty acids and fat levels as well as the
elimination of the use of antibiotics. Paulig has a tradition of
focusing on plant-based food but Marika King, head of the group's
venture arm PINC, says innovative technologies open up new avenues.
"It is not a question of plant versus animal. At Paulig, we see it
is a new choice for consumers, let's make sure that they get it,"
he notes. Mirai is based in Zürich, Switzerland, and focuses
primarily on Wagyu beef. The company is now accelerating product
development of their slaughter-free meat and is working on
transforming their prototype into a commercial product. (IHS Markit
Food and Agricultural Commodities' Max Green)
The Ukrainian government has signed eight production-sharing
agreements (PSAs) since the beginning of the year, signaling a
renewed determination to kick-start upstream investment and boost
the country's flagging oil and gas production. The PSAs, comprising
blocks in several regions across the country (see table below), are
valid for 50 years, with a 5-year exploratory stage requiring
license holders to drill at least two wells and invest at least
UAH450 million (USD16.1 million). Ukraine initiated the PSA tender
process in mid-2019, but the process of negotiating terms and
finalizing contracts with PSA winners was delayed as a result of
Ukraine's July 2019 parliamentary elections that ushered in a new
government. Separately, state-owned Naftogaz Ukrainy has acquired
full control of Nadra Yuzivska, the license holder for the Yuzivska
block in eastern Ukraine, the country's largest shale gas project.
Shell had won the rights to the Yuzivska contract and signed a PSA
with the government in 2013, but the company subsequently withdrew
from the project after the eruption of armed conflict between
pro-Russian separatists and the Ukrainian military in the area.
Ukraine has made start-stop progress over the past few years in its
effort to boost domestic production and reduce its reliance on oil
and gas imports. Energy self-sufficiency has become an overt policy
goal, with the decision to halt gas imports from Russia in 2015
following Russia's annexation of Crimea and its support of a
separatist rebellion in eastern Ukraine the year before, but
Ukraine's efforts continue to flounder. The government launched an
aggressive push to auction licenses and offer blocks under PSA
terms in 2019 during the presidential and parliamentary elections;
predictably, the political uncertainty of the time undercut
investor interest, with several blocks failing to receive bids and
a cancellation of the results of the Dolphin PSA tender following
the installation of the new government. Against the backdrop of the
global economic downturn from the COVID-19-virus pandemic, Ukraine
struggled to elicit interest in a number of onshore blocks that
were offered to investors in 2020; meanwhile, domestic gas
production fell by 2.3% year on year to 20.2 billion cubic meters
(Bcm). (IHS Markit E&P Terms and Above-Ground Risk's Andrew
Neff)
The China International Development Cooperation Agency and the
Export-Import Bank of China on 20 January offered Kenya debt
service suspension amounting to USD245 million for the first half
of 2021. This follows the Paris Club of creditor nations on 11
January granting Kenya official debt service relief under the G20's
Debt Service Suspension Initiative (DSSI), with Kenyan authorities
stating they would seek to extend such relief to all bilateral
lenders. (IHS Markit Country Risk's William Farmer, Thea Fourie,
and Eva Renon)
The COVID-19 pandemic has severely disrupted economic activity
in Kenya, worsening fiscal and external liquidity constraints. For
example, Kenya's tourism ministry announced on 2 December 2020 that
fewer than 500,000 international tourists visited the country
between January to October 2020, versus 1.7 million international
travelers visiting during the same period in the previous year. The
government also has lost tax revenue by reducing PAYE and
value-added tax rates in early 2020 to help the population cope
with COVID-19-pandemic-related disruption and provided employment
programs for unemployed youths. As a result, IHS Markit assesses
that Kenya's fiscal deficit is expected to widen to an estimated
7.5% of GDP in 2021, from 6.4% of GDP in 2019.
The government has failed to disburse money to county
governments for November, December, and January, exacerbating
ongoing public-sector strikes and causing project delays. Clinical
officers and nurses in county-funded public health departments
across Kenya have staged strikes since 8 December 2020 over
inadequate supply of personal protective equipment (PPE) and
compensation payment arrears.
Granting Kenya payment relief worth USD630 million up to June,
the DSSI, and wider bilateral debt relief should facilitate renewed
funding to county governments. Savings made under the DSSI are
tracked and must be used to fund countries' COVID-19 responses;
payment of arrears to striking frontline healthcare workers,
therefore, is likely. The modest debt relief granted will not ease
Kenya's rising debt servicing obligations, with projected debt
service in 2021 at 68.3% of total foreign reserves. However,
Kenya's DSSI membership did not negatively affected its credit
rating or market standing ahead of a successful issuance of a
record volume of infrastructure bonds worth USD1.14 billion
(KES125.3 billion) on 19 January.
In response to budgetary shortfalls, the Kenyan government is
likely to rationalize expenditure on loss-making parastatal
agencies. Reportedly, the government has agreed to cut parastatal
spending to facilitate access to an USD2.3-billion extended fund
facility from the IMF. However, in line with IMF recommendations,
major fiscal changes are unlikely at least until July 2021, when
the new financial year begins, with the Fund recognising that
controlling and coping with the impacts of the COVID-19 pandemic
are a more-urgent priority than improving longer-term fiscal
sustainability.
Real seasonally adjusted retail trade sales in South Africa
contracted by 4.0% year on year (y/y) during November 2020, from a
2.3% y/y fall in the previous month. This brought real seasonally
adjusted retail sales down by 7.7% during the first 11 months of
2020. (IHS Markit Economist Thea Fourie)
Retail categories that showed the largest contribution to the
4.0% y/y decline during November included 'other' retailers (-3.2
percentage points); textiles, clothing, footwear and leather goods
(-1.1 percentage point); and general dealers (-1.1 percentage
point).
Only the household furniture, appliances and equipment and the
hardware, paint and glass retail categories made positive
contributions to the annual growth, contributing 0.4 and 1.1
percentage point respectively during November.
The weak retail numbers recorded in the South African market
during November was not a surprise. Disappointing 'Black Friday'
sales during November - despite more days allowed for special
offers by most retailers compared to previous years - bode negative
for the overall retail numbers. Retail sales of home improvement
products such as hardware, paint, and glass continue to perform
well as the culture of 'working-from-home' becomes more entrenched
amid the ongoing COVID-19 pandemic. Furthermore, an increase in
housing sales during the second half of 2020 supported retail
categories such as household furniture, appliances, and
equipment.
Latest statistics released in the South African Reserve Bank
(SARB)'s quarterly bulletin show that real durable spending during
the third quarter of 2020 recovered to pre-COVID-19-pandemic levels
after harsh COVID-19 lockdown measures were lifted in June. The
downturn in real spending on non-durable goods has been less severe
compared to the significant drop in semi-durable goods and services
spending over the period, which will take at least until 2022, or
even later, to reach pre-pandemic levels.
Currently, IHS Markit expects only a moderate increase in GDP
quarter-on-quarter (q/q) growth of 0.5% in the fourth quarter of
2020. This will follow the 13.5% q/q rebound in growth during the
third quarter of last year. Overall real GDP is expected to have
contracted by 7.3% in South Africa in 2020.
Asia-Pacific
Most APAC equity markets closed higher except for India -1.1%;
Hong Kong +2.4%, South Korea +2.2%, Japan +0.7%, Mainland China
+0.5%, and Australia +0.4%.
Foreign direct investment (FDI) flows into China rose by 4%
year on year (y/y) to USD163 billion, making China the world's
largest recipient of global investment in 2020, according to a
report released on 24 January by the United Nations Conference on
Trade and Development (UNCTAD). Meanwhile, the global FDI plunged
by 42% y/y with the decline in developed countries reaching 69%
y/y. (IHS Markit Economist Yating Xu)
According to China's Ministry of Commerce (MOF), FDI flows into
the non-financial sector expanded by 4.5% y/y to reach USD144.4
billion in 2020, the fastest rate achieved in five years and
marking the fourth consecutive year of increase. Services continued
to drive the headline FDI inflow, with FDI into the sector growing
12.9% y/y, accounting for 77.7% of total FDI. FDI into the
high-tech manufacturing sector increased 11.4% y/y, with high-tech
services FDI rising 28.5% y/y. Total FDI growth for December 2020
stood at 8.4% y/y, the fastest rate registered in the second half
of 2020.
By investor, FDI from the Netherlands and England rose 47.6%
and 30.7%, respectively. By regional recipient, China's eastern
regions, particularly Jiangsu, Guangdong, Shanghai, Shandong, and
Zhejiang, received nearly 90% of total FDI.
A fast return to positive GDP growth and sustained recovery, in
addition to the government's foreign investment facilitation
program, will continue to underpin mainland China's FDI inflows in
2021. China reported real GDP growth of 2.3% for full-year 2020 and
is expected to be the only major economy to have realized economic
growth; this resulted in China becoming a safe haven for
multinational investment during the COVID-19 pandemic-ravaged
year.
Meanwhile, global dependence on the supply chains of
multinational enterprises in China will continue to support the
economy's FDI and export growth while the pandemic still rages
on.
The disruptions caused by the pandemic have temporarily
reversed the two-year trend of declining FDI inflows in China.
However, whether the current growth trend will last depends on the
scope of China's service sector liberalization and developments in
China-US relations.
Uisee, a Chinese autonomous vehicle (AV) firm announced that it
had raised over CNY1 billion (USD154 million) in a new funding
round, reports Pandaily. The latest funding round included National
Manufacturing Transformation and Upgrade Fund, a CNY50.1-billion
state-owned fund to promote the China's manufacturing industry.
According to the source, the company has also recorded growth
during the COVID-19 virus pandemic due to its collaborations with
Changan Minsheng Logistics, FAW Logistics, BASF and Dongfeng Motor.
Uisee was founded in 2016, and is engaged in the creation of
mobility and logistic solutions with AI driving. The company was
founded by Gansha Wu and Yan Jiang, and has its headquarters in
Beijing. Robert Bosch Venture Capital is one of the lead investors
of Uisee, along with Shenzhen government-backed Shenzhen Capital
Group and state-backed CCI Investment. Uisee has bypassed advanced
driver-assistance systems (ADAS) and focuses on autonomous
operation. Uisee has supplied its technology to scenarios including
airports, parks, buses, and robo-taxis over the past years, and
Hong Kong International Airport is using Uisee's solutions to
automate its baggage tractors. In September 2020, Uisee partnered
with SAIC-GM-Wuling to build the first unmanned logistics route in
China. In January 2021, AV startup WeRide also completed a Series-B
funding round of USD310 million. (IHS Markit Automotive Mobility's
Automotive Mobility)
Chinese EV startup XPeng has said its P7 electric sedan is to
feature a Surrounding Reality (SR) display, which will work
together with its Navigation Guided Pilot (NGP) function, an
automated highway-driving feature, to give the driver an intuitive
automated driving experience. NIO has said that it is to introduce
a new software update in the ES8, ES6, and EC6 models to add new
features or improve existing features such as automated functions.
Xpeng and NIO have rolled out automated driving systems for highway
autopilot functions to compete with Tesla in the field of automated
driving. Tesla has been a dominate player in the EV market in terms
of sales volumes; however, the high purchase price of its Full
Self-Driving (FSD) automated driving system has hindered the
adoption of the technology among mass-market consumers. (IHS Markit
AutoIntelligence's Abby Chun Tu)
Reliance Industries says that EBDITA dropped 28% year-on-year
(YOY) at its oil-to-chemicals (O2C) business, to 97.56 billion
Indian rupees ($1.34 billion) in the fiscal third quarter ended 31
December. Quarterly sales for the sector were Rs838.3 billion, down
29.6% YOY. (IHS Markit Chemical Advisory)
The O2C business includes refining, petrochemicals, fuel
retailing through the Reliance BP Mobility business, aviation fuel,
and bulk wholesale marketing.
However, Reliance's O2C business achieved sequential
improvement with fiscal-third-quarter revenue up 10%
quarter-on-quarter (QOQ) primarily on higher volumes of
transportation fuels, purified terephthalic acid (PTA), and
polyester supported by improved product realization across
polymers, intermediates, and polyester. "We have delivered strong
operational results during the quarter with a robust revival in the
O2C segment," says Mukesh Ambani, chairman and managing director at
Reliance.
Segment EBITDA in the third quarter improved by 10.3%
sequentially due to higher product sales and shifting of product
placement from exports to the domestic market. Throughput grew from
16.8 million metric tons (MMt) to 18.2 MMt on a QOQ basis owing to
improved demand.
In the polymers business, prices of polypropylene (PP),
polyethylene (PE), and polyvinyl chloride (PVC) strengthened during
the quarter by 18%, 8%, and 29% QOQ, respectively, amid a strong
demand recovery in Asian markets. The company says that margins of
PP and PE over naphtha increased by 31% ($698/metric ton) and 13%
($541/metric ton), respectively, and PVC margins over naphtha and
ethylene dichloride rose 15% ($628/metric ton) on a QOQ basis led
by strong demand recovery across sectors. PVC prices were at a
decade-high level during the quarter, Reliance says.
In the intermediates and polyesters business, prices of
para-xylene (p-xylene), PTA, and ethylene glycol (EG) strengthened
during the quarter by 3%, 15%, and 8% QOQ, respectively, amid a
hike in energy values and improved downstream demand. P-xylene,
PTA, and EG margins increased by 4% ($141/metric ton), 57%
($168/metric ton), and 17% ($218/metric ton), respectively, amid
lower inventory across the polyester chain in China. Reliance says
it achieved higher capacity utilization rates on the back of
festive demand and the availability of labor in the downstream
sector. Polyester margins improved QOQ through differentiated and
specialty products.
Reliance's average steam cracker operating rate was 96%,
despite a scheduled shutdown at the company's refinery off-gas
cracker at Jamnagar, India.
The company's other business units include oil and gas, retail,
digital services, and financial services.
VinFast revealed several new products recently, including plans
for two to go on sale in the US and Canada as soon as June 2022.
VinFast announced three new utility vehicles on 22 January, with
two of them also planned for US and Canadian sales. The VF32, a
D-segment entry, and the VF33, an E-segment entry, are planned to
be offered in the US and Canada, while the smaller VF31 is not. The
VF32 and VF33 will offer electric and gasoline (petrol) engine
options, depending on market. The VF32 is 4,750 mm long, with a
2,950-mm wheelbase while the VF33 is 5,120 mm long and has a
3,150-mm wheelbase. The top-specification versions of all three
vehicles will also include a high level of driver assist, including
"Level 3 autonomous features," according to the VinFast statement.
The vehicles will have intelligent driver assist, adaptive lane
control, active cruise control, multi-point collision warning
systems, collision mitigation, intelligent automatic parking and a
driver monitoring system. High-specification versions will have
LiDAR sensors, 14 cameras capable of detecting objects up to 687
meters away, and 19 360-degree sensors for warnings at high speeds.
VinFast's autonomous system will use the Orin-X chip and the
company says it can process up to 200 gigabytes of data per second.
Depending on market, VinFast intends to offer automatic parking and
vehicle summoning. The interiors will use virtual cockpit
technology and leverage artificial intelligence technology, machine
and deep learning, facial recognition and a multilingual virtual
assistant, and over-the-air updates are also a part of the
equation. The VF31 will have a 10.28-inch center screen, while the
two larger utilities will have 15.4-inch screens. VinFast aims to
have all three models capable of achieving top 5-star ratings from
global safety agencies, including the US National Highway Traffic
Safety Administration (NHTSA) and Euro New Car Assessment Program
(NCAP). The VF32 and VF33 are planned to go on sale in the US,
Canada and Europe from November 2021, with deliveries in June 2022.
(IHS Markit AutoIntelligence's Stephanie Brinley)
Posted 25 January 2021 by Chris Fenske, Head of Fixed Income Research, Americas
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