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US equity markets closed sharply lower today, as investors
continue to weigh the negative financial implications of another
wave of COVID-19 driven closures in the US versus those closures
potentially increasing the likelihood of another round of
substantial government stimulus. Most APAC equity markets closed
higher, while European markets were higher for most of the day
before dropping from intraday peaks around 7:00am EST and most
closing lower on the day. Credit indices closed lower across Europe
and the US, while US Treasury bonds and German bunds closed higher
on the day.
Americas
Texas Gov. Greg Abbott rolled back some reopening plans and
Florida reported a nearly 80% increase in daily coronavirus cases,
as the U.S. marked a daily record of nearly 40,000 new infections.
Florida, along with Texas, California and Arizona, accounted for
nearly half of record-breaking 39,972 confirmed Covid-19 cases
reported on Thursday, according to data from Johns Hopkins
University. (WSJ)
US equity markets closed sharply lower; DJIA -2.8%, Nasdaq
-2.6%, and S&P 500/Russell 2000 -2.4%.
US Treasury curve closed higher and flattened on the day; 10yr
US govt bonds closed -4bps/0.65% yield and 30yr bonds -6bps/1.38%
yield.
CDX-NAIG closed +3bps/81bps and CDX-NAHY +24bps/526bps, which
is +3bps and +26bps on the week, respectively.
US investment groups led by Bill Foley and Quentin Koffey have
made a $7bn unsolicited bid to buy CoreLogic, a real estate data
analytics company, marking the first large hostile takeover attempt
during the coronavirus pandemic. Cannae Holdings, headed by Mr
Foley, and Senator, where Mr Koffey is a partner, have offered to
pay CoreLogic's shareholders $65 a share, a 23 per cent premium to
the data group's closing stock price on Thursday, to acquire the
California-based company. (FT)
Crude oil closed -0.6%/$38.49 per barrel.
In the span of two months, US liquefaction utilization has
plummeted from nearly 100% in the first half of April to 44% by
mid-June as many customers have cancelled cargoes in response to
weak LNG market prices. (IHS Markit Energy Advisory's Roger Diwan,
Terrell Benke, Gautam Sudhakar, and Matthew Shruhan)
Feed gas deliveries to US LNG facilities have fallen
accordingly to less than 4 Bcf/d.
The magnitude of the turndown confirms US LNG's ability to act
as a major swing producer when the LNG market is oversupplied.
With market fundamentals pointing to persistently narrow or
negative US LNG price differentials in the near term, IHS Markit
has substantially lowered its US LNG production outlook for this
summer and much of 2021.
IHS Markit expects utilization of US liquefaction capacity to
average less than 50% from June through September 2020 as offtakers
are likely to cancel more cargoes than previously anticipated and
projects hold back discretionary volumes.
Out of 80-90 cargoes per month that would have likely been
produced during this period, our revised base case outlook implies
approximately 50 cargoes per month cancelled from June through
August and approximately 35 in September.
The more significant change is to our 2021 outlook. Instead of
confining US LNG supply cuts to the typically lower-priced summer
and shoulder months, we now expect the US LNG turndown to extend
into parts of the winter as substantially higher Henry Hub prices
and continued depressed LNG market prices squeeze short-run US LNG
economics.
Amazon has acquired autonomous vehicle (AV) startup Zoox for
about USD1.2 billion, according to Financial Times. According to
two unnamed sources familiar with the matter, Amazon would work
with Zoox to create a ride-hailing fleet to compete with Waymo.
Amazon and Zoox were reported to be in advanced talks last month
over the former's acquisition of the latter. The acquisition will
help the e-commerce giant's efforts to automate its business.
Amazon is stepping up its efforts in the AV sector, as eliminating
the cost of a human driver could make delivery services far
cheaper. Last year, Amazon invested in Series B funding of AV
startup Aurora and tested autonomous trucks developed by Embark to
haul cargo on the I-10 highway in the United States. (IHS Markit
Automotive Mobility's Nitin Budhiraja)
US personal income decreased 4.2% in May and real disposable
personal income (DPI) declined 5.0%. The decrease in personal
income primarily reflected fewer "economic impact payments" made to
individuals as most of these were disbursed in April. Partially
offsetting the decrease in other government social benefits was an
expansion in unemployment insurance benefits, which rose $825.3
billion at an annual rate in May. (IHS Markit Economists James
Bohnaker and David Deull)
A 2.7% increase in wages and salaries also provided some
positive offset to personal income as a net 2.2 million workers
were added to payrolls in May. Continued rehiring will be crucial
for personal income as federal assistance dwindles in the coming
months.
Consumers resumed spending in May as stay-at-home orders and
business restrictions began to ease. Real personal consumption
expenditures (PCE) rose 8.1% month over month—considerably more
than we had expected—driven largely by a 28.4% surge in durable
goods spending. We revised up our estimate of second-quarter real
PCE growth 5.5 percentage points to -36.7%.
With outlays partially catching up with personal income in May,
the personal saving rate eased from 32.2% to 23.2%.
The core PCE price index edged up 0.1% in May after declines in
the previous two months, yet the 12-month change held steady at
1.0%.
Despite the strong initial rebound in consumer spending in May,
fading fiscal support and rising numbers of positive cases of
COVID-19 in many states are likely to prevent a completely smooth
recovery in the second half of 2020.
The US University of Michigan Consumer Sentiment Index rose 5.8
points (8.0%) to 78.1 in June after only marginal improvement in
May. The index was 22.9 points beneath its February peak. (IHS
Markit Economists David Deull and James Bohnaker)
The final June reading of consumer sentiment showed an
0.8-point retreat from the preliminary reading. Survey collection
concluded on 22 June. The period between the initial and final
readings coincided with an alarming resurgence in confirmed cases
of COVID-19, particularly in some southern and western states.
Changes in consumer sentiment diverged sharply by region in
June. Consumer sentiment in the Northeast region, where new
confirmed cases of the virus have generally continued to decline,
jumped by 19.1 points to 81.7—from the bottom of the pack to
the top. In contrast, consumer sentiment in the South and West rose
by only 0.5 and 3.3 points, respectively.
The current conditions index recovered 4.8 points in June, to
87.1, while the expectations index regained 6.4 points to
72.3.
Consumer sentiment rose 6.5 points to 81.6 among households
earning more than $75,000 a year and rose 4.3 points to 73.4 for
lower earners.
Buying conditions improved across the board in June. The index
of buying conditions for large household durable goods rose 10
points to 115, still depressed relative to its pre-COVID-19
range.
The index of buying conditions for homes was close to its 2019
range after an 11-point increase to 130, and the index of buying
conditions for vehicles climbed 9 points to 140—the highest
since June 2018—amid low interest rates.
Consumer sentiment regained some ground in June because of the
reopening of states and businesses, but recent developments in the
spread of the disease reinforce that the path to recovery will be
rocky and inconsistent between regions.
The quota report released by the US Customs and Border
Protection (CBP) shows quota status on Monday, 22 June 2020. All
major steel demand sectors are being pummeled by the COVID-19
pandemic: i.e., automotive, energy, construction, and machinery.
Around 17% of NAFTA steel capacity has been idled and industry
capacity utilization has fallen to around 54%; however, this is now
up on the low of 52%. This indicates the severity of demand
destruction that has taken place. It does however point to that
fact that mills are continuing to operate and that demand is
returning, albeit slowly. (IHS Markit Pricing and Purchasing's
William May)
Import quotas of blooms, billets, and slabs from Brazil reached
100% full by the start of June, continuing the trend we have seen
since the quota system was established in 2019. The appreciation of
the US dollar has made imported steel more competitive, perhaps
boosting demand for blooms, billets, and slabs in April.
Weakness in oil prices has undermined the import market of
certain oil country tubular goods (OCTG) product categories, such
as Argentinian Oil Country Pipe and Tube (99038018), which has seen
only 0.8% of its quota used in the second quarter. However, South
Korean OCTG (99038018) will finish the quarter around 61% filled.
Brazilian Pipe and Tube (99038045) fared better earlier on in the
quarter with demand filling 86.6% of its quota by the start of
June. Since then, however, there have been no further imports from
Brazil.
Despite weakness in fabricated structures and automobile
manufacturing so far this year, flat-rolled products have been
performing relatively well. Both Korean and Brazilian flat-rolled
products have seen demand (>98% of quota filled), although this
is not comparable to 2019 demand levels where these major
categories would fill mid-quarter. This year has so far benefitted
Brazil, South Korea, and Argentina who chose to accept quotas vs.
tariffs, which has made them 25% more competitive than European
products, for example.
Bellwether CBOT wheat futures continued to languish near
nine-month lows early this week as an approaching large 2020 world
harvest kept bulls on the defensive. Nearby CBOT July recently
slipped to the upper USD4.70's per bushel - still some way off the
sub-USD4.20 post-harvest bottom of September 2019 when both world
production and carryover stocks were smaller than this year's
(forecast) levels. A couple of private Russian crop forecasts added
to bearish sentiment, coming in higher than the recent USDA
forecast of 77 million tons and strengthening ideas that the top
exporter would remain a formidable force in pricing (usually among
the cheapest)for the season ahead. Better than expected yields from
the early US winter wheat harvest also encouraged some selling
along with a two-point rise to 52% in 'good/excellent' ratings for
the 70% or so still in the field (albeit still below last year's at
this point). More supportive was news that French soft wheat, the
EU's largest export source, remained in far worse condition than
last year, the lowest rated for over a decade. The Commission also
cut its total EU soft wheat crop forecast by 4.3 mln to 117.2 mln
tons and exports by 1.5 mln to 25 mln tons versus last year's
upwardly revised 34 mln. There have also been some concerns about
US spring wheat ratings, declining from an excellent start under
spreading drought conditions in more northerly US states where the
bulk of the crop is grown. Some rain on the radar may help. Quality
hard spring wheats made up about 27% of last year's total US wheat
crop. There have also been some rumblings about Canada's quality
spring wheat crop facing dryness, especially in key province
Saskatchewan although there too, forecast rain may soon bring some
relief. (IHS Markit Food and Agricultural Commodities' John
Buckley)
The central bank of Mexico (Banco de México: Banxico) on 25
June cut the policy rate by 50 basis points to 5.0%. This is the
fifth cut during 2020 and the fourth during the pandemic. At the
beginning of the year the policy rate stood at 7.25%, while
inflation was 2.8%. (IHS Markit Economist Rafael Amiel)
Deteriorating economic and financial conditions have prompted
further action from Mexico's monetary authority. In April, Banxico
announced additional measures to strengthen the credit channels,
provide liquidity, and foster an orderly functioning of financial
markets. Combined with measures previously announced, the monetary
stimulus now amounts to MXN750 billion (USD30.7 billion), or 3.3%
of GDP.
Although overall inflation is at 3.2%, core inflation, which
excludes some agricultural products and energy-related items, is
currently at 3.7%.
Banxico targets inflation at 3% +/- 1 percentage point;
inflation is currently at 3.2%, which is close to the center of the
targeted band. IHS Markit assesses that the deep recession the
country is going through will be the dominant force in the equation
and thus inflation will remain subdued during the rest of the
year.
As of April, Chile's economy has lost 0.85 million jobs
compared with the end of 2019; this accounts for approximately 10%
of the total jobs. The worst-affected sectors include artistic,
entertainment, and recreation activities (-32.4% employment),
accommodation and food services (-21.1%), and household activities
(-19.2%). (IHS Markit Economist Ellie Vorhaben)
Chile was on a generally upward trend in terms of job creation
through January 2020. As global economic growth slowed and the
number of COVID-19 cases increased, job losses began in February
and have accelerated since then.
The Chilean economy is estimated to have declined by 14.1%
annually in April because of a 15.5% decline in non-mining activity
and a -0.1% decline in the mining sector.
There are not yet many indicators of economic growth for May,
but IHS Markit anticipates that it could be as bad or worse as
April because of falling copper exports, which will dampen the
relatively robust mining sector.
As of 24 June, Chile had 254,416 confirmed cases and 4,731
deaths, making it the third worst impacted country in Latin
America, behind Brazil and Peru. On 20 June, Codelco, the
state-owned copper mining company, announced that it would be
suspending work in mines in the region of Antofagasta because of
rising case counts and safety concerns.
Belize's governing United Democratic Party will hold its
leadership convention on 12 July to replace Prime Minister Dean
Barrow ahead of the November 2020 general election, Amandala
newspaper reported on 21 June. The process overlaps with Belize's
request to negotiate an interest payment deferral on its
US-dollar-denominated 2034 sovereign bond with about USD526.5
million outstanding amid a COVID-19-virus-related collapse of its
tourism sector; failure to reach an agreement on the bond will
increase non-payment and technical default risks in 2020. (IHS
Markit Economists Paula Diosquez-Rice and Kari Pries)
Bondholders likely to push for an early agreement on
negotiation terms. Belize's bondholders responded in an 18 June
statement that they had formed a creditor committee to study the
government's request, which is likely to be discussed through early
July giving ample time before the 20 August interest payment
deadline.
Belize's political cycle increases non-payment risks if the
bond renegotiation agreement is delayed beyond mid-July. Barrow has
served the maximum number of terms under Belize's constitution and
has stated that he will step down before the 2020 electoral
campaign to allow his successor time to settle in and establish an
individual platform. If bondholder negotiations extend beyond the
12 July United Democratic Party (UDP) leadership convention, as is
likely, it is likely that Barrow's successor will request to
participate in the bond renegotiation process.
Rejection by a majority of bondholders would cause Belize to
face outright default or force it to make a payment despite acute
economic dislocation, increasing pressure on its scarce
resources.
Europe/Middle East/ Africa
Most European equity markets closed lower except for UK +0.2%,
but all closed near the lows of the day; Spain -1.3%, Germany
-0.7%, Italy -0.6%, and France -0.2%.
10yr European govt bonds closed mixed; UK +2bps,
France/Italy/Spain flat, and Germany -2bps.
iTraxx-Europe closed +2bps/72bps and iTraxx-Xover
+12bps/409bps, which is +6bps and +27bps on the week,
respectively.
Brent crude closed -0.5%/$40.93 per barrel.
The European Union moved closer to recommending that travelers
from the U.S. shouldn't be allowed to enter the bloc even after
July 1, according to a draft decision being considered by
governments. Diplomats have agreed on a provisional list of 15
countries, including Canada, Japan, Australia and South Korea, that
should be allowed into the EU because their level of new Covid-19
cases meets the bloc's safety criteria, according to a draft seen
by Bloomberg. Chinese residents will also be allowed to visit the
EU, on the condition that Beijing confirms that it will also allow
European citizens to travel to China, according to the document.
(Bloomberg)
Volvo and Waymo have announced a partnership with the goal of
developing an autonomous vehicle (AV) designed for ride-hailing
use, according to a joint statement made by them. Waymo is now the
"exclusive" Level 4 partner of Volvo Car Group and the first
project will be to integrate Waymo's fully AV technology into an
"all-new mobility-focused electric vehicle platform for
ride-hailing services". The strategic partnership includes Volvo
Car Group as well as affiliates Polestar and Lynk & Co,
according to the statement. Volvo also has an agreement with Uber,
although Uber's AV development slowed after a fatal accident in
2018 and against the cost cutting measures introduced to offset the
lost revenues owing to the COVID-19 virus in the first half of
2020. However, according to Reuters, Volvo will continue to provide
vehicles to Uber, despite it not working with Uber on AV
deployment. The statement issued on 25 June was brief and did not
indicate when or where the first vehicle would be deployed,
production location, or timing; it also does not yet indicate
whether the vehicle would be operated in a Volvo or a Waymo fleet.
Volvo was previously working with Uber on AVs. (IHS Markit
AutoIntelligence's Stephanie Brinley)
Passenger car production in the United Kingdom dropped
significantly in May as some automakers continued
COVID-19-virus-related stoppages. According to the latest data
published by the Society of Motor Manufacturers and Traders (SMMT),
output in May dropped by 95.4% year on year (y/y) to just 5,314
units. Of this, 4,260 units were designated for export, a decline
of 95.5% y/y, and 1,054 units were for domestic sale, down 95.2%
y/y. The drop has meant that year-to-date (YTD) volumes are now
down by 41.7% y/y to 557,295 units. (IHS Markit AutoIntelligence's
Ian Fletcher)
Spanish vehicle production remained weak in May despite the
resumption of output following COVID-19-virus-related stoppages.
According to data published by the Spanish Association of Passenger
Car and Truck Manufacturers (Asociación Española de Fabricantes de
Automóviles Turismos y Camiones: ANFAC), passenger car output
during the month dropped by 68.3% year on year (y/y) to 73,322
units. (IHS Markit AutoIntelligence's Ian Fletcher)
This has dragged production volumes down during the five months
since the beginning of the year by 41.2% y/y to 586,708 units.
There have also been no pick-up trucks recorded as built this
month because of ongoing strike action related to Nissan's
Barcelona (Spain) facilities, which has meant that output is now
down by 69.6% y/y in the year to date (YTD) to 5,696 units.
In the commercial vehicle category, light commercial vehicle
(LCV) output fell 79.1% y/y to 6,068 units in May, resulting in YTD
production being down by 41% y/y to 76,127 units.
Production of box vans retreated by 51.2% y/y in the month to
11,250 units and this has meant that its YTD was down by 38.2% y/y
at 64,829 units.
With its main policy rate more than 300 basis points below the
prevailing rate of annual inflation, Turkey's central bank has
finally paused its interest-rate reduction cycle, holding the
one-week repo rate unchanged at 8.25% at its June meeting. However,
the bank continues to ease monetary policy by finding other ways to
reduce the interest rate at which it funds the markets and may
resume further cuts. (IHS Markit Economist Andrew Birch)
After cutting its main policy interest rates at nine
consecutive Monetary Policy Committee meetings, the Central Bank of
the Republic of Turkey (CBRT) finally paused its interest-rate
reduction cycle at the 25 June meeting. The one-week repo rate was
unchanged at 8.25%.
In its press release alongside its regularly scheduled meeting,
the CBRT pointed to a recent rise in core inflation because of
increased, pandemic-related unit costs. The bank suggested that
supply-side influences on headline inflation were paramount in the
first half of the year, with depressed demand-side influences
likely to have a greater effect in the latter half of the
year.
With the cuts to the main policy rate at a pause for now, the
one-week repo rate remains 1,575 basis points down from when the
rate-cutting cycle began in July 2019. Moreover, after the
reacceleration of inflation in May, the main policy rate is 315
basis points below the prevailing, annual, consumer-price inflation
rate of 11.4%.
Ford Sollers is planning to reduce the production rate at its
site in Yelabuga (Russia), reports TASS news agency. A spokesperson
for the company said in a statement, "Considering the market
situation, macroeconomic changes and the effect of the coronavirus
pandemic influencing on the automotive industry, Ford Sollers
revises the company's operating conditions. The transition to the
four-day workweek will be implemented from July 1 for the purpose
of preserving the staff and business efficiency." The
representative added that the automaker will be ready to return to
normal operations when demand improves. The site, which builds
Ford's Transit and Transit Custom models, had previously undertaken
stoppages related to COVID-19-virus pandemic measures between 30
March and 24 April. The decision to reduce production comes as
demand in the country has been far weaker, with light-vehicle
demand halving during May. (IHS Markit AutoIntelligence's Ian
Fletcher)
Saudi Arabia's largest lender, National Commercial Bank (NCB),
announced on 25 June that it has signed a non-binding agreement to
pursue a merger with regional rival Samba Financial. Samba was the
sector's fifth largest bank as of end-2019. NCB's statement
explains that the combined entity will operate under the NCB name.
(IHS Markit Banking Risk's Gabrielle Ventura)
NCB is expected to purchase Samba shares at a 19.2-27.5% market
premium.
The next stage will be for each bank to preform due diligence
and determine whether both agree to move forward with the process,
before seeking regulatory approval from the Saudi Arabian Monetary
Authority and the Capital Market Authority.
NCB is Saudi Arabia's largest lender, accounting for around 20%
of total banking sector assets. Samba accounted for 9.7% of total
sector assets when last reported in December 2019.
The combined entity would account for approximately 30% of
total sector assets.
Asia-Pacific
APAC equity markets closed mixed; Australia +1.5%, Japan/South
Korea +1.1%, India +0.9%, and Hong Kong -0.9%.
Indian automaker Mahindra & Mahindra (M&M) is in the
process of selling its South Korean subsidiary SsangYong and has
appointed a lead manager for a potential exit from the loss-making
affiliate, reports the Yonhap News Agency. Neither M&M nor
SsangYong have confirmed whether they have named an unidentified
adviser for the stake sale. M&M acquired SsangYong from
creditors in 2010 and has since struggled to revive its fortunes.
M&M currently owns a 74.65% stake in SsangYong. The latest
report comes after M&M recently revealed that it is looking for
a financial investor for its South Korean subsidiary and that it
may give up control of the unit as part of a plan to exit all its
loss-making businesses. SsangYong is struggling, and recorded a net
loss for the 13th consecutive quarter in the first quarter of 2020.
(IHS Markit AutoIntelligence's Jamal Amir)
Bridgestone Corporation has completed the purchase of iTrack
Solutions Business from UK-based Transense Technologies, according
to a Bridgestone official statement. Vice-president and senior
officer of G-MAA (Mining, Aircraft, Agriculture) Solutions Business
at Bridgestone Corporation, Tomohiro Kusano, said, "This
acquisition helps move Bridgestone closer to its goal of becoming a
leader in sustainable and advanced mobility solutions." iTrack is a
provider of tire management solutions in the off-road segment
offering products such as comprehensive tire-pressure monitoring
systems for mining tires. Along with tire temperature and pressure
monitoring, its tire management platform provides customizable
geofencing and speed alerts to help mining customers optimize their
operations for increased productivity and profitability.
Bridgestone has accelerated its efforts to transform into a global
leader in advanced mobility and sustainable solutions. In November
2019, it announced plans to create 'Bridgestone Innovation Park', a
global research and development center. (IHS Markit
AutoIntelligence's Nitin Budhiraja)
Posted 26 June 2020 by Chris Fenske, Head of Capital Markets Research, Global Markets Group, S&P Global Market Intelligence
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