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European and US equity markets closed higher, while APAC markets
closed mixed. US government bonds closed higher and the curve
flattened, while benchmark European government bonds closed mixed.
European iTraxx and CDX-NA were close to unchanged on the day, with
IG and high yield across both indices tighter on the week. Copper
was higher on the day and closed at the highest level in over seven
years, while gold and silver were lower.
Americas
US equity markets closed higher on the holiday shortened
session, with the Nasdaq and S&P 500 reporting new record high
closes; Nasdaq +0.9%, Russell 2000 +0.6%, S&P 500 +0.2%, and
DJIA +0.1%.
10yr US govt bonds closed -4bps/0.85% yield and 30yr bonds
-5bps/1.58% yield.
CDX-NAIG closed -1bp/51bps and CDX-NAHY -4bp/307bps, which is
-5bps and -33bps week-over-week, respectively.
DXY US dollar index closed -0.2%/91.78.
Gold closed -1.0%/$1,788 per ounce and silver -3.1%/$22.64 per
ounce.
Crude oil closed -0.4%/$45.53 per barrel.
Copper closed +3.3%/$3.42 per pound, which is its highest close
since March 2013.
As per the International Copper Study Group (ICSG), Peru's
copper concentrate output declined 16.5 percent due to the COVID-19
pandemic as well as weather and operational disruptions in the
first eight months of this year. The decline was quite significant
of 38% y/y during April-May. In contrast to Peru, Chilean output
marginally increased by 0.5% y/y in the first eight months of this
year. (IHS Markit Maritime & Trade's Rahul Kapoor and Pranay
Shukla)
As per IHS Markit's Commodities at Sea, Peru and Chile copper
concentrate exports in the first eight months of 2020 stood at
2.4mt (down 11% y/y) and 9.7mt (down 12%), respectively. During the
reported period, shipments to China, Japan, the USA, and South
Korea stood at 5.9mt (up 11% y/y), 1.7mt (down 31%), 1.3mt (down
2%), and 1.1mt (down 9%), respectively.
Based on the average of estimates provided by independent
consultants to ICSG, China's bonded stocks are thought to have
declined by about 3kt over the first eight months of 2020 compared
to the year-end 2019 level. Overall, as per ICSG, the global copper
market was in deficit to the tune of 293kt, with apparent copper
usage increasing 12.5% in China versus a 10% decline in the rest of
the World.
During the first 10-months of this year, Chilean and Peruvian
copper concentrate shipments stood at 11.7mt (down 17percent y/y)
and 3.3mt (almost at previous year levels), respectively. In terms
of import countries, shipments to China (Mainland), Japan, the USA,
and South Korea stood at 7.5mt (up 9% y/y), 1.9mt (down 33%), 1.5mt
(down 26%), and 1.4mt (down 4%), respectively.
As of the end of October 2020, copper stocks held at the major
metal exchanges (LME, COMEX, SHFE) totaled 382kt, an increase of
79kt (26%) from stocks held at the end of December 2019. Stocks
were up at the LME (17%), at COMEX (+113%), and SHFE (+13%).
Copper concentrate shipments during the first 24-days of
November 2020 from Chile calculated at 989kt (1,236mt on a 30-Day
basis) versus 1,348kt (on a 30-Day basis a year ago). From Peru for
the same duration shipments are calculated at 238kt (298kt on a
30-Day basis) versus 495kt a year ago.
For 4Q20 and the entire 2020, copper concentrate shipments from
combined Chile and Peru are forecasted at 6.1mt (up 2% y/y) and
21.7mt (up 4% y/y), respectively. IHS Markit projects that
conditions will remain bullish overall in the copper market, driven
by factors including good Chinese demand, which will support the
mining sector and the Chilean peso. Downside risks include social
unrest and protests into the end of the year, as well as delays in
the implementation of an effective treatment/vaccine to stop or
significantly reduce COVID-19 infections, which could lead to
further lockdowns and raise investor uncertainty.
The cranberry harvest in the US and Canada will be lower than
estimated due to adverse weather conditions in the main growing
areas. The harvest in Quebec was concluded just before the Indian
summer and yields were down by 10%, with volumes for conventional
close to historical levels, while the organic is below average.
Yields declines are linked to low flowering compared with previous
seasons, but summer and autumn temperatures helped the ripening to
a good size and color, processor Fruit d'Or reported. Severe
drought has affected fruit set and brix in both Massachusetts and
New Brunswick, despite a high number of buds ahead of the start of
the harvest. Massachusetts should have had a record harvest this
year with a 11% increase compared with last year, but it might be
down by 10-12% as severe drought affected the south-east of the
state. In Wisconsin, the US largest producer, berries didn't grow
big enough which should take overall volumes down, according to
some reports. The US Cranberry Marketing Committee reports that
cranberry stocks as of June 2020 are down 22% from a year ago,
while processors reported a stable increase in demand for this
product. Latest data available showed a 10% increase in sales for
processed cranberries in 2019, while sales for fresh and
concentrate are stable on a year-on-year comparison. Because of the
low yields, volumes are not expected to stabilize frozen fruit
inventories and prices should increase. (IHS Markit Food and
Agricultural Commodities' Cristina Nanni)
The US Securities and Exchange Commission (SEC) has proposed a
pilot program that would allow app-based technology companies to
offer equity compensation to their gig workers, reports Reuters.
The US securities regulator said that, under the program, companies
such as Uber and Lyft would be able to pay drivers up to 15% of
their compensation in stock rather than cash. Reportedly, Jay
Clayton, SEC chair, said, "Work relationships have evolved along
with technology, and workers who participate in the gig economy
have become increasingly important to the continued growth of the
broader U.S. economy." Currently, companies in the United States
are not allowed to pay gig workers in equity but can pay regular
employees in stock. This proposal does not aim at increasing gig
workers' pay but at creating flexibility on whether pay is in cash
or equity. Recently, Uber and Lyft won the approval of voters in
the US state of California for Proposition 22, allowing the
companies to classify their full-time drivers as contractors rather
than employees. This will exempt these companies from paying other
benefits such as reimbursement of expenses and healthcare subsidies
to their drivers. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Japan Bank for International Cooperation (JBIC), Japan's
state-owned export credit agency, has agreed to give Nissan up to
USD2 billion as part of a USD4.1-billion credit agreement,
according to Reuters. The money is intended to help Nissan finance
its car sales in the United States. The latest sum is more than
three times a USD582-million loan extended by JBIC in July to help
Nissan finance car sales in Mexico. The money will help Nissan
provide its customers with loans to help them purchase its cars,
and it will then receive the loan amount back in monthly
instalments. In September, the Japanese government guaranteed
JPY104 billion of a loan from the Development Bank of Japan (DBJ)
to Nissan. In July, Nissan was reported to have received JPY832.6
billion in financing from its creditors since April to improve its
cash position and help offset declining sales due to the COVID-19
virus pandemic. Also in September, the automaker created a regional
board with chief operating officer (COO) Ashwani Gupta as its
chairman. The regional board has been created to ensure that the US
regains its position as a profitable market for the automaker. (IHS
Markit AutoIntelligence's Nitin Budhiraja)
World Economic Forum (WEF), an international organization that
aims to enhance public-private collaboration, has released a report
for regulators to implement autonomous vehicle (AV) policies. The
report, called "Safe Drive Initiative: Creating Safe Autonomous
Vehicle Policy", identifies the pressures around understanding the
safety of AVs as there is a governance gap, reports Automotive
News. The report reviews the approaches of multiple countries and
finds them to have an arbitrary outlook, which "creates complicated
patchwork of regulation and policy". The report believes that
harmonized approaches will accelerate the development of AV
technology around the world. Tim Dawkins, lead author of the
report, said, "Safety needs to be defined by the operating
environment. That unfortunately is not going to allow interoperable
licensing or permitting approaches. It's just the reality of
development. But if we agree on common terms and at a baseline
level that a learner's permit is a first step, that's where we see
this framework fitting." As automakers and software companies
continue to push forward developing AV technology without
regulations, there remains risk that some solutions will ultimately
not be approved when the regulations are finally formulated.
However, it is difficult to determine regulations in absence of
understanding the constraints and benefits of the technology. In
addition, the development of AVs is progressing, and companies are
gearing up to remove human back-up drivers from their vehicles.
However, regulators have not been moving as fast. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
President of the Mexican Association of Railroads (Asociación
Mexicana de Ferrocarriles: AMF) Óscar del Cueto said on 25 November
that there have been a total of 164 days of rail blockades in
Mexico in the year to date, the highest on record, compared with 64
in 2019. (IHS Markit Country Risk's Johanna Marris)
Cargo disruption from rail blockades is likely to continue in
2021 because of rising job insecurity and ongoing environmental and
labour demands. Rail blockades in particular have caused
unprecedented disruption in Mexico this year; blockades by
agricultural workers in Meoqui, Chihuahua lasted for 60 days,
costing over USD1.2 billion in losses and disrupting supply chains
for manufacturing hubs and US importers. Michoacán and Sonora have
also been badly affected, with current blockades in Uruapán already
lasting 55 days as of the time of writing, costing around USD40
million per day, according to the Mexican Confederation of
Industrial Chamber.
Rising unemployment amid the economic recession, combined with
ongoing concerns about environmental issues such as water scarcity
and salary and working conditions, is likely to fuel continued
protest blockades extending through 2021. The lack of alternative
road transport pushing up costs, losses from perishable goods,
factory stoppages because of lack of inputs, and greater
vulnerability to theft while cargo is delayed are all likely to
continue.
Protests at tollbooths will increase transport costs and delays
for road cargo transport. About 20-25 protest incidents occur at
toll booths across approximately 10 states every day, according to
the National Association of Road Infrastructure Concessionaires.
Groups of 15-20 protesters typically take over a toll booth for the
day, charging individual drivers an additional 'fee' on top of the
official toll charge processed automatically by machines.
Road cargo theft risks are rising in Jalisco and Veracruz
states, despite an overall decline in national incidents. Total
road cargo theft incidents declined in January-October 2020 to
7,934 from 8,663 in the same period of 2019, according to
government data. The significant decline in the volume of road
vehicles because of COVID-19-virus-related operational stoppages is
likely to have contributed to this, as well as successful security
operations at theft hotspots in Puebla state where the largest
annual decline was reported.
Pharmaceutical products and medical supplies have been
increasingly targeted for theft since the COVID-19-virus outbreak
in March. The National Union of Pharmacy Entrepreneurs (Unión
Nacional de Empresarios de Farmacias: UNEFARM)'s president Juvenal
Becerra Orozco said that pharmaceutical cargo theft increased by
20% during Mexico's 'lockdown' period (March-May 2020). Since 4
October, there have been several high-profile robberies of medical
supplies, including children's cancer medicine (Iztapalapa, Mexico
City), influenza vaccinations (Nezahualcóyotl, Estado de México),
and dialysis equipment (Cuauhtémoc, Mexico City).
Europe/Middle East/Africa
European equity markets higher across the region; Spain +1.1%,
Italy +0.7%, France +0.6%, Germany +0.4%, and UK +0.1%.
10yr European govt bonds closed mixed; Spain/UK/France +1bp,
Germany flat, and Italy -1bp.
iTraxx-Europe closed flat/49bps and iTraxx-Xover -3bps/265bps,
which is -3bps and -17bps week-over-week, respectively.
Brent crude closed +1.0%/$48.25 per barrel.
The International Organization of Securities Commissions
(IOSCO) held its 45th annual general meeting (AGM) online between 9
and 18 November, with 480 members from 159 jurisdictions
participating. IOSCO summarized its conclusions in a 23 November
statement. IOSCO's board has established two main areas as new
priorities for 2021: financial stability and systemic risks
relating to non-bank financial institutions; and operational risks,
including those of fraud and misconduct, arising from changed
operating practices, including remote working, as a result of the
COVID-19 virus pandemic. Another key focus, which was already an
IOSCO priority, will be to build on current initiatives relating to
corporate disclosures regarding climate change and sustainability.
(IHS Markit Economist Brian Lawson)
Dogger Bank wind farm owners, Equinor and SSE Renewables,
announced the financial close on the first two phases of the
project. The first two phases consists of two 1.2 GW phases being
constructed at the same time to leverage on synergies arising from
geographical proximity, and the use of common technology and
contractors. SSE Renewables will lead the construction while
Equinor will lead the operations. The size of the project
represents the largest offshore wind project financing to date
globally. (IHS Markit Upstream Costs and Technology's Melvin
Leong)
Passenger car production in the United Kingdom dropped 18.2%
year on year (y/y) during October, according to the latest data
published by the Society of Motor Manufacturers and Traders (SMMT).
UK passenger car output dropped from 134,669 units in October 2019
to 110,179 units last month. Of total production last month, 91,550
units were designated for export, a decline of 19.1% y/y, and
18,629 units were for domestic sale, down by 13.6% y/y. In the year
to date (YTD), production volumes are now down by 33.8% y/y to
743,003 units, exacerbated by the stoppages caused by the COVID-19
virus pandemic earlier in the year. According to the SMMT,
commercial vehicle production also fell during October, declining
by 25.6% y/y to 6,761 units. Of this total, the number of vehicles
built for export was down by 21.1% y/y to 3,683 units and
production for domestic sale contracted by 30.4% y/y to 3,078
units. Output of vehicles in this category was down by 18.1% y/y to
50,934 units in the YTD. The rate of decline in production in
October was far greater than that seen in some of the preceding
months, although not to the depths seen during April and May when
the majority of output in the country halted. The data comes as
fresh lockdowns are being implemented both locally and in some key
export markets such as France and Germany. (IHS Markit
AutoIntelligence's Ian Fletcher)
Autonomous vehicle (AV) development center ASSURED CAV in the
United Kingdom is set to open in March 2021. The facility is in
Nuneaton and has been built by automotive engineering giant HORIBA
MIRA. The center's ultrafast 5G mobile private network has been
provided by Vodafone. ASSURED CAV is claimed to be
"globally-unique", as it is designed to offer the environment
needed to support safe deployment of AVs on public roads. Over
recent years, EUR100 million (USD118 million) has been invested in
development of this facility. Declan Allen, managing director at
HORIBA MIRA, said: "We've been on a journey to create ASSURED CAV;
it represents many years of intense research and investment to
bring together one of the most comprehensive CAV [connected and
autonomous vehicle] validation ecosystems in the world." The UK
government plans to be a leader in the AV field and expects to
launch the first fully driverless cars on public roads by 2021.
This year, the UK has started building a 186-mile test road for
connected and AV (CAV) trials in the West Midlands. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
The economic sentiment indicator (ESI) for the eurozone fell in
November for the first time since April, echoing other recent
indicators as more stringent COVID-19 virus containment measures
continue to take their toll on the economy. (IHS Markit Economist
Ken Wattret)
Although the ESI's decline of 3.5 points was nowhere near as
large as the precipitous falls in March and April during the first
wave of the pandemic (see chart below), the fall is still
relatively large by historical standards, at roughly the same order
of magnitude as that at the height of the eurozone crisis of
2011-12.
At 87.6, the ESI is almost 12 points below its long-run average
and almost 16 points below its pre-COVID-19 virus level in
February, despite the rebound from May to October.
All five key sectors showed month-on-month (m/m) declines in
November, with services and retail falling furthest, both by over 5
points. Industrial sentiment (which has the highest weight in the
ESI, at 40%) fell the least, by just under a point, echoing the
outperformance already evident in IHS Markit's 'flash'
manufacturing PMI for November, with export orders continuing their
recent improvement.
Services sentiment has been hit far harder than sentiment in
any other sector by the COVID-19 virus pandemic, reflecting the
nature of the shock and related containment measures, with
November's level almost 24 points below its average since 2000 (see
chart below).
Construction sentiment has continued to outperform (see chart
below), with sentiment slightly higher than its long-run average in
November, although this in part reflects the exceptional weakness
in some member states in the aftermath of the global financial
crisis.
November also experienced the second straight decline in the
eurozone employment expectations index, which fell by over 5 points
cumulatively in the past two months, not a good sign for future
labour market conditions and, in turn, consumer sentiment and
spending.
The weakness of November's ESI is further reason to expect a
sizeable contraction in the eurozone's GDP in the fourth
quarter.
The magnitude of the contraction in GDP will be far smaller
than the second quarter's collapse, given the differences in the
breadth of COVID-19 virus restrictions this time around, with
manufacturing and construction activity less affected. However,
parts of the service sector, including hospitality, will again be
very severely affected.
Additional stimulus will be announced on 10 December, given the
material reassessment of growth and inflation prospects, as already
signaled in the European Central Bank's (ECB) October press
conference. The Pandemic Emergency Purchase Programme (PEPP) and
long-term liquidity provision remain the favored policy
instruments. (IHS Markit Economist Ken Wattret)
The account of the ECB's most recent policy meeting, which
concluded on 29 October, contains little in the way of
surprises.
After a strong (albeit partial and uneven) mid-2020 rebound,
incoming data signal that the recovery is losing momentum. The rise
in coronavirus disease 2019 (COVID-19) cases and the
intensification of containment measures will restrict activity
(especially in high-contact sectors), constituting a clear
deterioration in the near-term outlook.
High-frequency mobility indicators for transport, retail, and
recreation have started to weaken. Activity in the services sector
is being hit the hardest, since it is most affected by the renewed
restrictions on mobility and social interaction.
Risks surrounding the growth outlook are clearly tilted to the
downside.
The pandemic might have longer-lasting effects both on the
demand side and the supply side, reducing potential growth.
Concerns were also expressed about the possibility of non-linear
effects arising from financial amplification channels.
Headline inflation is likely to run below previous expectations
and will remain negative through to early 2021, longer than
estimated in the September baseline projection. Inflation excluding
energy and food has fallen to an all-time low of 0.2%.
Monetary policy measures taken in response to the pandemic have
been effective and efficient in stabilizing financial markets and
supporting financing conditions for households and businesses. Risk
asset markets are largely unchanged despite significant
intra-period fluctuations and, overall, eurozone financial
conditions remain broadly stable.
Unusually, the ECB's policy statement and press conference in
October effectively pre-announced more stimulus following the
subsequent meeting on 10 December. As a result, the uncertainty
currently is not about whether or when the ECB will deliver further
easing but the precise form it will take.
In our baseline forecast, we expect a EUR500-billion
(USD595-billion) uplift of the PEPP, with purchases to be extended
to end-2021 at least, along with enhancements to the ECB's
long-term liquidity provision to commercial banks (via TLTRO-III
currently). There is also scope for some creativity regarding the
range and maturities of assets that the ECB is willing to buy as
part of its various asset purchase programs.
The European Food Safety Authority (EFSA) is seeking
toxicological and other safety data on the use of mono- and
di-glycerides of fatty acids (E 471) especially in infant formula
for a risk assessment under the EU's rolling re-evaluation program
for substances that were already on the market when the 2008 food
additives regulation (1333/2008) took effect on 20 January 2009.
EFSA's call for data sets a 31 December deadline to submit studies
- published, unpublished or newly generated - on E 471 safety
particularly when used in infant formula or that plug current gaps
in knowledge. When EFSA's Panel on Food Additives and Nutrient
Sources added to Food (ANS Panel) adopted an opinion on E 471 in
2017 the risk assessment approach followed at the time did not
apply to infants below 12 weeks of age. The Panel said that it
would carry out the assessment separately for this age group in
line with 2017 guidance from EFSA's Scientific Committee on the
risk assessment of substances present in food intended for infants
below 16 weeks of age. The call for data covers the data needed for
this risk assessment. EFSA wants information about the use of mono
and di-glycerides of fatty acids (E 471) in the infant formulae for
babies under 16 weeks old, either alone or in combination with the
food additives lecithins (E 322), citric acid esters of mono- and
diglycerides of fatty acids, known as CITREM (E 472c) and sugar
esters of fatty acids (E 473). The Authority also needs data on the
fate and the reaction products of E 471 as well as specification
requirements, particularly identity and purity, for the additive.
(IHS Markit Food and Agricultural Policy's Sara Lewis)
German automotive component manufacturer Mahle has accelerated
its move into non-traditional components after commissioning an
advanced testing facility for electric drives in Stuttgart,
according to a company statement. Mahle describes the facility as a
test bench and it will be used to test e-axles and e-drive units
for a wide range of electric and hybrid vehicles, with the first
test of a unit being completed for a customer this week. Dr Martin
Berger, vice-president for corporate research and advanced
engineering at Mahle said, "With the commissioning of the test
bench, MAHLE continues the targeted expansion of its global range
of services for e-mobility. Both our customers and our developers
can now benefit from an ultramodern facility, which is one of only
very few in Germany." Mahle has invested EUR3 million (USD3.57
million) in the new facility which is open for external clients to
use as a testing facility. The EV drivetrain test bench looks like
a shrewd investment from Mahle; demand for facilities like this is
likely to rise as industry electrification accelerates. Among its
capabilities is functional development work; it can simulate highly
dynamic, transient modes of operation, perform efficiency
measurements and torque vectoring, and simulate wheel slip
scenarios. The test facility includes an e-axle unit consisting of
two oppositely mounted load machines equipped with permanent-magnet
synchronous electric motors. It has a nominal power handling of 350
kW per dynamometer and an impressive peak torque handling capacity
of 8,400 Nm (7,000 Nm continuous torque) which is about 20 times
what a powerful current diesel sedan currently has. (IHS Markit
AutoIntelligence's Tim Urquhart)
Plastic Omnium has announced that it is aiming to become a
global leader in the area of hydrogen powertrain components and
systems. According to a statement, the company said that following
investments made during the past five years and a new joint venture
(JV) with ElringKlinger, it intends to offer components across the
whole value chain of the technology: hydrogen vessels, fuel cell
stack and integrated hydrogen systems. These will be offered
individually or together. It added that its aim is for EUR300
million of revenues by 2025 and EUR3 billion by 2030, as it targets
25% of the global hydrogen vessel market, between 10% and 15% of
global fuel cell stack business, and 10% of the global integrated
hydrogen system segment. It aims to achieve this by reducing the
cost of hydrogen vessels by 30% by 2030, and cutting fuel cell
stack and integrated hydrogen system costs by around 80% through
greater automation in industrial processes, leveraging the volume
effect and improving the design which would reduce the cost of the
materials content. This it expects to lead to a reduction of costs
of a system in a passenger car to around EUR6,000-8,000 per
vehicle. Its aim will be supported by around EUR100 million of
investment per year as well as the creation of a new Hydrogen Hub
at the α-Alphatech R&D center in Compiègne (France); it will
invest EUR30 million in laboratories and equipment over the next
two to three years and add 100 additional engineers to the program.
Plastic Omnium has also announced an upward adjustment to its
second-half 2020 financial performance. The company has now said
that it expects to achieve an operating margin of 5% instead of the
previously forecast 4%, while free cash-flow is now expected to be
over EUR400 million instead of EUR250 million. It also highlighted
that its liquidity at the end of October stood at EUR2.2 billion,
similar to that at the end of 2019. During the past five years,
Plastic Omnium is said to have invested around EUR200 million in
the area of hydrogen technologies. This includes building up
research and development resources in Europe and China, and
acquiring Optimum CPV in the area of hydrogen vessel development
and Swiss Hydrogen, a supplier of integrated hydrogen systems. (IHS
Markit AutoIntelligence's Ian Fletcher)
France's consumer confidence index has declined from 94 in
October to 90 in November, its lowest reading since December 2018.
The index collapsed from 104 in March to 95 in April, and has since
ranged between 92 and 96. (IHS Markit Economist Diego Iscaro)
The breakdown of the figures suggests that households are
increasingly concerned about the economic outlook and their
personal financial position (see chart below). Moreover, the number
of households considering making a major purchase over the next 12
months has fallen sharply to its lowest level since April.
Similarly, the index measuring unemployment expectations has
risen markedly, reaching its highest level since mid-2013. In
contrast, saving intentions have risen in November, matching
September's seven-year high, despite an expected deterioration in
households' saving capacity.
Households' inflation expectations have also risen in November
following a marked decline between May and October. The index now
stands above its long-term average.
The sharp deterioration in the consumer confidence index
follows the introduction of a new national lockdown in late
October.
Earlier this week, President Emmanuel Macron announced that the
lockdown would be eased in three stages: non-essential shops will
reopen on 28 December, while on 15 December cinemas/theatres will
be allowed to open and internal travel restrictions will be lifted
(assuming the daily number of COVID-19 cases remains below
5,000).
As we had expected, the Riksbank has announced more asset
purchases and kept the repo rate unchanged. It also dramatically
lowered its growth and inflation forecasts for the coming six
months owing to the second wave of the COVID-19 virus pandemic.
(IHS Markit Economist Daniel Kral)
The Swedish central bank (Riksbank) has kept the policy rate
(repo rate) unchanged; the previous move was a rise of 25 basis
points, to 0%, in December 2019. The repo rate path, which is
forecast movements in the repo rate, remains flat at zero
throughout the Riksbank's forecast horizon. The interest rate
decision was unanimous.
The Riksbank's large-scale asset purchases will be expanded by
SEK200 billion (USD23.4 billion) to SEK700 billion (14% of the 2019
GDP) and extended to December 2021. The pace of asset purchases
will be accelerated from the first quarter of 2021 compared with
the fourth quarter of 2020. There were two dissenters against this
decision, with deputy governor Anna Breman advocating a smaller
additional envelope of SEK100 billion and deputy governor Martin
Flodén preferring to pledge that monetary policy remain
expansionary for as long as needed without deciding on asset
purchases for the second half of 2021.
The program now also includes treasury bills, sovereign and
municipal green bonds, and only corporate bonds that are deemed to
comply with international standards and norms for sustainability.
Deputy governors Breman and Flodén had reservations about including
treasury bills in the program.
The Riksbank also continues to provide liquidity within all
programs announced earlier in the year. It noted that "extensive
economic policy support will be needed over a long period of time,
from both fiscal and monetary policy".
It also repeated, as it has throughout the year, that it is
"prepared to continue to use tools at its disposal" including a
repo rate cut back to negative territory "if this is assessed to be
an effective measure, particularly if confidence in the inflation
target were to be threatened". Inflation expectations have been
sliding recently, close to the level reached in early 2015 when the
Riksbank first cut the repo rate to negative territory.
As IHS Markit had anticipated, the Riksbank announced more
easing owing to the worsening outlook but kept the repo rate
unchanged. The Riksbank expects Sweden's GDP to contract by 4.2%
(versus 3.9% in its September outlook) in 2020 and grow by 2.5% in
2021 (compared with 3.5%). Unemployment is expected to be lower
this year but higher in 2021-22. Inflation is expected to dip in
early 2021, remaining below the target throughout the forecast
horizon.
South Africa's annual headline inflation rate averaged 3.3% in
the first 10 months of 2020, well within the South African Reserve
Bank's inflation target range of 3-6%. (IHS Markit Economist Thea
Fourie)
South Africa's headline inflation rate accelerated to 3.3% year
on year (y/y) in October - above the 3.1% market consensus
expectation. This leaves South Africa's headline inflation at 3.3%
y/y for the first 10 months of 2020, down from the 4.2% recorded
for the same period a year earlier.
Categories that showed the largest contribution to the annual
percentage change in headline inflation included the food and
non-alcoholic beverages (0.9 percentage point), housing and
utilities (0.7 percentage point), and miscellaneous goods and
services (1.1 percentage point).
"The annual inflation rates for goods and for services were
2.6% and 3.8% respectively. Provincial annual inflation rates
ranged from 2.9% in Gauteng and Mpumalanga to 3,9% in Western
Cape," the South Africa Statistical Service (StatsSA)
reported.
South Africa's headline inflation rate remains solidly within
the South African Reserve Bank's inflation target range of 3-6%.
However, headline inflation is expected to pick up to an average of
4.0% in 2021, IHS Markit estimates show.
A low base year of comparison, higher global oil prices
compared with 2020, and a narrowing output gap underline this
expectation. The risk to the inflation outlook remains to the
downside, nonetheless. Low global producer and domestic food
inflation, below-average adjustments in health insurance premiums,
and muted pass-through to inflation from currency depreciation
underline this expectation.
Asia-Pacific
APAC equity markets closed mixed; Mainland China +1.1%, Japan
+0.4%, South Korea +0.3%, Hong Kong +0.3%, India -0.3%, and
Australia -0.5%.
Tesla plans to begin production of electric vehicle (EV)
chargers in China in 2021, reports Reuters, citing a document
submitted to the Shanghai authorities by the US EV maker. The
purpose of the plan is to widen the availability of Tesla's
charging infrastructure in China. Tesla plans to invest CNY42
million (USD6.4 million) in a new factory located near its vehicle
manufacturing plant in Shanghai, according to the report. The
factory is due to be completed in February 2021 and will have a
production capacity of 10,000 chargers per year, the report states.
Tesla's plan to begin EV charger production will enable the
automaker to increase the availability of its charging
infrastructure in China. (IHS Markit AutoIntelligence's Abby Chun
Tu)
The China Association of Automobile Manufacturers (CAAM) has
released its first set of data on new vehicle production in the
first half of November. The new vehicle production of 11 major auto
manufacturers in China rose by 9.6% year on year (y/y) during the
first half of the month to 1.61 million units, according to CAAM.
Of this total, passenger vehicle production volumes increased by
7.2% y/y to 1.38 million units, while production volumes of
commercial vehicles surged 27.1% y/y to 233,000 units. Among
Chinese brands, SAIC Motor, Changan Auto, Geely Auto, Dongfeng
Motor Group, and Great Wall Motor are the top five manufacturers by
vehicle sales in the first 10 months of 2020, according to CAAM
data. The data released by CAAM comprises the production results of
China's major automotive groups, accounting for more than 90% of
vehicle production in the market. The automakers' association has
not released sales data for the 11 major automakers in China during
the first half of November 2020. However, the growth momentum of
production is likely to continue through November as automakers
ramp up output, encouraged by buoyant retail sales and the
government's strong backing to boost auto consumption. (IHS Markit
AutoIntelligence's Abby Chun Tu)
Chinese automaker SAIC Motor launched a premium electric
vehicle (EV) project in partnership with Chinese tech giant Alibaba
Group on 26 November. According to a company statement, SAIC has
already gained support from Zhangjiang High-Tech, a company backed
by the Shanghai city government, in its initial fund raising. SAIC
and Zhangjiang High-Tech have already contributed CNY7.2 billion
(USD1.1 billion) to a joint investment fund to support the
automaker's new EV project. SAIC said Alibaba Group is backing the
new project, named Zhi Ji Auto temporarily. Along with investment
from Alibaba, the project is expected to have secured a total
investment of CNY10 billion. The tech giant will help develop a
suite of solutions for SAIC centered on intelligent vehicles,
artificial intelligence (AI), and e-commerce. SAIC plans to launch
a new brand for EV models developed under the project. SAIC's
announcement has confirmed previous reports on the automaker's
'Project L' focusing on EVs targeting the higher-end of the market.
Chinese automakers Changan and Dongfeng have recently announced
plans to roll out premium EV brands under partnerships with
technology companies (see China: 16 November 2020: Changan to
introduce new premium brand in partnership with CATL, Huawei). Such
moves tend to boost investors' confidence and help automakers to
attract much-needed funds. Apart from the hefty investment of up to
CNY10 billion and the two new products set to make debuts next
year, SAIC has offered limited information, at the time of writing,
to enable a more in-depth analysis of the likely competitiveness of
its new brand. (IHS Markit AutoIntelligence's Abby Chun Tu)
The Chinese Ministry of Agriculture has set a 2025 deadline for
the country to discontinue the use of ten "highly toxic" crop
protection active ingredients. The development follows a proposal
by China's national legislature, the National People's Congress
(NPC), to undertake surveillance of pesticide residues and
eliminate the use of toxic pesticides. Usage on field crops will
cease for: the insecticides, aldicarb, ethoprophos, isocarbophos,
phorate, isofenphos-methyl, carbofuran, omethoate, and methomyl;
the rodenticide, aluminum phosphide; and the soil fumigant,
chloropicrin. Measures to phase out the ais will be undertaken in
stages, the timing depending on the risks they pose and the market
penetration of their substitutes. Since September, the Ministry has
expedited the registration process of biopesticides which could
replace these ais in the long run. The Chinese Ministry of
Agriculture has set a 2025 deadline for the country to discontinue
the use of ten "highly toxic" crop protection active ingredients.
The development follows a proposal by China's national legislature,
the National People's Congress (NPC), to undertake surveillance of
pesticide residues and eliminate the use of toxic pesticides. Usage
on field crops will cease for: the insecticides, aldicarb,
ethoprophos, isocarbophos, phorate, isofenphos-methyl, carbofuran,
omethoate, and methomyl; the rodenticide, aluminum phosphide; and
the soil fumigant, chloropicrin. Measures to phase out the ais will
be undertaken in stages, the timing depending on the risks they
pose and the market penetration of their substitutes. Since
September, the Ministry has expedited the registration process of
biopesticides which could replace these ais in the long run. (IHS
Markit Crop Science's Akashpratim Mukhopadhyay)
SoftBank's driverless bus venture, Boldly Inc., will launch
autonomous bus services on public roads in a Japanese town in
Ibaraki Prefecture. The nine-seat autonomous bus will have crew
members on board to support the service, as Japanese traffic laws
prohibit driverless vehicles from operating on public roads. The
bus can drive at around 20 km/h and will conduct the 5km round-trip
journey around central Sakai. Initially, the bus will run four
round trips a day and the company plans to eventually expand the
service to as many as five routes depending on demand, reports
Kyodo News. Masahiro Hashimoto, Mayor of Sakai, said, "In a local
town like Sakai, securing enough drivers to maintain public bus
services has been getting difficult. Autonomous buses are what we
have been looking for to offer mobility" Boldly Inc., formerly
known as SB Drive, was founded by a former Toyota engineer and
others to develop automated vehicle technologies. Baidu has
partnered with SB Drive to jointly deploy autonomous minibuses in
Japan. Early this year, SB Drive partnered with Finnish company
Sensible 4 to accelerate the adoption of autonomous buses in Europe
and Japan. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Hyundai and Kia together shipped 98,505 electric vehicles (EVs)
during January-October, up by 71% year on year (y/y) from 57,517
units last year, reports the Yonhap News Agency. "Stricter emission
rules in Europe drove up demand for all-electric and less-emitting
models," said an unnamed Hyundai spokesperson. Hyundai's Kona
Electric accounted for 42%, or 41,384 units (up 53.7% y/y), of the
two automakers' overall EV shipments in the first 10 months. It was
followed by the Kia Niro with 38,299 units (up 210.5% y/y). The
report also highlights that during July-September, Hyundai and Kia
together ranked fifth with a combined market share of 7% in the
global EV markets, following Tesla, Volkswagen (VW), Renault,
Nissan, and SAIC. The surge in Hyundai and Kia's EV exports
reflects the growing demand for such vehicles globally. Various
governments around the world are preparing to phase out the use of
gasoline (petrol)- and diesel-powered vehicles in their fight
against pollution and are providing incentives to increase the
adoption of alternative-powertrain vehicles. (IHS Markit
AutoIntelligence's Jamal Amir)
Daewoo Shipbuilding & Marine Engineering Co (DSME) has
developed an artificial intelligence (AI) welding quality
monitoring robot. Through a 3D modelling program, the robot is able
to carry out inspection and quality checks on the welded parts of
ships and offshore plants. According to DSME, the robots will be
deployed to production sites to help improve productivity. (IHS
Markit Upstream Costs and Technology's Jessica Goh)
Indian drug maker Laurus Labs yesterday (25 November) announced
that it had agreed to acquire a majority stake in Richcore
Lifesciences (India) for INR2.467 billion (USD33.406 million).
According to The Hindu, the company said that definitive agreements
for the stake have been signed with venture capitalist companies
Eight Roads Ventures (India) and VenturEast (India), from which
Richcore Lifesciences had initially raised early and growth-stage
funding. Expected timescales for completion of the transaction have
not been reported. Richcore, which is based in Bengaluru in India's
southern Karnataka state, has established large-scale fermentation
capabilities and produces animal origin-free (AOF) recombinant
products. The acquisition of a majority stake in Richcore
Lifesciences will give Laurus Labs access to AOF recombinant
proteins that can be used in the production of vaccines, insulin,
and stem-cell based regenerative medicine. They allow manufacturers
to eliminate dependency on animal and human blood-derived products,
which can produce safer medicines. Consequently, the investment
enables Laurus to enter an important biotechnology segment. The
investing company aims to add scale to Richcore's current
manufacturing operations and to increase its importance in India's
burgeoning biotechnology sector. (IHS Markit Life Sciences' Sacha
Baggili)
Posted 27 November 2020 by Chris Fenske, Head of Fixed Income Research, Americas, S&P Global Market Intelligence
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