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European and US equity markets sold off sharply today, while
APAC equity markets closed mixed. iTraxx and CDX credit indices
were significantly wider across IG and high yield and all closed at
their widest levels since rolling to the current series. US
government bonds were almost flat on the day despite the heightened
equity volatility, while benchmark European bonds closed mixed. The
US dollar was higher on the day, while oil, gold, and silver were
lower. Markets continue to assess how much the latest round of
restrictive measures will dampen the economic recovery from the
first wave, as governments worldwide take precautionary measures to
avert overwhelming hospitals with a surge in COVID-19 patient.
Americas
US equity markets closed sharply lower and near the lows of the
day, with the S&P 500 having its worst performance in four
months; Nasdaq -3.7%, S&P 500 -3.5%, DJIA -3.4%, and Russell
2000 -3.0%.
U.S. stocks continued to sell off on Wednesday in what is
shaping up to be their worst week since late March, as rising
coronavirus infections shook investors' confidence in the global
economic recovery. Worsening coronavirus case numbers may make more
stringent restrictions imperative across the U.S. and Europe,
potentially dealing a setback to a fragile economic recovery.
(WSJ)
10yr US govt bonds closed -1bp/0.77% yield and 30yr bonds
closed flat/1.56% yield.
CDX-NAIG closed +4bps/64bps and CDX-NAHY +25bps/415bps.
DXY US dollar index closed +0.3%/93.40, but was as high as
+0.8% at 9:00am EST:
Gold closed -1.7%/$1,879 per ounce and silver -4.9%/$23.36 per
ounce. Gold is -9.2% from this summer's all-time high close of
$2,069 per ounce.
Crude oil closed -5.5%/$39.79 per barrel.
Marvell Technology Group Ltd. is nearing a deal to acquire
Inphi Corp. for about $10 billion, according to a person familiar
with the matter, adding to an already record year for chip industry
deals. Inphi is a maker of chips that act as the interface in gear
that helps speed the flow of big chunks of information between
computers and networks. Data center silicon is becoming increasing
important as cloud providers are finding themselves swamped in data
and look at even the most basic components to try to make their
giant warehouses full of expensive equipment more efficient.
(Bloomberg)
The US goods deficit narrowed unexpectedly in September by $3.7
billion to $79.4 billion, as exports rose smartly and imports
declined modestly. The combined inventories of wholesalers and
retailers, moreover, rose 0.7%, more than we had assumed. (IHS
Markit Economists Ben Herzon and Lawrence Nelson)
These developments raised our estimate of third-quarter GDP
growth by 0.7 percentage point to 33.8% (annual rate) and our
forecast of fourth-quarter GDP growth by 0.4 percentage point to
5.2%.
Exports rose 2.7% in September, continuing a run of increases
following a pandemic-induced low in May. Nearly one-half of the
increase in September exports was in foods, feeds, and beverages,
where exports surged to the highest level in more than six
years.
Despite the recent gains in goods exports, they still remain
11.4% below the February level, as foreign demand remains
depressed.
Imports of goods slipped 0.2% in September, but remain above
the February level, as domestic demand for goods has, for the most
part, recovered.
Most parts of the country saw "slight to modest" growth in
economic activity from late August to September according to the US
Federal Reserve's latest Beige Book report, containing anecdotal
information from regional business contacts. (IHS Markit Economist
James Kelly)
Consumer spending and employment gains in the upper Midwest and
Plains states lost some momentum as a resurgence of COVID-19 cases
and hospitalizations led to continued low tourism levels in major
metros and falling restaurant spending in the Plains.
Employment gains remained on a slow, steady path in much of the
country while leisure and hospitality workforce growth in the West
and Great Lakes regions remained sluggish.
Manufacturers began to see stronger gains in production and new
orders as demand picks back up, especially because of a surge in
homebuilding and renovation in the South and West.
The boom in residential construction encompassed much of the
Mountain West and South, but limited construction labor
availability and increasing materials costs meant supply of homes
could not meet demand.
This month's Beige Book indicated a strengthening recovery
among manufacturers in the Midwest and South and strong
homebuilding activity in the Mountain West, Great Lakes, and
South.
Employment gains and consumer spending growth continue to be
influenced by the course of the COVID-19 pandemic and consumers'
reactions to rising or falling prevalence of the virus in their
community.
While retail stores, restaurants, and attractions are generally
open for business, subject to local capacity constraints and social
distancing guidelines, sharp rises in hospitalizations in the
Midwest and South during the winter months will limit consumer
spending and hiring, especially in leisure and hospitality
services.
Winter weather also threatens the recovery of the restaurant
industry in the Midwest and Northeast if consumers do not see
outdoor dining as an appealing option.
Homebuilders will continue to confront labor-market and
supply-chain disruptions as demand for single-family homes stays
elevated in the South, Great Lakes, and Mountain West regions.
As the working capital of last resort with high concentration
in consumer-facing, in-person businesses, Merchant Cash Advances
(MCAs) have performed poorly due to the lockdowns. Going back to
the well of repeat borrowers looks like it may be a recipe for a
higher risk of default, as a merchant needing such high-cost funds
pre-COVID would likely now be beyond saving. Methodical Management
has started to see entire portfolios trading and consolidation of
originators. Rapid runoff in MCA portfolios creates a tail of
advances that is likely highly distressed and the servicing
transfer requires the capacity to quickly triage individual credits
and high-touch servicing capabilities to set up payment plans to
preserve the value of any distressed trades. (Methodical
Management)
Cell-based meat and seafood companies should substantiate the
variety of sustainability and other environmental and health claims
that are likely to attract new customers and make sure they live up
to these lofty claims before entering the market, said Barbara
Kowalcyk, food safety professor at Ohio State University. (IHS
Markit Food and Agricultural Policy's Joan Murphy)
Panelists at the October 27 International Association for Food
Protection (IAFP) meeting discussed the path forward for cell-based
products and some of the regulatory/science issues the emerging
technologies still need to navigate before reaching consumers.
While some companies are predicting their products are nearly
ready for commerce, panelists pointed to the need for more
independent research to validate the food safety and environmental
claims, along with other data gaps for the new protein
products.
While there is a lot of information being generated by the
cell-based protein industry, there is little in the public domain,
said Isha Datar of New Harvest. The basic research tools are not
well defined in the literature, and there are different approaches
and it is important to understand more about alternative
technologies when establishing safety, she said.
Among the panelists was BlueNalu Inc. President and CEO Lou
Cooperhouse who talked about how his cell-based seafood products
will help meet increasing global demand for seafood as the supply
is diminishing due to a variety of factors, such as overfishing and
climate change.
Cell-based seafood products can be made locally to reduce
imports and limit the carbon footprint from shipping fish around
the world, a benefit that has caught the attention of countries
looking to bolster domestic supplies, such as Japan, Brussels, and
Singapore.
With its focus on finfish species, Cooperhouse said his firm
has established over 100 stable cell lines, and the next step is to
increase the scale of operations and put the product in commerce
"in a small way" by the end of 2021.
As for entering the foodservice sector, BlueNalu wants
consumers to know their products are cell-based so he wants the
products labeled. The fillets will offer the benefit of a stable,
year-round supply for restaurants and less likely to be
cross-contaminated in the "back of the house" because they would
demand less preparation, he added.
USDA's Philip Bronstein said FSIS and FDA are working together
to harmonize the regulatory framework for these products, whether
they oversee FDA-regulated seafood or USDA-regulated meat and
poultry. No new regulations are needed, though the agency does plan
to issue new directives to inspectors when these products come
online, said Bronstein, assistant administrator in the Office of
Field Operations at the Food Safety and Inspection Service
(FSIS).
Audi of America has collaborated with Applied Information and
Temple to test two connected vehicle applications that can enhance
children's safety in school zones and around buses. The tests are
being carried out using Audi e-tron models. The first application,
using cellular vehicle-to-everything (C-V2X) technology, warns the
driver when the vehicle is entering an active school safety zone.
It also provides a warning if drivers exceed the speed limit when
children are present. This is a result of the deployment of
roadside units (RSUs) in school safety zones, which receive
information through C-V2X technology and in turn flash signs to
alert drivers to slow down. For the second application, the
technology warns drivers when they are approaching a school bus
that has stopped to pick up or drop off students. Onboard units
(OBUs) display C-V2X safety messages from school buses to vehicles
when the bus stop arm is deployed, directing that no passing is
allowed. C-V2X technology enables vehicles to communicate directly
with other vehicles, pedestrians, devices, and roadside
infrastructure and enables the operation of advanced driver
assistance systems. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Two automated and connected trucks travelled from Pittsburgh,
through Ohio, to Michigan. The trucks travelled more than 280 miles
and delivered groceries to the Toledo Northwestern Ohio Food Bank
to help support communities struggling during the coronavirus
disease 2019 (COVID-19) virus pandemic. Locomation deployed its
autonomous relay convoy (ARC) technology in the trucks, which
enables one driver to pilot a lead truck while the following truck
operated in tandem. This allows the other driver in the second
truck to log off and rest. The truck platooning technology, which
allows digitally connected trucks to drive closely together in
convoy, is considered SAE (Society of Automotive Engineers) Level I
automation. These trials are conducted by DriveOhio, an autonomous
vehicle pilot program, in partnership with the Ohio Turnpike and
Infrastructure Commission (OTIC) to test Level I automation. Mike
DeWine, Ohio Governor, said, "In Ohio, we are designing and
deploying the transportation system of the 21st century. Safety is
our primary concern, and as smart mobility technologies mature, we
believe these innovations will make our roads safer. Deployments,
like this one, will help to inform future projects." (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Scout Bio has opened two clinical trials to investigate the
effectiveness of its novel gene therapy targeting feline diabetes.
The Philadelphia-based firm is aiming to develop an
adeno-associated virus (AAV) expressing a GLP-1 analog as a
one-time injectable treatment for diabetes in cats. The company is
focused on two potential therapeutic applications for SB-009 - to
replace daily insulin injections and to significantly increase the
percentage of cats entering remission. The initial pilot trial will
recruit a minimum of 20 cats and evaluate if SB-009 is safe and
efficacious in managing clinical signs and high blood sugar levels
caused by feline diabetes. The second clinical study of
approximately 60 cats will follow animals for six months to see if
the low percentage that enter remission with insulin therapy alone
can be significantly increased with the co-administration of
SB-009. Scout Bio told IHS Markit Animal Health the ultimate goal
is to develop SB-009 as a 'one and done' treatment. The company
estimates the current feline diabetes market is valued in excess of
$400 million, with growth expected. It explained the known
prevalence of feline diabetes is around 1% but this figure is
climbing due to improved diagnostics, increasing pet adoptions and
the rising incidence of obesity. (IHS Markit Animal Health's Sian
Lazell)
Motional, an autonomous vehicle joint venture (JV) between
Hyundai and Aptiv, has partnered with public transit technology
firm Via to launch a shared robotaxi service for the public. The
service will be offered in one of Motional's existing US markets in
the first half of next year. This partnership intends to develop a
blueprint to learn how these autonomous vehicles can be integrated
into mass transit systems. Under the partnership, Motional's
autonomous vehicles will be connected with Via's platform, which
handles booking, routing, passenger and vehicle assignment. Daniel
Ramot, co-founder and CEO of Via, said, "We are excited to partner
with Motional to make autonomous shared ride programs an affordable
and efficient transportation alternative to the private vehicle. By
combining groundbreaking on-demand mobility solutions with
bestin-class technology for self-driving vehicles, we are creating
new and necessary transit options for communities around the
globe." This service is similar to the partnership that Motional
has with Lyft in Las Vegas, which recently restarted after being
suspended earlier this year in reaction to the COVID-19 virus
pandemic. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Beep will deploy its two autonomous shuttles at Yellowstone
National Park starting in May 2021. This deployment will be
operated in partnership with the National Parks Service (NPS) to
test "multi-passenger, electric automated vehicle platforms" in the
park's Canyon Village. Beep and the NPS will jointly determine
shuttle stops, route locations and distance. This initiative is
part of the Yellowstone Visitor Use Management Program, which aims
to test a range of pilot projects at the park to enhance the
visitor experience. Joe Moye, Beep CEO, said, "It's an honor to be
the first in the country to provide autonomous shuttles to the NPS
and its visitors. Yellowstone's Visitor Use Management Program
aligns with Beep's mission to provide alternative, sustainable, and
innovative transportation solutions meant to transform and improve
mobility for all. This demonstration will help assess how emerging
technologies can enhance the visitor experience while making the
roads safer and less congested for everyone". (IHS Markit
Automotive Mobility's Surabhi Rajpal)
There were no interest rate changes by the Bank of Canada, as
expected, and rates are not expected to change until the inflation
target is sustainably met. (IHS Markit Economist Arlene Kish)
The bank's quantitative easing program will focus more on
purchases of longer-term bonds while committing to reduced
purchases of at least $4 billion per week.
In the October Monetary Policy Report (MPR), the Bank's
baseline scenario estimates Canada's real GDP declines 5.7% this
year and rebounds 4.2% in 2021 and 3.7% in 2022. The annual
inflation outlook is very weak this year and next before it climbs
to 1.7% in 2022. Inflation will hit the 2% target in 2023.
Against the backdrop of severe weakness, potential output
growth and the neutral policy rate estimates were revised
down.
Greater transparency by the Bank helps reduce uncertainty
surrounding the outlook for inflation expectations. The pandemic's
containment measures will dampen growth expectations in the near
term. The next policy announcement is scheduled for 9
December.
The Bank of Canada's forward guidance is very much in line with
IHS Markit expectations regarding the inflation outlook and future
path of monetary policy as excess capacity begins to be
absorbed.
The significant amount of excess capacity where demand has
fallen below supply has kept price inflation very low.
The jobs recovery is underway, but current job losses are still
well above those during the global financial crisis.
Before the COVID-19 virus pandemic, the Canadian light-vehicle
market had been expected to continue its declines in 2018 and 2019
into 2020. Following the virus outbreak and containment measures
that caused disruption in the first and second quarters of 2020,
the market is now expected to decline 22% y/y this year. However,
the situation began to ease in June, and in the third quarter
(July-September) light-vehicle sales declined only 3% y/y.
Regardless of the impact of the COVID-19 virus pandemic on the
overall market, Canada continues to be a truck-heavy market, with
the Ford F-Series easily the best-selling product, followed by the
Ram 1500. Those products accounted for 14% of sales in the third
quarter of 2020, compared with 12.0% in the third quarter of 2019.
IHS Markit's September forecast projects a 22% year-on-year (y/y)
decline in Canadian light-vehicle sales in 2020, to 1.495 million
units, with improvement beginning in 2021. Although this is still a
notable drop, and the market is not expected to recover to 2019
volume levels before 2028, it is a less stark outlook than earlier
in the year. (IHS Markit AutoIntelligence's Stephanie Brinley)
Europe/Middle East/Africa
European equity markets closed sharply lower; Germany -4.2%,
Italy -4.1%, France -3.4%, Spain -2.7%, and UK -2.6%. Germany's DAX
closed at its lowest level since late-May and is 16.2% below its 19
February peak.
10yr European govt bonds closed mixed; Italy +6bps, Spain
+2bps, France +1bp, Germany -1bp, and UK -2bps.
iTraxx-Europe closed +6bps/65bps and iTraxx-Xover
+31bps/373bps.
Brent crude closed -4.7%/$39.64 per ounce.
UK retailer Tesco has announced it is starting a trial of
delivering food via drone in Ireland. The company has teamed up
with Irish start-up Manna to deliver food in Oranmore in County
Galway. The trial will run for several months and shoppers can
source small basket items from a selection of 700 items from
Oranmore's shop via a dedicated website. Drone orders will run from
9.30am to 5pm from Tuesday to Sunday and can be tracked real-time,
with an estimated delivery time of between 30 minutes and an hour.
Catherine Swift, shop manager of Tesco in Oranmore, said: "We're
continually looking for new ways to serve our customers a little
better and this trial is an opportunity to look at meeting demand
for small basket shops and quick delivery. We're looking forward to
seeing how our customers in the Oranmore area respond to the
service." (IHS Markit Food and Agricultural Policy's Peter
Rixon)
The third-quarter ECB bank lending survey showed a pronounced
decline in firms' emergency liquidity needs. Household demand for
mortgage loans rebounded. (IHS Markit Economist Ken Wattret)
The ECB's quarterly bank lending survey (BLS) for the third
quarter was compiled between 21 September and 6 October, with 143
banks polled across the member states.
On the supply side of the survey, the standout change in the
third quarter was the tightening of credit standards for loans to
enterprises. The net percentage of banks reporting a tightening of
standards jumped from 1% to 19%, in line with the indications from
the second-quarter survey.
This was above the historic average (+8), though well below the
peaks during the Global Financial Crisis (GFC) and subsequent
eurozone crisis, when net percentages peaked at around 60% and 30%,
respectively. The main factor driving the tightening in the third
quarter was risk related to the deterioration in economic and
firm-specific conditions.
The third-quarter survey also showed a further expected
tightening of credit standards in the fourth quarter (+18), again
reflecting concerns around the economic recovery due to
uncertainties regarding the pandemic and the prolongation of fiscal
support.
Among the largest eurozone member states, credit standards on
loans to enterprises tightened in Germany, Spain and France, while
they remained unchanged in Italy.
Looking at the demand side of the survey, loan demand from
enterprises plunged in the third-quarter survey, from a record high
of +62 in the second quarter down to -4, as firms' emergency
liquidity needs eased following the unwind of lockdowns and
economic activity rebounded.
In line with this, there was a bigger decline in demand for
short-term loans (net percentage -10) than long-term loans (-1).
Financing needs for fixed investment again declined in the third
quarter (-26), though by less than in the second (-46).
Among the largest eurozone member states, demand for loans to
enterprises continued remained very elevated in Germany (+28) and
Italy (+70) but plunged in France (-58) and Spain (-60). The sharp
falls in the latter two countries reflected a correction following
exceptionally high precautionary demand in the second quarter.
Banks in all the largest eurozone countries continued to report a
negative contribution for financing needs for fixed
investment.
Switching to the BLS data on households, the third-quarter
survey showed a continuation of tightening credit standards on
loans for house purchase (net percentage of +20 versus +22 in the
second quarter) and for consumer credit and other lending (+9
versus +26 in the second quarter).
The net percentage of +20 for housing loans remained well above
its historical average since the start of the survey in 2003 (+6%)
and a further tightening is also expected in the fourth quarter
(+12). The difficult economic climate was again cited as the main
factor leading to tighter credit standards.
Risks associated with the economic outlook and creditworthiness
of households affected by the pandemic were the main factors
contributing to the tightening of credit standards on consumer
credit in the third quarter. Standards tightened further in
Germany, Italy and especially Spain, while they remained unchanged
in France.
Banks indicated an increase in the share of rejected loan
applications for consumer credit and other lending in the third
quarter (+16, after +15 in the second quarter), mainly due to
deteriorating income and employment prospects. The rejection rate
increased most among banks in Spain.
Continental has bought a minority stake in LiDAR startup Aeye
for an undisclosed amount. This will help Continental to strengthen
its position in the field of automated driving and will enhance its
current short-range LiDAR technology, which is scheduled to go into
production by the end of this year. This investment is a strategic
partnership as the companies will jointly develop sensors for
deployment in vehicles scheduled for the end of 2024. Blair
LaCorte, CEO of AEye, said, "ADAS solutions require a unique mix of
performance, scalability, packaging, and a long-term commitment to
reliability and safety. Continental is a recognized leader in
automotive sensing technology as well as in automotive product
industrialization and commercialization. We look forward to working
closely with their team to customize our modular and scalable
design to deliver Continentals high-performance long-range LiDAR
systems to the world's leading vehicle manufacturers." (IHS Markit
Automotive Mobility's Surabhi Rajpal)
BASF has announced third-quarter results in line with the
preliminary figures it published on 9 October. The company swung to
a net loss of €2.1 billion ($2.5 billion), compared with a net
profit of €911 million in the prior-year quarter, on impairments
totaling €2.8 billion owing to the impacts of COVID-19 and
restructuring, as previously reported. BASF group sales of €13.8
billion were down 5% year on year (YOY). BASF also confirmed that
third-quarter EBIT before special items (operating profit) rose
sharply compared with the previous quarter, to €581 million, up by
€355 million and beating analysts' consensus estimate by 47%. On a
YOY basis, EBIT before special items dropped 45%, owing mainly to a
much lower contribution from the chemicals segment. The big
sequential improvement in EBIT before special items "was mainly
driven by good business development in September," says Martin
Brudermüller, chairman of BASF. The YOY decline in sales was mainly
driven by negative currency effects in all segments, but especially
in the agricultural solutions and surface technologies segments.
Revenue fell 27% YOY in the chemicals segment owing mainly to an
unplanned outage at the steam cracker at Port Arthur, Texas. Higher
price levels overall, primarily owing to higher precious metal
prices in the surface technologies segment—where sales
increased 25% YOY—had an offsetting effect. Portfolio effects,
especially in the materials segment from the acquisition of
Solvay's nylon business, also had a positive impact on sales. Sales
of the materials business decreased 8% YOY and revenue from
industrial solutions dropped 13%. BASF's third-quarter group sales
increased sequentially and were €1.1 billion higher than in the
previous quarter.
France's consumer confidence index stood at 94 in October,
slightly down from 95 in September. The index has hovered between
94 and 96 over the last five months, following a sharp decline from
104 in February to 92 in May. (IHS Markit Economist Diego Iscaro)
In October, the breakdown of the data shows a clear
deterioration of the most forward-looking elements of the survey.
Consumers' views of their future standard of living and economic
outlook worsened in October, while the index measuring unemployment
expectations rose to a three-month high.
The number of households considering making a major purchase
over the coming year remained unchanged at a level below its
long-term average. At the same time, the index measuring
households' saving intentions remained well above its long term
average despite easing compared to September.
Meanwhile, the sub-indices measuring past living standards and
economic situation remained unchanged in October.
The strong rebound in COVID-19 cases, which has prompted a
substantial tightening of containment conditions, is clearly having
an impact on confidence. The French government is expected to
tighten measures even more, very likely in the very short term,
suggesting that households' views on their future financial
situation is likely to deteriorate even more over the coming
months.
Valeo has announced that its sales have slipped during the
third quarter of 2020. During the three months ending 30 September,
the company's sales revenues fell by 8% year on year (y/y) to
EUR4,389 million. Of this, original equipment sales made up
EUR3,751 million, a decline of 7.3% y/y. In terms of sales by
business group during the quarter, all have some degree of decline.
Its Comfort & Driving Assistance Systems have decreased by 5.1%
y/y to EUR873 million, as Powertrain Systems retreated by 8% y/y to
EUR1,149 million. Its Thermal Systems business recorded a drop of
10% y/y to EUR1,017 million, and its Visibility System business
sales fell by 9.3% y/y to EUR1,322 million. The sales revenues in
the year to date (YTD) reflect the impact of the steep falls in the
first half of the year as a result of the COVID-19 virus pandemic,
and now stand at EUR11,447 million, a decline of 21.3% y/y. The
company's revenues have improved substantially as a semblance of
normality returned to production demand after the challenges in the
first half which resulted in stoppages. The decline in sales
revenues during the third quarter also included a 2.6 percentage
point impact due to currency exchange rates, which the company
pointed out was due mainly to the appreciation of the euro against
the US dollar and Chinese yuan. Despite the decrease in original
equipment sales, Valeo has stated that this in line with market
performance on a like-for-like basis. (IHS Markit
AutoIntelligence's Ian Fletcher)
On an annual basis, Spain's total employment fell by 3.5% y/y,
or by 0.7 million jobs to 19.1 million in the third quarter, after
a 6.1% y/y fall in the second, which was the first drop since early
2014. (IHS Markit Economist Raj Badiani)
This compares to gains of 1.1% y/y in early 2020, 2.3% in 2019
and 2.7% in 2018.
A breakdown by economic activity reveals that services endured
the sharpest job losses in the third quarter, down by 3.6% y/y
(533,600 jobs) to 14.5 million. Industry employment was 4.6% lower
y/y, implying 128,100 fewer jobs to stand at 2.7 million.
Firms shed workers on temporary contracts, which decreased by
13.0% y/y or 0.58 million to 3.9 million during the third quarter,
matching the loss of permanent jobs (down 4.1% y/y or 0.681
million). Spain has a high incidence of temporary employment, which
reflects still dense job protection legislation for permanent
workers.
We fear that the patchy recovery in Spanish tourism during the
summer season triggered widespread cancellation or non-renewal of
many seasonal temporary contracts.
On a seasonally adjusted basis, employment rose by 3.0% quarter
on quarter (q/q) during the third quarter after falling by 6.7% q/q
in the second quarter and 0.4% q/q in the first (the first drop
since late 2013).
The INE notes that workers suspended via the Temporary
Suspension of Employment (ERTE) are classified as employed. The
ERTE scheme allows firms to suspend employment, with workers able
to apply for unemployment benefits during the time of their
suspension.
Meanwhile, the number of unemployed people increased by 15.8%
y/y to stand at 3.72 million during the third quarter. Therefore,
the unemployment rate increased to 16.4% in the third quarter, up
from 14.0% a year ago.
However, the rise in the unemployment rate has been moderated
by workers who are in the government's furlough scheme are not
included as unemployed in this survey. Spain is using the ERTE
employment protection scheme to limit the number of redundancies in
the face of an enforced lockdown of the economy.
INE reports that over a million people lost their jobs during
the second quarter, but not classified because they did not meet
the technical conditions to be included in this group, such as
actively seeking work. This cut the activity rate by several
percentage points to 55.5% in the second quarter. But this was
partially remedied in the third quarter, when the activity rate
rose to 57.8%.
With Spain enduring a deep recession in the first half of 2020
alongside a new state of emergency across Spain to tackle rising
COVID-19 infections, the labor market conditions are likely to
remain under pressure during the remainder of 2020 and early
2021.
According to the Swedish National Institute of Economic
Research (NIER), Sweden's economic tendency indicator improved to
96.3 in October, a marked improvement compared with the all-time
low of 61.2 in April. It is now close to the 20-year average of
100, having grown every month in the last six months. (IHS Markit
Economist Daniel Kral)
The improvement in October was broad based with manufacturing,
retail trade, the service sector as well as with consumer
confidence growing between 1.3 to 2.4 points. The overall economic
tendency indicator is now higher than it was in October last year,
with manufacturing almost 10 points higher. Consumer confidence is,
however, 3.2 points lower.
Manufacturing confidence rose by 1.3 points in October, driven
by companies being more positive about their current stocks and
order books. Consumer confidence increased by 1.6 points because of
more optimistic expectations regarding personal finances over the
next 12 months; fewer households expected unemployment to rise for
the sixth month in a row.
Services-sector confidence improved by 1.4 to 88.4, the weakest
among the main sectors. Respondents in October were more optimistic
about future demand and less pessimistic about current demand.
The latest confidence indicators point to the carrying of the
positive momentum from the third quarter into the fourth. However,
the survey was conducted between 30 September and 20 October for
companies and between 1 and 15 October for households, which means
that the adverse developments across Europe in the latter half of
the month are not adequately reflected.
Abu Dhabi National Oil Co. (Adnoc) sees significant new
opportunities for enhanced partnerships in India, particularly
across its downstream portfolio in the country, according to Ahmed
Al Jaber, Adnoc CEO and UAE minister of industry and advanced
technology. Al Jaber was speaking during a virtual roundtable
session organized by the Indian energy ministry between India's
Prime Minister Narendra Modi and global oil and gas company CEOs.
Adnoc has launched a plan to expand its chemicals, petrochemicals,
derivatives, and industrial base in Abu Dhabi. "I look forward to
exploring partnerships with even more Indian companies across our
hydrocarbon value chain," says Al Jaber. India's "remarkable growth
as an economic power has cemented its place as one of the world's
largest energy consumers. In fact, it represents the second biggest
market for Adnoc," he says. The company says that over the past two
years it has enhanced strategic energy links with India—a key
growth market for crude, refined, and petchem products. It is also
a stakeholder in one of India's largest refinery and petchem
projects to be constructed on India's west coast. In February 2019,
Kerala State chief minister Pinarayi Vijayan said that Adnoc had
offered to invest in a petchem complex being built at Kochi.
Vijayan said that India is top on the investment agenda for Adnoc
and that Al Jaber sees big potential in the petroleum sector in
India. Al Jaber, during the India Energy Forum by CERAWeek in 2018,
organized by IHS Markit, said that the company looked forward to
deepening its ties with Indian energy partners across the entire
crude, refining, petchem, and derivatives value chain.
Asia-Pacific
APAC equity markets closed mixed; India -1.5%, Japan -0.3%,
Hong Kong -0.3%, Australia +0.1%, Mainland China +0.5%, and South
Korea +0.6%.
South Korea rebounded sharply in the third quarter of 2020,
recovering over half of its quarter-two losses. (IHS Markit
Economist Dan Ryan)
In the third quarter, real GDP increased by 1.9% (7.9% annual
rate) over the previous quarter. However, this still left real GDP
down by 1.3% compared with a year earlier.
The growth was almost entirely due to exports. This coincides
with monthly balance of payments data; both show exports up by 15%
over the previous quarter.
The rise in exports was not accompanied by a corresponding rise
in imports. Therefore, the raw materials needed to produce export
goods were apparently drawn from inventories, which fell
substantially in the third quarter.
Fixed investment was a drag on growth; companies clearly feel
that capital expenditures are not necessary when production remains
significantly below capacity.
Private consumption fell slightly, likely as a correction to
the surprising rise in the second quarter; government consumption
was essentially flat, although another round of fiscal expansion
seems likely in the fourth quarter.
The third-quarter rebound was welcome, but not as good as
hoped. Weak domestic demand, in particular, meant that manufactured
exports would be the main growth driver, which, in turn, were
limited by growth and demand from trading partners.
Domestic spending should improve in the fourth quarter. In
addition to likely government stimulus, the manufacturing sector's
rising revenue should lead to increased spending on consumption -
by workers - and on fixed investment by the firms themselves.
The sharp drop in inventory investment also bodes well, at
least for the short term. It means that any demand for goods will
need to be met via new production and output.
Exports, however, are unlikely to be a huge growth driver,
especially as the Northern Hemisphere confronts with a possible
resurgence of the pandemic. The only exception would be a sudden
resolution to current trade wars, which appears unlikely.
SK Innovation has unveiled its direction of "Battery for Next
Generation" at InterBattery 2020 hosted by South Korea's Ministry
of Trade, Industry, and Energy, according to a company press
release. The company is developing next-generation fast charging
batteries for electric vehicles (EVs). The charging technology will
enable a 500-mile round-trip only by charging the batteries twice
for 10 minutes each time. The company expects to complete the
development by as early as the end of this year or the first half
of 2021. It is also developing long-life batteries, enabling
long-range driving. "SK Innovation has made a huge investment in
R&D [research and development] to become a total energy
solution provider since 1982. We will unveil most notable examples
of our capacity recognized by our global partners in the
exhibition. By sharing the future of batteries with the market and
customers, we will create an opportunity to grow together with a
variety of ecosystems including EVs," said SK Innovation
vice-president of public relations Su-Kil Lim. SK Innovation said
that it has already successfully test-drove an EV with long-range
batteries that ran 1,000 km. The long-range driving is enabled and
supported by the technology using high-density nickels as well as
the company's own technology that does not cause battery-efficiency
issues even after more than a thousand times of charging and
discharging. In August, SK Innovation also partnered with Nobel
Laureate Professor John Goodenough to develop next-generation
battery technologies. Professor Goodenough will work with the
company on a new battery that provides higher energy density and
better safety at a competitive cost. (IHS Markit AutoIntelligence's
Jamal Amir)
Shanghai plans to set up special government-guided funds to
support the high-quality development of advanced industries,
according to a notice issued by the local government on 27 October.
(IHS Markit Economist Lei Yi)
Targeted financial support aims to enable innovative
breakthroughs in advanced industries including integrated circuits,
artificial intelligence, and bio-medicine. Additionally, industrial
clusters with international competitiveness should be formed for
key industries like electronics, auto, and high-end equipment. The
funds will also be utilized to promote upgrading of the traditional
manufacturing sector, as well as the integration of advanced
manufacturing and modern services.
The funds could be used in the forms of subsidy, award,
government procurement, interest discount, etc. An annual budget
will be approved by the local finance department with specific
investment targets, of which the performance will be assessed, and
the information will be made publicly available.
Offering targeted financial support for advanced industries
will boost investment and accelerate Shanghai's economic recovery
from the pandemic shock. Notably, investment relating to integrated
circuits have doubled year on year (y/y) in the first three
quarters, significantly driving up Shanghai's manufacturing
investment, which reported growth of 18.7% y/y.
Prime Planet Energy & Solutions, a battery joint venture
(JV) between Toyota and Panasonic, has announced plans to boost the
efficiency of its development and production processes by 10 times
to compete with Chinese rivals, according to Reuters, citing a
statement by the JV's president, Hiroaki Koda. Prime Planet is
looking to standardize battery designs and helping streamline
operations of materials suppliers. The company is looking to cut
battery costs over the next several years, similar to Tesla's
plans. The JV was established at the beginning of this year to
develop competitive and cost-effective batteries for Toyota and
other customers across the globe. The scope of business operations
under the JV includes research, development, production
engineering, manufacturing, procurement, order receipt, and
management of automotive prismatic lithium-ion (Li-ion) batteries,
solid-state batteries, and next-generation batteries. (IHS Markit
AutoIntelligence's Nitin Budhiraja)
Volkswagen (VW) Group's heavy truck unit TRATON has signed a
joint-venture (JV) agreement with Japan's Hino to develop
e-mobility products, according to a company statement. The two
partners will combine their strengths to develop battery electric
vehicles (BEVs), fuel-cell vehicles (FCVs), and relevant components
as well as creating common electric vehicle (EV) platforms
including software and interfaces. President and CEO of Hino
Motors, Yoshio Shimo, said, "I am delighted that we can follow our
procurement joint venture and further embodying our synergy with
TRATON in e-mobility, helping to reduce global CO2 emissions and
fighting global warming. We will combine our strengths as leading
commercial vehicle manufacturers to offer EVs with the highest
value for customers, through joint planning of commercial EVs." The
collaboration will allow for the development of electric platforms
and electrification components beyond the boundaries of both
automakers. The companies will utilize their strengths to promote
an efficient and rapid technological development. While TRATON is
focused on heavy-duty applications, Hino focuses on light- and
medium-duty trucks. The initiative is part of the CO2
emission-reduction goal set by Hino through to 2050. In October
last year, Hino and TRATON formed a procurement JV called Hino
& TRATON Global Procurement GmbH. (IHS Markit
AutoIntelligence's Nitin Budhiraja)
Japanese-owned Morinaga Milk Industry has announced that its
German dairy ingredient subsidiary MILEI will more than double its
lactoferrin production capacity. Morinaga will spend EUR15.0
million to bring lactoferrin production capacity at its Leutkirch
plant in southern Germany to 170 tons. The ramp up is expected to
start in April 2021. According to Morinaga Milk, demand for
lactoferrin as a functional ingredient for infant formula,
supplements and other foods has been growing particularly in
Western countries and Asia, which is seen as a long-term growth
trend. The company claims that MILEI has the largest global share
of the global lactoferin market in terms of production and is
willing to increase it further. MILEI offers lactoferrin, whey
protein concentrate, lactose and other dairy ingredients mainly in
Europe and Asia. Under the global strategy of Morinaga Milk, MILEI
plays an important role supporting production and sales of
ingredients for infant formula, supplements and others. Morinaga's
net sales in the year to 31 March 2020 grew 1.3% to JPY590.9
billion. Dutch FrieslandCampina has also recently announced an
increase in the production capacity of lactoferrin, to 70 tons. In
June this year, Australian-owned Beston Global Food Company has
sold its dairy farms with part of the funds going towards its
Jervois plant, to increase lactoferrin production by around 20 tons
a year by 2023. In 2018, New Zealand's Synlait said it will double
its lactoferrin at its Dunsandel plant, with lactoferrin sales in
financial year 2020 (ended 31 March) reaching 30 tons. (IHS Markit
Food and Agricultural Commodities' Jana Sutenko)
Tata Motors has released its financial results for the second
quarter of its fiscal year (FY) 2020/21, showing that the business
is continuing to face difficulties. For the three months ending 30
September, it said in a filing to the Bombay Stock Exchange (BSE)
that it had recorded a fall of INR535.3 billion (USD7.25 billion)
in its consolidated sales revenues, down by 18.2% year on year
(y/y), as the COVID-19 virus continued to affect its operations.
The company also posted a consolidated net loss of INR3.14 billion,
a much wider decline compared with the INR2.16 billion recorded a
year ago. In the first half of the FY, consolidated revenues
declined by 32.6% y/y to INR855.1 billion and net loss totaled
INR87.5 billion, compared with a net loss of INR39.1 billion in the
previous year. In its outlook, Tata Motors Group expects a gradual
recovery of demand and supply in the coming months despite concerns
around the risk of a second wave of infection in many countries and
other geopolitical risks. The Group recently revealed its target to
significantly reduce its consolidated automotive net debt of INR480
billion, excluding the company's vehicle finance business, in the
next three years. (IHS Markit AutoIntelligence's Isha Sharma)
MG has launched the new plug-in hybrid version of its HS sport
utility vehicle (SUV), the HS PHEV, in Thailand, according to a
company statement. The HS PHEV's powertrain includes a 1.5-litre
four-cylinder turbocharged gasoline (petrol) engine (rated at 199
kW maximum power and 250 Nm maximum torque), 90 kW electric motor,
16.6 kWh lithium-ion battery module and 10-speed automatic
transmission. The maximum power output of the hybrid engine system
is 209 kW and maximum torque is 480 Nm. The vehicle has an
all-electric driving range of 67 km on a single charge and is
equipped with various safety and technological features. The MG HS
PHEV is priced at around THB1.36 million (USD43,490.5). The vehicle
is assembled locally at the automaker's plant at Hemaraj Eastern
Seaboard Industrial Estate2 in Chon Buri province. MG's latest move
is in line with the Thai government's aim to increase the adoption
of alternative-powertrain vehicles - including hybrids, plug-in
hybrids, and EVs - and started promoting the alternative-powertrain
vehicle industry in 2017 by launching incentives for automakers,
component suppliers, and other companies. (IHS Markit
AutoIntelligence's Jamal Amir)
Posted 28 October 2020 by Chris Fenske, Head of Fixed Income Research, Americas
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