Daily Global Market Summary - 29 July 2021

All major APAC, European, and US equity indices closed higher. US government bonds closed lower, while most benchmark European bonds were unchanged on the day. CDX-NA and European iTraxx closed almost unchanged across IG and high yield on the day. The US dollar closed lower, while oil, natural gas, gold, silver, and copper all closed higher on the day.

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Americas

1. All major US equity indices closed higher; Russell 2000 +1.5%, Nasdaq +0.7%, S&P 500 0%, and DJIA -0.4%.
2. 10yr US govt bonds closed +4bps/1.275 yield and 30yr bonds +3bps/1.92% yield.
3. CDX-NAIG closed flat/49bps and CDX-NAHY -2bps/285bps.
4. DXY US dollar index closed -0.5%/91.86.
5. Gold closed +1.8%/$1,831 per troy oz, silver +3.6%/$25.78 per troy oz, and copper +0.9%/$4.52 per pound.
6. Crude oil closed +1.7%/$73.62 per barrel and natural gas closed +2.3%/$4.06 per mmbtu.
7. The efficacy of Pfizer and BioNTech's vaccine Comirnaty was found to gradually decline over time, from a peak of 96.2% between seven days and two months after the application of the second dose to 83.7% between four and six months post second dose. The findings are based on an ongoing multinational, placebo-controlled, observer-blinded Phase II/III follow-up study assessing the safety and efficacy of the vaccine, enrolling 44,165 participants aged 16 and above up to six months after vaccination. Details of the study, which has been published as a MedRxiv preprint and has not yet been peer-reviewed, can be accessed here. Six-month post-immunization data for participants aged 12-15, whose enrolment began in October 2020, were not available at the time of reporting. Overall vaccine efficacy up to the cut-off point was 91.3% (95% CI 89.0-93.2), ranging between 86% and 100% across different countries and populations. Overall efficacy against severe disease during the follow-up period was found to be 97% (95% CI 80.3‒99.9). (IHS Markit Life Sciences' Ewa Oliveira da Silva)
8. US GDP rose at a robust 6.5% annual rate in the second quarter according to the first official "advance" estimate. This follows a slightly downward revised estimate of 6.3% growth in the first quarter. (IHS Markit Economists Ken Matheny, Michael Konidaris, and Lawrence Nelson)
   • During the second quarter, GDP rose above its pre-pandemic peak for the first time, exceeding the level in the fourth quarter of 2019 by 0.8%.
   • Second-quarter GDP growth reflected strong growth in personal consumption expenditures (PCE, 11.8%) and business fixed investment (8.0%). However, residential investment fell at a 9.8% rate and government consumption and gross investment (C&GI) fell at a 1.5% rate. Inventory investment and net exports each declined, subtracting 1.1 percentage points and 0.4 percentage point, respectively, from second-quarter GDP growth.
   • By type of product, GDP of goods and GDP of services each rose at lofty 8.2% annual rates in the second quarter, reflecting reopening and federal economic impact payments that boosted personal income early in the year and continued to boost household spending in the second quarter. In contrast, GDP of structures fell at a 9.7% annual rate in the second quarter.
9. US seasonally adjusted (SA) initial claims for unemployment insurance fell by 24,000 to 400,000 in the week ended 24 July. The not seasonally adjusted (NSA) tally of initial claims fell by 66,591 to 344,653. Pennsylvania reported a decline of 21,505 in initial claims, accounting for one-third of the change in the national level of initial claims (NSA) in the week ended 24 July. (IHS Markit Economist Akshat Goel)
   • Seasonally adjusted continuing claims (in regular state programs) edged up by 7,000 to 3,269,000 in the week ended 17 July. The insured unemployment rate was unchanged at 2.4%.
   • In the week ended 10 July, continuing claims for Pandemic Emergency Unemployment Compensation (PEUC) rose by 99,167 to 4,233,883.
   • In the week ended 10 July, continuing claims for Pandemic Unemployment Assistance (PUA) rose by 112,224 to 5,246,162.
   • With only 26 states still accepting claims for pandemic-related unemployment benefits, continuing claims under PUA and PEUC in the week ended 10 July would have declined if California's count were excluded. Continuing claims for PUA and PEUC in California rose by 255,843 and 217,148, respectively. Indiana also reported large increases in continuing claims for PUA and PEUC after its plan to withdraw from pandemic-related benefits was stopped by a county judge.
   • In the week ended 10 July, the unadjusted total of continuing claims for benefits in all programs rose by 582,403 to 13,156,252.
10. The US pending Home Sales Index (PHSI) fell 1.9% in June on the heels of a surprising 8.3% jump in May; it was also down 1.9% in June from a year earlier. The index is back to pre-pandemic levels. (IHS Markit Economist Patrick Newport)
    • The Northeast and Midwest saw gains; the West and South saw losses. Three of the four regional indexes were below their year-earlier levels; the Northeast was the exception.
    • According to Lawrence Yun, the National Association of Realtors' chief economist, "Pending sales have seesawed since January, indicating a turning point for the market…Buyers are still interested and want to own a home, but record-high home prices are causing some to retreat."
    • A second forward-looking housing indicator suggests that sales will continue to slide. The Mortgage Bankers Association (MBA)'s Purchase Index (four-week moving average), down 19% from the start of the year, is back to its pre-pandemic levels and edging down.
11. Media reports indicate that Tesla is considering giving up some of its high-end retail spaces and choosing cheaper locations, while separately electric vehicle (EV) ride-hailing company Revel has announced a deal for operating in New York City. Electrek has reported the potential for changes in Tesla real estate. According to the report, Tesla may close some high-rent showrooms within shopping centers and instead emphasize remote work and cheaper locations. Instead of the pricey shopping center locations, the company is reportedly looking to rent spaces in mall parking lots, warehouses, and other locations to manage test-drive fleets and delivery centers. The report also says that Tesla is considering making more of its retail workforce remote and having them focus on helping customers place orders online. (IHS Markit AutoIntelligence's Stephanie Brinley)
12. Comments from Tesla CEO Elon Musk have shed some light on expectations for Model Y production in Germany and Texas (United States), which is still due to begin by the end of 2021. Musk indicated that the company "expects to be producing the new design of the Model Y in both [Germany and Texas] in limited production later this year," according to Automotive News. The Texas and Germany plants are due to shift to a new production design, with a new aluminum casting for the rear body structure that includes crash rails, while the California plant casts the front body structure only. Musk also confirmed that the Model Y will eventually have a battery pack that is part of the structure, with the new 4680 batteries. However, Musk also noted a back-up plan to build the Model Y in Germany and Texas with a non-structural pack using the current 2170 cells. (IHS Markit AutoIntelligence's Stephanie Brinley)

Europe/Middle East/Africa

1. All major European equity indices markets closed higher; Italy +1.0%, UK +0.9%, Spain +0.6%, Germany +0.5%, and France +0.4%.
2. 10yr European govt bonds closed unchanged except France -2bps; Italy/Germany/UK/Spain flat.
3. iTraxx-Europe closed -1bp/46bps and CDX-NAHY -2bps/233bps.
4. Brent crude closed +1.7%/$75.10 per barrel.
5. The economic sentiment indicator (ESI) for the eurozone has risen for the sixth straight month in July, reaching its highest-ever level (of 118.0). The series goes back to 1985. The ESI is now 14 points above its pre-pandemic level in February 2020 and 18 points above its average since 2020. (IHS Markit Economist Ken Wattret)
   • However, July's 1.1-point increase was the smallest of the recent run of improvements since February, and following four straight months of pronounced upward surprises it fell short of the market consensus expectation (of 118.5, according to Reuters's survey).
   • Eurozone industrial sentiment, which has the highest weight in the ESI (of 40%), rose to another record high (of 14.6), over 18 points above its long-run average since 2000.
   • Some of the more forward-looking elements of the industry survey have started to falter, however, with production expectations, for example, losing ground in each of the last three months. On the positive side, orderbooks, including for exports, continued to improve in July.
   • Services sentiment (30% of the ESI) also rose again in July, to 19.3, around eight points above its pre-pandemic level and 13 points above its average since 2000.
   • However, the latest increase of 1.4 points was comparatively small compared with the average eight-point gain over the prior four months. Moreover, the survey of expected demand fell back for the first time since November 2020.
6. Germany's Federal Statistical Office (FSO) has reported, based on data from various regional states, that the country's national consumer price index (CPI) has increased by a higher-than-expected 0.9% month on month (m/m) in July. This is about 0.7% above the 0.2% m/m average for this month in recent years. As a result of a large boosting base effect linked to the temporary VAT cut in July 2020, annual inflation has spiked from June's 2.4% to 3.8% year on year (y/y). (IHS Markit Economist Timo Klein)
   • For technical reasons, the EU-harmonised CPI measure has increased by substantially less, however. This measure uses weights derived from the consumer spending pattern of 2020, which was significantly affected by lockdowns. In early 2021, this caused above-average increases to the harmonized measure, but the opposite holds for July-October. The m/m rate for July was 0.5%, pushing its y/y rate from 2.1% to 3.1% y/y.
   • The detailed breakdown of the German national data will only be published with the final numbers on 11 August, but components are available, for instance, from the largest and most populous state of North Rhine-Westphalia (NRW). CPI in this state posted 0.8% m/m and 4.1% y/y, the latter surging from 2.5% in June.
   • In NRW, energy prices boosted general inflation once more, its 1.2% m/m raising its annual rate from 9.7% to 12.7%. Furthermore, food prices increased by 0.4% m/m in July, which together with base effects of the VAT cut, sharply raised their y/y rate from 1.3% to 4.4%. Meanwhile, the loosening of holiday travel- and recreation/entertainment-related restrictions provided for increases in the package tour and hotel/restaurant categories, albeit not much more than what was expected for seasonal and VAT-related reasons. However, durable goods prices rose at an above-average pace - the categories for furniture/household goods and clothing/shoes posted 3.9% and 6.1% y/y, respectively.
7. Seasonally adjusted German unemployment declined by 91,000 month on month (m/m) in July, a marked acceleration of the downward trend that began in mid-2020 and stalled only temporarily during February-April. Thus, about half of the initial, pandemic-related unemployment surge in the second quarter of 2020 had been unwound by July 2021. (IHS Markit Economist Timo Klein)
   • The BA calculates a cumulative COVID-19 effect on unemployment of 316,000 by July, down from 399,000 by June 2021 and an interim peak of 638,000 in June 2020. This represents a comparison with a hypothetical continuation of the pre-pandemic trend if the pandemic had never occurred.
   • Germany's (national) unemployment rate declined from June's 5.9% to 5.7% in July. This compares with a peak of 6.4% after the end of the first pandemic wave in mid-2020 and a pre-pandemic 40-year low of 5.0% in March 2020.
   • Employment, data for which regularly lag by one month, increased by 76,000 to 44.830 million in June. In addition, past data have been revised up markedly, amounting to a level adjustment of about 100,000 during the last 12 months. The monthly increase in June is roughly three times higher than the average during March-May, reducing the gap with the pre-pandemic high in February 2020 to 1.3% (after 1.5% in May).
   • In year-on-year (y/y) terms, the sub-category of "regular" jobs - for which employers pay social security contributions, i.e., excluding the self-employed, mini-jobs, or other forms of precarious employment - had improved sharply further from April's 0.7% to 1.2% in May (latest data available). This outperforms May's mere 0.1% increase for total employment, confirming previous evidence that precarious forms of employment have suffered much more from the pandemic. This gap will narrow only gradually as the recovery proceeds. Among regular jobs, however, part-time employment continues to fare much better than full-time employment (up by 2.3% versus 0.8% y/y in May).
8. BASF says higher prices and volumes boosted its earnings and sales significantly in the second quarter, with the company reporting net profit of €1.65 billion ($1.95 billion), beating analysts' consensus estimate of €1.40 billion and swinging from a pandemic-impacted loss of €878 million in the prior-year period. The net earnings are also flat with the first quarter of 2021. (IHS Markit Chemical Advisory)
   • EBITDA rose threefold year on year (YOY) to €3.20 billion in the quarter, with the company's EBITDA margin almost doubling to 16.2% from 8.4% in the equivalent quarter last year. Sales increased 56%, or €7.10 billion, YOY to €19.75 billion, beating the company-provided consensus of €17.16 billion, and also higher sequentially than the first quarter's sales of €19.40 billion. EBIT before special items soared to €2.36 billion, up a massive €2.13 billion YOY and also beating consensus of €1.96 billion. The EBIT figure is also "considerably higher than the pre-pandemic level of €1.0 billion in the second quarter of 2019," it says. The figures are in line with preliminary estimates issued by BASF on 9 July. (IHS Markit Chemical Advisory)
   • Price levels increased notably in the company's surface technologies, chemicals, and materials business segments, according to BASF, while volumes grew primarily in the surface technologies, materials, and industrial solutions segments. The large rise in EBIT was due mainly to a considerable rise in EBIT before special items in the company's chemicals and materials segments, it says. The surface technologies and industrial solutions segments also saw earnings increase.
   • In the chemicals segment, sales soared 91% YOY to €3.40 billion, due primarily to significantly higher price levels on strong demand and lower product availability, it says. EBIT before special items of €990 million was considerably higher YOY, largely attributable to higher EBIT before special items in the petrochemicals division, BASF says. EBIT before special items also rose in the intermediates division, it notes.
   • Sales in the company's materials business rose 75% compared with the prior-year period to €3.70 billion, primarily due to a significant demand-related increase in volumes, while EBIT before special items "rose considerably" to €792 million, it says.
   • BASF's industrial solutions segment achieved sales of €2.40 billion in the second quarter, also substantially higher than a year earlier, particularly in the dispersions and pigments division, it says. Sales growth was largely attributable to higher volumes in almost all businesses in both divisions, with EBIT before special items rising to €307 million. The dispersions and pigments division was renamed dispersions and resins as of 1 July, following the closing of the €1.15-billion divestiture of BASF's global pigments business to DIC (Tokyo, Japan) on 30 June, it adds.
   • In its surface technologies business, sales increased 90% YOY in the quarter to €5.90 billion, due mainly to significantly higher prices and volumes overall, and notably in the catalysts division. EBIT before special items increased to €289 million due primarily to higher sales volumes, it says.
   • In contrast, however, BASF's nutrition and care, and agricultural solutions segments both saw EBIT before special items decline. In the nutrition and care segment, sales were up 2% YOY to €1.60 billion, driven by sales growth in the care chemicals division, while revenue in the nutrition and health division fell. EBIT before special items for both divisions of €138 million was down 46% YOY due primarily to the nutrition and health segment, it says. The strong prior-year quarter was fueled by "exceptional demand" during the pandemic, with margins since declining on lower prices and higher variable costs due mainly to higher raw material costs, it says. The earnings decline was most pronounced in the animal nutrition business, it adds. The care chemicals division's earnings also fell YOY, despite higher sales, as higher raw material prices pressured margins, it says. BASF says it expects earnings in the nutrition and care segment to improve during the second half of 2021.
   • Sales in the agricultural solutions business of €2.00 billion were higher than a year earlier, due mainly to increased volumes and prices in all regions. Adverse currency effects, especially in the US and Latin America, however, had a negative 7% impact on sales, it says. EBIT before special items of €75 million was down 38% YOY, due mainly to currency effects and higher fixed costs, it says. "This is particularly disappointing because our Ag team was very successful in driving volumes up by 15% and increasing prices by 3%," says Brudermüller. Higher fixed costs as well as increases in freight costs due to higher sales volumes also impacted earnings, he adds.
9. The Bank of Ghana (BoG) left its key policy rate unchanged at 13.5% during the MPC's July meeting. Headline inflation has reverted to within the BoG's medium-term target band (an inflation target of 8% with a symmetric band of 2%), while the economic recovery is expected to gain further momentum during the second quarter of 2021. Currently, the MPC considers the risks to the inflation and growth outlook as broadly balanced. (IHS Markit Economist Thea Fourie)
   • The BoG's Composite Index of Economic Activity (CIEC) improved by 33.1% year on year (y/y) during May. The CIEC rebound benefited from the low base year of comparison, stronger industrial production, some recovery in air-passenger arrivals, and a steady rise in construction activity during the month. Stronger import activity reflected the recovery in consumer spending over the period. Ghana's GDP expanded by 3.1% y/y during the first quarter, with non-oil GDP expanding by 4.6% y/y.
   • Headline inflation has come down from 10.3% y/y in March to 7.8% y/y in June, the MPC reports. Base effects combined with the tight monetary policy stance underlined the lower inflation rate in the economy. 'Core' inflation, excluding energy and utility costs, also slowed from 10.9% y/y in March to 8.6% y/y in April and 7.3% y/y in May, before ticking up slightly to 7.5% y/y June.

Asia-Pacific

1. All major APAC equity indices closed higher; Hong Kong +3.3%, Mainland China +1.5%, Japan +0.7%, Australia +0.5%, India +0.4%, and South Korea +0.2%.
2. Beijing municipal government officials announced, at the 23rd Annual Meeting of the China Association for Science and Technology, the opening of city's first highway for autonomous vehicle (AV) testing, reports Pandaily. Baidu and Pony.ai received the first batch of permits to test autonomous passenger cars on the highway. (IHS Markit Automotive Mobility's Surabhi Rajpal)
3. Baidu has opened its third Apollo Park autonomous vehicle (AV) testing site in Shanghai (China). The new facility, which covers an area of nearly 10,000 square meters, is located in Shanghai International Automobile City and is intended to serve as an ecosystem base focusing on vehicles, roads, the cloud, and digital maps. Baidu says that the Shanghai Apollo Park will be a control center for autonomous car fleet operations, as well as a research and development (R&D) hub dedicated to autonomous technologies, reports Gasgoo. (IHS Markit Automotive Mobility's Surabhi Rajpal)
4. Hyundai Motor has signed a memorandum of understanding (MOU) with Hyundai Electric & Energy Systems (Hyundai Electric) to develop and commercialize a mobile power-generator package based on the fuel-cell system for vehicles, according to a company press release. Under the MOU, the two parties will develop a hydrogen fuel-cell package dedicated for mobile power generators and alternative maritime power (AMP) supply solutions, based on Hyundai's polymer electrolyte membrane fuel-cell (PEMFC) system used in Hyundai's fuel-cell vehicles. Hyundai will supply PEMFC fuel-cell systems and provide technical support, while Hyundai Electric will develop and commercialize a fuel-cell-based power-generation package, including mobile generators and AMP supply systems. Hyundai Electric will also explore a variety of business models for marketing the new package in South Korea and abroad. (IHS Markit AutoIntelligence's Jamal Amir)
5. Hyundai Motor Group and LG Energy Solution will form a USD1.1-billion joint venture (JV) to build an electric vehicle (EV) battery plant in Indonesia, according to a company press release. The two companies have signed a memorandum of understanding (MOU) with the Indonesian government to build the lithium-ion (Li-ion) battery cell plant with an annual capacity of 10 gigawatts by 2025, enough for more than 150,000 EVs. The two companies will each have a 50% ownership stake in the JV, while the Indonesian government has agreed to offer various incentives and rewards to support the stable operation of the plant. The JV will build the plant in an industrial cluster in Karawang. Construction of the plant is scheduled to begin in the fourth quarter of 2021 and will be completed by the first half of 2023. Mass production of battery cells at the new facility is expected to commence in the first half of 2024. Battery cells produced by the plant will be used in Hyundai and Kia's EV models built upon the automotive group's dedicated battery electric vehicle (BEV) platform, the electric-global modular platform (E-GMP). The new plant will help Hyundai and Kia produce vehicles with high levels of efficiency, performance, and safety by supplying battery cells optimized for the two automakers' BEV models, according to Hyundai. (IHS Markit AutoIntelligence's Jamal Amir)
6. Ashok Leyland, with its UK-based electric vehicle (EV) arm Switch Mobility, has detailed its electrification roadmap. Under this plan, Ashok Leyland intends to invest up to USD200 million over the next few years in Switch Mobility, USD130 million of which has already been invested in the entity. In addition, Switch Mobility plans to introduce an electric-light commercial vehicle (e-LCV) in India by the end of this year, for which the firm has already received 2,000 orders. (IHS Markit AutoIntelligence's Surabhi Rajpal)
7. Fuel prices surging above pre-pandemic levels and one-off policy measures drove Australian headline inflation to a 13-year high of 3.8% year on year (y/y) during the June (second) quarter. With the one-off and extraordinary nature of the inflation surge - and continued lockdowns to contain COVID-19 infections likely during this quarter - inflation will retreat in the coming quarters, meaning that this surge will be ignored by the Reserve Bank of Australia (RBA). (IHS Markit Economist Bree Neff)
   • According to the Australian Bureau of Statistics (ABS), the main contributors to the 0.8% quarter-on-quarter (q/q) surge in the June quarter were the 6.5% q/q surge in automotive fuel prices, and a 2.4% q/q increase in health and medical care services related to annual increases in private health insurance premiums.
   • Boosting the annual inflation figure was the base effect from the unwinding of the government's free childcare support package, which boosted the furnishings, household equipment, and services component of the consumer price index (CPI) 16.9% y/y; when the childcare element is stripped away, that component would have been up by only 1.0% y/y. The double-digit surge in the Transportation component of the CPI was driven primarily by the recovery in automotive fuel prices from one year prior.

Posted 29 July 2021 by Ana Moreno, Director, Product Development, IHS Markit and

Chris Fenske, Head of Fixed Income Research, Americas

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