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All major US equity indices closed higher, while most APAC
markets were lower, and Europe was mixed. US government bonds
closed sharply lower, while benchmark European bonds closed mixed.
CDX-NA closed slightly tighter across IG and high yield, while
European iTraxx was close to flat on the day. Natural gas closed
higher, while the US dollar, oil, silver, gold, and copper all
closed lower.
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Americas
All major US equity indices closed higher; DJIA +0.3%, S&P
500 +0.7%, Nasdaq +1.0%, and Russell 2000 +1.8%.
10yr US govt bonds closed +4bps/1.60% yield and 30yr bonds
+7bps/2.03% yield.
CDX-NAIG closed CDX-NAIG closed -1bp/258bps and CDX-NAHY
-4bps/297bps.
DXY US dollar index closed -0.2%/93.86, selling off on the FOMC
statement at 2:00pm ET then rallying at the beginning of the press
conference at 2:30pm ET only to sell-off sharply minutes
afterwards.
Gold closed -1.4%/$1,764 per troy oz, silver -1.2%/$23.23 per
troy oz, and copper -1.0%/$4.32 per pound.
Crude oil closed -3.6%/$80.86 per barrel and natural gas closed
+2.5%/$5.78 per mmbtu.
The Federal Open Market Committee (FOMC) concluded its
scheduled two-day policy meeting this afternoon. The statement
released at the conclusion of the meeting was consistent with our
expectations. First, the Committee announced that it would begin
later this month to reduce the pace of its securities purchases in
monthly increments of $15 billion, relative to the current pace of
$120 billion per month. This would put them on track to decline to
zero by the end of June 2022. Second, policymakers expressed less
conviction that the surge of inflation largely reflects transitory
factors, a hint that if inflation does not soon moderate, monetary
policy could be tightened earlier than currently anticipated. (IHS
Markit Economists Ken
Matheny and Lawrence Nelson)
Global manufacturing growth continues to be stymied by supplier
delays and stalling export trade, according to the J.P.Morgan
Global Manufacturing PMI. However, fears of rising inflation and
continued supply chain disruptions were not able to trick markets
in October, a month historically associated with stock market
crashes, as investors in the US, developed Europe and Japan were
treated to a strong finish to the month. Furthermore, an overview
of factor performance for the month unmasked a tendency towards
high momentum shares, though with some variation across regions and
capitalization ranges. (IHS Markit Research Signals)
US: Deep Value measures such as Forward 12-M EPS-to-Enterprise
Value were especially favored among small caps, a theme that did
not carry over to large caps
Developed Europe: High momentum stocks measured by
Industry-adjusted 12-month Relative Price Strength were strong
performers
Developed Pacific: High quality firms outperformed in markets
outside Japan, as captured by Inventory Turnover Ratio
Emerging markets: Investors rewarded Deep Value stocks, as
gauged by TTM EBITDA-to-Enterprise Value, while short-term price
reversal measures such as 5-day Industry Relative Return
underperformed
Finding clean energy and infrastructure projects to deploy
trillions in private capital is the challenge that financiers face
and governments must resolve, Black Rock CEO Larry Fink said 3
November. The financial community is committed to bringing that
capital forward, but the "key is finding the jobs, and finding the
ability to deploy that capital and there lies the fundamental issue
today," said Fink, who heads the world's largest investment fund,
which has $9.5 billion of assets under management. (IHS Markit
Net-Zero Business Daily's Amena
Saiyid)
Speaking on a climate finance panel at the UN COP26 meeting,
Fink was commenting on the $130 trillion in private capital
commitments that the Glasgow Financial Alliance for Net-Zero
(GFANZ) said it has secured to help economies transition to net
zero.
GFANZ is a network of more than 450 banks, insurers, and asset
managers across 45 countries that was formed in April by former
Bank of England Governor Mark Carney and US Special Presidential
Envoy for Climate John Kerry to bring all net-zero financial
initiatives, including the Net Zero Asset Managers Initiative,
under one umbrella.
With the $130 trillion in private commitments, Carney said: "We
now have the essential plumbing in place to move climate change
from the fringes to the forefront of climate finance so that every
financial decision takes climate change into account."
Fink cautioned Carney and other financial leaders that there is
currently no system in place to rapidly deploy private capital to
the emerging world without "three, four, five, six years of waiting
for regulation and having it passed."
Republican Glenn Youngkin won the Virginia governor's race on 2
November, while the New Jersey gubernatorial contest remained too
close to call 12 hours after the polls closed. The first major US
elections following the presidency 2020 election of President Joe
Biden suggested that Democrats will probably struggle to retain
their congressional majorities in the 2022 midterm elections. (IHS
Markit Country Risk's John
Raines)
The Virginia and New Jersey results indicate that the electoral
coalition that secured Democrats control of the White House and
both chambers of Congress in 2020 has deteriorated. In 2020, Biden
won Virginia by 10 points and New Jersey by 16 points, but the
results in both states imply that the Democrats have lost
significant support among independents and suburban voters, most
probably because of the ongoing coronavirus disease 2019 (COVID-19)
pandemic and inflation concerns. Before Youngkin's victory,
Democrats had won 13 straight statewide elections in Virginia.
Youngkin's victory provides a template for Republican
candidates in close contests to navigate divided sentiments around
former president Donald Trump in the 2022 midterm elections.
Youngkin campaigned by using cultural issues that Trump had sought
to address, such as the teaching of critical race theory in
schools, to fuel enthusiasm among Republican voters, while
distancing himself directly from association with the former
president by refusing to campaign personally with him and avoiding
claims of 2020 voting fraud.
The Virginia race also has legislative implications for Biden's
social agenda. McAuliffe's attempts to project an image of a
competent, pragmatic Democratic Party faltered against a
congressional backdrop of Democratic infighting over the fate of
the USD550-billion bipartisan infrastructure bill and a
USD1.75-trillion social spending package, the Build Back Better
Act.
US manufacturers' orders rose 0.2% in September, while
shipments rose 0.6% and inventories rose 0.8%. The reading on
orders was somewhat stronger than the consensus estimate of a
slight decline. (IHS Markit Economists Ben
Herzon and Lawrence Nelson)
Orders and shipments of core capital goods (nondefense capital
goods excluding aircraft) were little revised from the advance
estimates, as were total inventories. As a result, we left our
forecast of fourth-quarter GDP growth unrevised at 4.9%.
Supply constraints continue to restrain real expansion in
manufacturing, even as demand remains elevated. The result has been
surging prices.
Year to date (through September), the producer price index
(PPI) for the net output of the manufacturing sector rose
13.0%.
This has more than accounted for growth of nominal orders
(10.2%) and nominal shipments (7.6%) over this period.
That is, after adjusting for price change, both real orders and
shipments within manufacturing are down for the year following the
completion of a full recovery last fall.
Supply constraints, broadly, are expected to continue into next
year.
If the spread of COVID-19 continues to slow, we believe that
demand for goods will soften as spending on services returns to
pre-pandemic norms.
This will help to ease pressures on supply chains and allow for
robust expansion in the manufacturing sector, as businesses catch
up with demand and rebuild inventories.
The lack of inventory pushed US light-vehicle sales down by
22.5% y/y in October; YTD sales were up by 9.2%. October's 1.0
million units were similar to the volume in September. Although the
pace of sales is projected to have increased mildly from September,
auto demand levels in the US continue to be subdued by new vehicle
inventory constraints. IHS Markit forecast as published in October
stands at 15.1 million units, but the softer-than-expected October
sales point to potential that full-year sales could possibly be
somewhere between 14.9-15.1 million units. (IHS Markit
AutoIntelligence's Stephanie
Brinley)
Electric autonomous vehicle (AV) company Local Motors has
entered into a strategic customer agreement with a provider of
digital LiDAR sensors, Ouster, according to a company statement.
The agreement includes a binding commitment for the delivery of
more than 1,000 OS digital LiDAR sensors through to 2023 and a
non-binding forecast of more than 20,000 sensors through to 2025.
These sensors will be deployed in Local Motors' next-generation
3D-printed autonomous shuttles. Local Motors has developed the Olli
autonomous shuttle, which is designed to provide last-mile
transportation in low-speed environments, including campuses,
hospitals, military bases, and universities. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
Autonomous delivery vehicle startup Nuro has raised USD600
million in its latest funding round, at a valuation of USD8.6
billion, reports Reuters. The funding round was led by Tiger Global
Management, in participation with Toyota Motor Corporation's Woven
Capital, SoftBank Group Corporation's Vision Fund 1, Google, and
Kroger Co., among others. In addition, Nuro has signed a five-year
strategic partnership with Google Cloud to support autonomous
vehicle (AV) simulation and data management. Google Cloud will
assist Nuro in optimizing its deliveries to retailers and other
businesses, with the aim of transforming local commerce together.
Nuro has been testing its autonomous system on the R1 vehicle and
its updated version of the R2 via partnerships with retail
companies such as Walmart, Kroger, and CVS Pharmacy, as well as via
partnerships for parcel deliveries with FedEx and food deliveries
with Domino's Pizza. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
On November 2, Interstate Power and Light (IPL) applied with
the Iowa Utilities Board for approval of advance ratemaking
principles that would allow it to add new solar generation and
energy storage resources. (IHS Markit PointLogic's Barry Cassell)
"IPL is proposing Advance Ratemaking Principles, included as
Attachment A to this Application, that would allow IPL to benefit
its customers and the state of Iowa with a unique opportunity to
add 475 MW of solar generation and battery energy storage to IPL's
generating portfolio in 2023 and 2024," the utility wrote. "These
renewable resource additions will help meet the capacity needs of
IPL's customers and support the reliability of IPL's generating
fleet, all while boosting economic development, continuing IPL's
transition to cleaner sources of energy and capacity, and further
solidifying Iowa's status as a national leader in renewable
energy."
It added: "IPL's need for 475 MW of solar and energy storage is
demonstrated primarily by IPL's Iowa Clean Energy Blueprint, a
resource planning evaluation consistent with the settlement between
IPL, the Office of Consumer Advocate, and intervenors in IPL's last
electric rate case proceeding in Docket No. RPU-2019-0001. The Iowa
Clean Energy Blueprint demonstrates the potential for customers to
avoid significant costs through a combination of coal generation
retirement, continued energy efficiency, and the addition of
utility-scale and distributed solar generation and energy
storage.
"The Iowa Clean Energy Blueprint identifies the need for 400 MW
of nameplate capacity, which can be most cost-effectively met with
additions of solar generation to IPL's fleet. Supplemental analysis
performed since the Iowa Clean Energy Blueprint was completed shows
that the addition of 75 MW of energy storage, paired with a portion
of the 400 MW of solar generation, would also be cost-effective and
would support the reliability of IPL's fleet.
Europe/Middle East/Africa
Major European equity indices closed mixed; Italy +0.7%, France
+0.3%, Germany flat, UK -0.4%, and Spain -0.8%.
10yr European govt bonds closed mixed; Italy -4bps,
Germany/France -1bp, Spain flat, and UK +4bps.
iTraxx-Europe closed flat/51bps and iTraxx-Xover
-2bps/258bps.
Brent crude closed -3.2%/$81.99 per barrel.
According to the first estimate from the National Institute of
Statistics (Istituto Nazionale di Statistica: ISTAT), Italian real
GDP grew by 2.6% quarter on quarter (q/q) in the third quarter.
(IHS Markit Economist Raj
Badiani)
This followed growth of 2.7% q/q and 0.3% q/q in the second and
first quarters.
The third-quarter GDP developments were better than expected,
with IHS Markit estimating that the economy grew by 1.9% q/q during
the period.
In annual terms, GDP increased by 6.3% year on year (y/y) in
the first three quarters of this year, after an 8.9% drop in the
full year 2020 to remain.
At the end of the third quarter, real GDP stood 1.4% below its
pre-COVID-19 level at end-2019.
Despite the better-than-expected real GDP outturn in the third
quarter, we still expect the recovery to slow during the next few
quarters, tempered by supply bottlenecks and soaring energy
prices.
According to our October forecast, real GDP growth is likely to
slow to 0.7% q/q in the fourth quarter of this year and 0.4% q/q in
the first quarter of 2022.
Ferrari has announced its financial results for the third
quarter of 2021 which have shown a stronger year-on-year (y/y)
performance. During the three months ending 30 September, the
automaker's net revenues increased by 18.6% y/y to EUR1,053
million. EBITDA has grown by 12.4% y/y to EUR371 million, although
its EBITDA margin has dipped from 37.2% to 35.2%. EBIT also
increased by 21.6% y/y to EUR270 million, with the EBIT margin
growing from 25% to 25.7%. Net profit ended the quarter at EUR207
million, an improvement of 21.1% y/y. The performance this quarter
has contributed to the year-to-date (YTD) performance, which has
been largely dominated by the improvement on a low base during the
second quarter due to COVID-19 virus measures implemented in 2020.
For the nine-month period, Ferrari's net revenues have grown by
29.6% y/y to EUR3,099 million, EBITDA has increased by 47% y/y to
EUR1133 million and a margin of 36.6%, and EBIT has leapt by 74.2%
y/y to EUR810 million, and a margin of 26.2%. Net profit has jumped
78.9% y/y to EUR619 million. The growth this quarter is partly as a
result of the normalization of the automaker's operations in the
wake of the COVID-19 virus which had a huge impact on its 2020
performance. As the company resumed operations from stoppages in
2020, it chose to focus on supplying vehicles in nearer markets
rather than more distant destinations, which would take longer for
transactions to be completed. (IHS Markit AutoIntelligence's Ian
Fletcher)
Coca-Cola HBC, a strategic bottling partner of The Coca-Cola
Company, announced that juice volumes increased 14.0% y/y in the
third quarter, outperforming the company's overall volume growth of
13.1% y/y in Q3. (IHS Markit Food and Agricultural Commodities'
Vladimir Pekic)
"Juice volume was up 14.0%, with growth in all three segments
[established, developing, and emerging markets], while
ready-to-drink tea volume grew by 6.5%," said Coca-Cola HBC.
The company's overall volumes grew fastest in the emerging
markets segment (+21.3% y/y), followed by an increase of 8.0% y/y
in established markets and a drop of 1.9% y/y in developing
markets.
Emerging markets' volume increased by 21.3%, with continued
strong performance from Nigeria, Russia, Ukraine and others.
"Sparkling volumes were up low 20s, while adult sparkling and
energy [drinks] performed very well in the quarter, both increasing
high double digits. Stills volumes were up mid-teens with strong
performance from water led by Russia, and juice led by Nigeria,"
said the company.
Nigerian performance gained momentum in Q3, with volume up
mid-30s despite the double-digit comparator. Sparkling grew by high
30s with very strong performance from Coke Zero. Stills grew by
low-double digits with a high-double digit increase in the juice
segment.
Equinor has revealed its plans to deploy a new floating
semisubmersible foundation if it secures a seabed lease for its 1
GW bid in the ongoing ScotWind auction. The floater, named Wind
Semi, has several key design features that the company says will
make its design cost-competitive. (IHS Markit Upstream Costs and
Technology's Melvin Leong)
Firstly, the structure has been designed to allow fabrication
and assembly based on local supply chain capabilities. It has a
flat plate design without bracings, heave plates, and complicated
nodes, thus reducing the risk of fatigue cracking. The structure
can be built in blocks that can either be built locally or shipped
in from overseas locations.
Secondly, the floater has a simple design with a passive
ballast system. This will reduce the risk of system failure and the
amount of maintenance needed.
Lastly, the design has a shallow draught of less than 10
meters, allowing it to be assembled portside at most industrialized
ports in the region.
Should Equinor secure a seabed lease at eh ScotWind auction,
the Wind Semi design will be deployed in the full-scale 1 GW
floating wind project, dwarfing the size of the company's current
largest floating wind project, the 88 MW Hywind Tampen.
Angola's council of ministers approved the proposal for the
upcoming scheduled KWZ18.8-billion state budget 2022 on 28 October
that foresees real GDP reaching 2.4% next year. (IHS Markit
Economist Alisa Strobel)
The budget still needs to be submitted to and approved by the
National Assembly. The reference price for the barrel of oil has
also been adjusted to USD59 per barrel, up from USD39 per barrel in
2021.
Social sector spending is set to increase by 24.7% from the
previous year and revenue intakes should also be supported by
non-oil growth, which is estimated to reach 3.1% in 2022. Meanwhile
annual headline inflation is expected to fall to 18%.
The much more conservative benchmark oil price of USD39 per
barrel in 2021 helped the government to reach fiscal targets so
far. Non-oil government revenue has recorded an increase of 30% as
of the second quarter of 2021. Angola's fiscal policy has already
delivered substantial consolidation since 2020. Non-oil revenue
continued to increase thanks to value-added tax (VAT) and income
tax collections through 2020 and data available for 2021.
Asia-Pacific
Major APAC equity indices closed lower except for Australia
+0.9%; Mainland China -0.2%, Hong Kong -0.3%, India -0.4%, and
South Korea -1.3%.
Geely Auto Group has launched its global powertrain brand
"Leishen Power", and a new modular intelligent hybrid powertrain
platform, Leishen Hi-X. According to a company statement, the
Leishen hybrid platform features ultra-high 43.32% thermal
efficiency engine, three-speed Dedicated Hybrid Transmission (DHT),
40% lower fuel consumption NEDC rating, and full powertrain FOTA
(Firmware Over the Air) update capabilities. The modular platform
can be used for A-C-segment models and in HEV/PHEV/REEV
configurations for brands within Geely Auto Group. The 40% lower
fuel consumption NEDC rating would mean a substantial reduction in
emissions and a shorter time to achieve the clean air targets set
up by the Chinese authorities. (IHS Markit AutoIntelligence's Nitin
Budhiraja)
Sing Da Marine Structure (SDMS) has produced Taiwan's first
offshore wind jacket foundation. The jacket will be used in
Ørsted's 900 MW Changhua 1 & 2a offshore wind farm. Ørsted has
stated that the jacket, weighing more than 1,200 tons with a height
of around 60 to 80 meters, is entirely made in Taiwan and has
passed all inspections. The company has stationed double the usual
manpower at site to support SDMS in becoming a qualified offshore
wind supplier. Ørsted has also stated that it had sent its experts
to coach SDMS's sub-suppliers in welding, and conducted more than
30 workshops to effect knowledge transfer on jacket foundations,
including fabrication procedures, systematic quality assessment,
control processes to meet global QHSE standards, management of
large-scale projects, and preparation of documentation. The Greater
Changhua 1 & 2a wind farm will require 111 jackets for its
Siemens Gamesa 8 MW wind turbines. Offshore construction is ongoing
and will extend to 2022, when the projects is expected to be fully
operational. (IHS Markit Upstream Costs and Technology's Melvin
Leong)
South Korea-based autonomous transportation-as-a-service (TaaS)
startup 42dot has raised KRW104 billion (USD88.5 million) in a
Series A round of funding. This brings the total amount of funds
raised by the startup to USD130.1 million, reports TechCrunch.
42dot secured investment from new investors such as Shinhan
Financial Group, Lotte Rental, Lotte Ventures, STIC Ventures, We
Ventures, and DA Value Investment, among others. Returning backers
also joined this round. The startup plans to use the infused
capital to advance its artificial intelligence (AI)-based
technology, establish joint ventures, and hire staff. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Ola reported EBITDA of INR898.2 million (USD12 million) for the
fiscal year that ended in March 2021, compared with a loss of
USD81.6 million a year ago. This is the company's first-ever
operating profit, driven by cost cuts and workforce reduction,
reports Livemint. Ola reportedly plans to conduct a USD1-billion
initial public offering (IPO) in the next few months. The company,
which operates in over 100 cities in India, has expanded to several
international markets, including Australia, New Zealand, and the
UK, in a bid to improve its valuation. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
The Reserve Bank of Australia (RBA) left the official cash rate
target unchanged at 0.10% and there were no adjustments to the
bank's government bond-buying program, but the monetary policy
board decided to halt the yield-targeting program for three-year
Australian Government Securities (AGS). Although the
policy-anchoring yield target was dropped, Governor Philip Lowe
continued to insist that interest rate hikes are not imminent. (IHS
Markit Economist Bree
Neff)
The yield-targeting program commenced in March 2020 as a way to
anchor monetary policy expectations to a longer-term horizon (three
years) and to contain funding costs through the pandemic. The
target had been extended to the April 2024 dated bond as the
pandemic persisted and because the RBA still viewed three years as
an appropriate timeframe to keep the policy rate on hold and
gradually unwind other stimulus measures.
As conditions have shifted - a lower-than-expected unemployment
rate, higher inflation, and a potentially sharp rebound in activity
post-lockdown - defending the AGS target at 0.10% over the past
week has become far more difficult. The RBA had not defended the
target since late February, but it was forced to intervene on 21
October and was expected to defend again last week after the
higher-than-expected inflation reading, but it did not. This
accelerated bets that the RBA would drop the yield-targeting
program.
The RBA's policy statements this month also highlighted
revisions to the bank's core forecasts, which will be released in
full at the end of this week. The bank's baseline forecast
anticipates real GDP growth of 3% for 2021 (a downgrade from
August), 5.5% in 2022 (an upgrade), and 2.5% for the subsequent two
years. The adjustments to the GDP outlook stem from expectations of
a fast rebound in activity following the Delta variant-induced
lockdowns as vaccination rates have picked up quickly, allowing
containment measures to be unwound.
Posted 03 November 2021 by Chris Fenske, Head of Fixed Income Research, Americas
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