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European and US equity markets closed higher, while Japan was
the only major APAC market to close lower in that region. US and
European government bonds closed lower, while European iTraxx and
CDX-NA were tighter across IG and high yield. Gold was lower,
silver/oil higher, and copper closed higher and broke through
another multiyear high again. The US Congress is beginning to
accelerate its effort to pass a more modestly sized stimulus
package before year end, as a combination of today's weaker than
expected US employment report and the rapidly growing number of
COVID-19 hospitalizations is reinforcing the sense of urgency to
support the economy.
Americas
US equity markets closed higher and with every major index
reaching a new record high close today; Russell 2000 +2.4%, S&P
500 +0.9%, DJIA +0.8%, and Nasdaq +0.7%.
10yr US govt bonds closed +6bps/0.97% yield and 30yr bonds
+8bps/1.74% yield.
CDX-NAIG closed flat/50bps and CDX-NAHY -9bps/291bps, which is
-1bp and -16bps week-over-week, respectively.
DXY US dollar index closed +0.1%/90.81.
Copper closed $3.52 per pound, which is the highest price since
March 2013.
Gold closed -0.1%/$1,840 per ounce and silver +0.5%/$24.25 per
ounce.
Crude oil closed +1.4%/$46.26 per barrel.
The United States saw record numbers of newly reported COVID-19
cases yesterday (3 December), with the total reaching 217,664, and
deaths, which amounted to 2,879 (based on data compiled by Johns
Hopkins University). The independent COVID Tracking Project reports
also that 3 December had the largest number of hospitalizations
over the course of a day since the beginning of the pandemic, with
100,667; each day of this week has seen new record for
hospitalizations, according to this source. Predictions for the
coming weeks are gloomy. Dr Jonathan Reiner, a professor of
medicine at George Washington University, has been quoted by CNN as
saying that he expects the daily new case numbers to be over 3,000
by next week, describing this figure as "9/11 every single day".
Associated Press has reported, based on figures from transport
analytics provider StreetLight Data, that there was a surge in
vehicle travel on the roads around the Thanksgiving holiday; in
early November, the volume was 20% below the equivalent period of
2019, but on Thanksgiving day, it was just 5% lower. A similar
trend was observed in air travel. There is concern that similar
trends will be observed around the upcoming Christmas and New Year
celebrations, which is expected to contribute to persistent high
infection and death rates. (IHS Markit Life Sciences' Janet Beal
and Brendan Melck)
US nonfarm payroll employment rose 245,000 in November, short
of consensus expectations. Revisions to prior months were mixed.
The unemployment rate declined 0.2 percentage point to 6.7%. (IHS
Markit Economists Ben Herzon and Michael Konidaris)
The recovery in payroll employment is continuing to lose steam,
with the level of employment still well short of the pre-pandemic
peak; the count of payrolls in November was roughly 10 million
below February.
The shortfall in payroll employment (relative to February) is
largely in private services (still down roughly 8 million),
although both government and private goods-sector payrolls are also
down considerably (by roughly 1 million each).
The continued weakness in private services is widespread, with
leisure and hospitality still down 3.4 million from February.
As the rate of spread of COVID-19 cases has risen, and as state
and local governments have continued to tighten containment
efforts, services employment will continue to struggle heading into
winter months.
Government payrolls declined 99,000 in November, nearly fully
accounted for by the continued winding down of temporary Census
2020 employment, which is nearly complete. As of November, the
count of these temporary jobs was just 6,000.
The decline in the unemployment rate in November was driven by
a 400,000-person decline in the civilian labor force; civilian
employment posted a smaller, 74,000 decline.
In the months ahead, the trajectory of employment will hinge on
the trajectory of new COVID-19 cases and how both consumers and
government officials respond.
Fears of a faltering US recovery have energized talks on a new
fiscal stimulus package in Congress, marking a shift in the
political dynamic in Washington that could bring some relief to the
global economy. Republicans and Democrats on Capitol Hill on Friday
signaled their willingness to compromise on a plan to inject
hundreds of billions of dollars — and possibly up to $1
trillion — into the world's largest economy with a deal before
the end of the year. (FT)
US manufacturers' orders and shipments each rose 1.0% in
October. After sharp increases over May, June, and July, the pace
of recovery in orders and shipments has slowed considerably. (IHS
Markit Economists Ben Herzon and Lawrence Nelson)
Orders and shipments of nondefense capital goods excluding
aircraft were revised higher through October, while manufacturers'
inventories rose 0.2% in October, more than we had assumed.
The details in this report that bear on our GDP tracking added
0.1 percentage point to our forecast of fourth-quarter GDP growth,
which now stands at 6.3%.
The recovery in manufacturing has come a long way, but remains
shy of full recovery. Orders are now 3.2% below the February level
and shipments are 1.8% below the February level. In April, both
were in the ballpark of 20% down.
That manufacturing has fared well in the recovery reflects
favorable performance in the demand for goods relative to
services.
By our estimates, US GDP of goods has fully reversed the
pandemic-induced decline, while GDP of services is still
lagging.
A particularly bright spot in the goods sector is in capital
equipment. Both orders and shipments of core capital goods have
surpassed their February levels by far, suggesting a robust fourth
quarter for equipment spending.
Such a recovery likely would not be possible were it not for
businesses' optimism about the course of the recovery.
While the recovery continued in many parts of the country from
October to early November, areas of Pennsylvania and a large swath
of the Midwest saw growth begin to erode according to the US
Federal Reserve's latest Beige Book report, containing anecdotal
information from regional business contacts. Rising COVID-19 cases
and hospitalizations in the Upper Midwest south to Missouri and
Arkansas dented the rebound in consumer spending and restrained
employment gains among hospitality and services businesses. (IHS
Markit Economist James Kelly)
Consumer spending was "mostly flat" in the Northeast as retail
and restaurant sales saw slower growth in the face of rising
COVID-19 caseloads and falling temperatures. As more localities in
the region reimposed "safer-at-home" orders, consumers scaled back
some spending. Hotels and tourism businesses remain locked into
weak activity with any pickup in growth not to be seen until
2021.
Labor markets expanded modestly in much of the country, but
only slight growth was felt in the Northeast and areas of the
Plains states. As COVID-19 cases began to surge again and many
local and state governments reinstituted restrictions on business
activity and large gatherings of people, hiring in leisure and
hospitality, transportation, and tourism sectors weakened.
Manufacturing activity continued to make strides in the
Southeast and in a large area from the Upper Midwest south to
Missouri. New orders and production levels increased at a robust
pace in these regions as manufacturers continued to bounce back
from the depressed demand and activity from the early stages of the
COVID-19 pandemic. While production in the South was restrained
somewhat by labor supply concerns and numerous supply chain
disruptions, producers of home furnishings, textiles, food, and
shipping materials saw robust demand for their products
Construction activity made strong gains in the West, Midwest,
and parts of the South. Low mortgage interest rates and the
continuing trend towards remote work have pushed home demand along
the West Coast higher and home inventories lower. Similar dynamics
occurred in Texas and the Southeast where some builders are raising
prices not only to cover rising materials costs but also to slow
down sales in some areas.
This month's Beige Book pointed to a softening of the recovery
in the Midwest and parts of the Northeast as the COVID-19 pandemic
surges on. Employment gains and consumer spending growth,
especially in the heavily impacted leisure and hospitality
industry, remain contingent on the rising or falling prevalence of
the virus in local communities. The reinstitution of business
capacity restraints and surging hospitalizations in the Midwest and
the potential for overwhelmed hospitals in other parts of the
country will limit consumer spending and hiring in the near
term.
Peer-to-peer car-sharing company Turo is returning to New York
(United States), after leaving the state seven year ago. In 2013,
Turo suspended its operations in the state over a dispute with the
New York Department of Financial Services about insurance laws.
Starting in January, Turo will only allow users in its commercial
host program, designed for independent rental companies which
provide their own insurance, to list on its app in New York. Andre
Haddad, CEO of Turo, said, "Frankly this couldn't come at a better
time. Subway ridership is down, ride-sharing is down. Many
consumers want the safety of a private space of a car and frankly
New Yorkers are really saddled with the worst traditional car
rental experience in the country." The limited return of Turo in
New York is a significant development at a time when the
car-sharing business has been battered amid the COVID-19 virus
pandemic. The company is looking for partnerships with carmakers to
allow dealers to rent their cars using its app. Recently, Bloomberg
reported that Turo and Getaround had secured US loans because of
the economic effects the COVID-19 virus pandemic on their
transportation businesses. (IHS Markit Automotive Mobility's
Surabhi Rajpal)
Brazilian light-vehicle registrations declined 7.2% year on
year (y/y) in November, according to initial data from the National
Federation of Motor Vehicle Distributors (Federação Nacional da
Distribuição de Veiculos Automotores: Fenabrave). Fenabrave
reported registrations of 214,265 light vehicles last month,
compared with 230,885 units in November 2019. (IHS Markit
AutoIntelligence's Tarun Thakur)
Registrations of medium and heavy commercial vehicles (MHCVs)
and buses decreased by 5.5% y/y last month, Fenabrave's data show.
In November, 10,765 MHCVs were sold, compared with 11,392 units in
the same month a year earlier.
The best-selling automaker in the Brazilian light-vehicle
market, Fiat Chrysler Automobiles (FCA), had a market share of
18.4% in November. General Motors (GM) and Volkswagen (VW) claimed
second and third places with shares of 18.3% and 16%
respectively.
Fenabrave reported that the GM Onix was the best-selling
passenger car in Brazil last month, with 14,292 units
registered.
The Fiat Strada pick-up was the best-selling commercial
vehicle, with 9,614 units registered in November.
While reporting their third-quarter earnings, separately, GM
and FCA highlighted these two models as being significant for their
respective performances in the region.
IHS Markit's November forecast shows a decline of 28.3% in
Brazilian light-vehicle sales to 1.91 million units in 2020.
IHS Markit reduced its forecast because of the expected impact
that the COVID-19 virus outbreak will have on vehicle demand in
2020.
Demand for personal vehicles during the pandemic (for safer
mobility), accessible vehicle finance, and the low Selic interest
rate are some of the factors that are affecting Brazilian vehicle
sales positively.
We expect double-digit percentage growth in the coming years as
the Brazilian market recovers and we forecast annual sales of 3.07
million units in 2025.
Hyosung (Seoul, South Korea) says it will invest $36 million to
almost double existing production capacity at its spandex fiber
plant in Santa Catarina, Brazil. (IHS Markit Chemical Advisory)
The 10,000-metric tons/year capacity expansion for the facility
in southern Brazil will be completed by December 2021, raising the
plant's total capacity to 22,000 metric tons/year, it says. The
capacity hike will help to meet a "rapid rise" in demand for the
synthetic fiber in the Americas, it says.
"In the Brazilian market, the import tariff rate for spandex is
as high as 18%, which is more than double the rate applied in other
regions. Therefore, a local production base is essential for
maintaining price competitiveness," according to Hyosung. Brazil's
location is also advantageous for export to nearby countries, it
says. The company first established a production base in Brazil in
2011 and currently holds a market share in Brazil of 65%.
Hyosung, the world's leading producer of spandex, also says it
decided in November to invest 60 billion South Korean won ($55
million) to expand production capacity at its existing
25,000-metric tons/year spandex plant in Turkey to target the
market in Europe. The expansion will be completed by the third
quarter of 2021 and raise the plant's capacity to 40,000 metric
tons/year.
The company produces approximately 340,000 metric tons/year of
spandex fiber, one-third of current global demand.
Europe/Middle East/Africa
European equity markets closed higher across the region; Spain
+1.5%, UK +0.9%, France +0.6%, and Germany +0.4%.
10Yr European govt bonds closed lower; UK +3bps, Italy +2bps,
and Germany/France/Spain +1bp.
iTraxx-Europe closed -1bp/45bps and iTraxx-Xover -9bps/234bps,
which is -4bps and -31bp week-over-week, respectively.
Brent crude closed +1.1%/$49.25 per barrel.
Members of the European Parliament's Environment Committee have
urged EU member states to reduce the use of pesticides and have
called for the targets to be incorporated into EU policies on farm
subsidies and water protection. The call comes in a resolution on
the implementation of water legislation. This was voted through at
the same time as the Committee approved draft rules on drinking
water that were informally agreed between MEPs and EU Ministers at
the end of 2019. The resolution stresses the need to align the
Common Agricultural Policy (CAP) with water rules regarding the
need for increased water protection measures. In the Committee
vote, MEPs amended the original text to strengthen demands for
member states to integrate and implement pesticide reduction
targets in their CAP strategic plans. There is an "urgent need" to
reduce the impact of pesticides on drinking water resources by
"fully addressing" water protection in the approval and renewal of
active ingredients and products. The resolution also urges the
European Commission to improve monitoring systems for collecting
data on pesticide residues in water. The draft drinking water rules
agreed in 2019 will tighten maximum limits for certain pollutants
in water. They still have to be formally approved by the European
Parliament and EU Ministers before they can come into force. Under
the current system, maximum concentration limits in water are set
for "priority substances" and stronger measures to stop releases to
water for "priority hazardous substances". Several pesticides are
on these lists of substances. However, the operation of the lists
and their effectiveness require improvement and the Commission
issued a roadmap earlier this year outlining its plan to revise the
system. (IHS Markit Crop Science's Jackie Bird)
The IHS Markit/CIPS UK PMI surveys showed service sector
activity falling back into decline in November as a second lockdown
to fight a resurgent wave of COVID-19 infections hit many
businesses, especially consumer-facing firms in areas such as
hospitality. More encouragingly, manufacturing and construction
output continued to rise, and growth even accelerated slightly in
both cases compared to that seen in October. Moreover, the decline
seen in the service sector was far less severe than suffered
earlier in the year, at the height of the lockdowns amid the first
virus wave. The overall situation was therefore one in which the
upturns in manufacturing and construction almost entirely offset
the downturn recorded in the services sector, resulting in only a
modest overall drop in output. The all-sector IHS Markit/CIPS PMI
output index, which is a GDP weighted composite of the indices from
the three sectors, merely fell from 52.2 in October to 49.5 in
November. With any reading below 50 indicating contraction, the PMI
still points to the UK economy having fallen into decline in
November, but the impact of the lockdowns appears to have been far
less severe than earlier in the year. Note that this index fell to
36.3 in March and slumped as low as 13.4 in April. Some caution is
warranted in interpreting what the PMI signals for GDP during
lockdowns, not least because the PMI coverage excludes retail. GDP
fell far more sharply than indicated by the PMI in the second
quarter, and also rebounded more markedly than the PMI signalled in
the third quarter. The PMI may therefore potentially once again
understate the fall in GDP seen during the November lockdown to
some degree. However, the relative resilience of the all-sector PMI
in November provides a strong signal that GDP will decline by much
less than earlier in the year. (IHS Markit Economist Chris
Williamson)
UK passenger car registrations have dropped by 27.4% y/y during
November due to the introduction of coronavirus disease 2019
(COVID-19) virus-related lockdown measures in England through most
of the month. According to the Society of Motor Manufacturers and
Traders (SMMT), registrations fell to 113,781 units, from 156,621
units in November 2019. There were steep declines across all
customers types during the month. Fleet registrations were the
least affected with a fall of 22.1% y/y to 67,730 units, while
private registrations dropped by 32.2% y/y to 44,180 units.
Registrations among business customers tumbled by 58.6% y/y to
1,871 units. (IHS Markit AutoIntelligence's Ian Fletcher)
The UK competition regulator, the Competition and Markets
Authority (CMA), has said that it will investigate the market for
battery electric vehicle (BEV) charging points. In a statement, the
organization said that its investigation will cover two broad
themes. The first will be "how to develop a competitive sector
while also attracting private investment to help the sector grow,"
while the second will be "how to ensure people using electric
vehicle chargepoints have confidence that they can get the best out
of the service". Andrea Coscelli, the chief executive of the CMA,
said, "Making the switch to electric vehicles is key to helping the
UK become greener, which is why it's so important that everyone has
the confidence to get behind the move. Being able to easily stop
off at a petrol station is a standard part of a journey and
consumers must trust that electric chargepoints will provide a
similarly straight-forward service. By getting involved early as
electric vehicles and chargepoints are still developing, the CMA
can make sure consumers are treated fairly now and in the future."
(IHS Markit AutoIntelligence's Ian Fletcher)
The German passenger car market posted a 3.0% year-on-year
(y/y) decline in registrations in November to a figure of 290,150
units, according to the latest data released by the Federal Motor
Transport Authority (KBA). This left the market at 2,606,284
registrations for the first 10 months of the year, which was a
decline of 21.6% in the year to date (YTD) after the heavy declines
in the first half of the year as a result of the initial impact of
the COVID-19 virus pandemic. The most notable issue in November was
a very significant disparity between the private registrations,
which were up by 22.8% y/y, giving them an unusually high market
share of 39.4%. At the same time, commercial registrations fell by
14.7% y/y. This is an interesting development and it has been
fueled by private buyers piling into the market to take advantage
of the cut in VAT from 19% to 16% and on the generous subsidies on
full battery electric vehicles (BEV). Dealers seem to be backing
off from registering vehicles over short-and-medium-term
uncertainty. There was a massive disparity between private and
business registrations in November, with private registrations
reaching nearly 40% during the month, which is a nearly unheard of
amount. As mentioned above, the VAT rate will have made a positive
impact on this, with private buyers seeing a tangible saving from
this. The subsidies on battery electric vehicles (BEVs) and plug-in
hybrid EVs (PHEVs) will have had an even more positive impact. (IHS
Markit AutoIntelligence's Tim Urquhart)
Bosch has reduced its stake in electric vehicle (EV) company
Nikola from 6.9% to 4.9%, according to media reports, citing a US
regulatory filing. Bloomberg reports that Bosch's stake in Nikola
was reported as 6.9% as of 15 June 2020. The report quotes a Bosch
spokesperson as saying, "Our initial investment was primarily meant
to support the development of hydrogen technology. The reduction of
some of our shares in Nikola took place after a holding period
under stock-exchange regulation." Nikola provided no comment on the
matter, according to the report. There had been selling
restrictions in place, following the expiry of which a block of
shares equivalent of 1.9% of the company was traded on the New York
Stock Exchange opening at 9:30 Eastern time on 3 December, reports
Bloomberg. (IHS Markit AutoIntelligence's Stephanie Brinley)
The impact on Italy's labor market from the COVID-19 virus
pandemic has been less severe than expected during the crisis. A
major factor has been the Italian government's short-time work or
temporary layoff scheme measures, which have reduced the scale of
job destruction during the pandemic. (IHS Markit Economist Raj
Badiani)
Total employment was broadly stable at 22.843 million in
October (see first chart below). Therefore, cumulative job losses
in March to October stood at 424,000, or 1.8% lower when compared
with February 2020, the pre-pandemic level.
The unemployment rate rose slightly to 9.8% in October (from
9.7% in September). The number of unemployed people increased by
11,000 to 2.479 million in October after falling back in the
previous two months.
The labor force was unchanged at 25.3 million in October, with
the activity rate stable at 64.5%.
The inactivity rate increased from 29.7% in September to 30.3%
in October. It appears that some laid-off workers stopped their job
searching after the Italian government tightened its COVID-19
containment measures from mid-October. They included restaurants
closing at midnight, and bars shutting at 6 pm unless they can
offer seated service.
The employment losses have been less severe than expected
during the pandemic, with the country's short-time work or
temporary layoff schemes helping to shore up employment levels. In
addition, the demand for labour probably enjoyed some support from
a stronger-than-expected economic rebound during the third quarter,
with the national statistical office reporting that GDP increased
by 16.1% quarter on quarter (q/q).
A major support to employment has been the expansion to the
Cassa Integrazione Ordinaria, or the Support of Salary Payment by
the state. An employer can suspend or reduce work activity for
events related to the COVID-19 virus and enjoy social contribution
exemption. Importantly, firms have to maintain their workforces to
qualify for state aid.
The European Central Bank estimates that some 8.5 million
workers, or 44% of Italian employees, were on these schemes during
the lockdown in Italy. In August, the government agreed to extend
the short-time work scheme until the end of 2020.
The Scandinavian economies of Sweden, Denmark, Norway, and
Finland have been less affected by the COVID-19 virus than the rest
of Europe and experienced among the strongest, although still
partial, rebounds in the third quarter. Their GDP declines in the
first half of the year was the lowest in Europe and the subsequent
rebound in the third quarter has put them at or near the top of the
table in output relative to the pre-COVID-19 virus peak. Among the
four, the largest drop in the first half of the year was in Denmark
(-8.5%), followed by Sweden (-7.6%), with the latter being the only
economy in Europe recording positive growth in the first quarter.
By the third quarter, the economies of Norway and Finland were
around 2% smaller than prior to the pandemic, making them the top
performers in Europe along with Switzerland and Poland. (IHS Markit
Economist Daniel Kral)
On a cumulative basis, which matters most for full-year
averages, in the first nine months of 2020 Norway's economy was
just 1.5% smaller than in the first nine months of 2019, followed
by Poland (-2.6%) and Sweden (-3.1%). Finland (-3.5%) and Denmark
(-4.1%) are also among Europe's better performers, recording
significantly lower drops than the eurozone (-7.5%). On top of
their relative economic outperformance, Norway, Finland, and
Denmark recorded among the lowest number of COVID-19 deaths per
capita in Europe, indicating strong complementarity between a
successful health and economic response. Sweden has pursued a
different health strategy, never imposing a lockdown but instead
relying on voluntary behavioral changes. This has resulted in
significantly more deaths in the country than among its Nordic
peers without any noticeable benefit for the economy.
The key factor in the relative economic outperformance of
Denmark, Norway, and Finland has been the early containment of the
COVID-19 virus pandemic, allowing a relatively quick lifting of
restrictions. For example, Denmark was among the first European
countries to impose a national lockdown on 16 March and the first
country to start lifting restrictions already in mid-April. The
scaling up of testing and generous support for those needing to
self-isolate were key components of the national containment
strategies. As of early December, Denmark has tested more than 60%
of its population for COVID-19 with PCR tests. High levels of trust
in the government resulted in compliance with social distancing
requirements and restrictions, further limiting the spread of the
virus.
Both the decline in the first half of 2020 and rebounds in the
third quarter were broad-based. However, in all four economies,
following significant drops in the first half of 2020, private
consumption remains significantly lower than overall GDP compared
with pre-COVID-19 virus peaks. Other components were the main
contributors to the outperformance - fixed investment in Denmark
and Sweden, government consumption in Finland, and surprisingly
resilient oil output in Norway. Net exports also tended to support
the rebound. The unemployment rates appear to have peaked in July
with gradual declines since, even as various fiscal support schemes
were gradually withdrawn. If sustained, this would present an
upside risk for our forecasts of household consumption in the
coming quarters.
The Scandinavian countries have so far successfully contained
the second wave of the pandemic with relatively mild restrictions.
Although the number of positive cases did rise, to a large extent a
reflection of more testing, as test positivity rates have recently
been close to just 3%, it never reached the extremely elevated
levels like elsewhere in Europe. Sweden is an exception, as new
cases and deaths have surged recently and test positivity rates
have been in double digits since mid-November, prompting a
tightening of the limit of the number of people from different
households that can meet. The relatively light restrictions in
Scandinavia are also reflected in lower falls in mobility versus
the baseline than most European countries. The largest drop in
mobility in Scandinavia during the second wave of the pandemic was
in Sweden, as growth in the number of cases accelerated,
reinforcing the complementarity between health and the economy.
After relative stability during the first 10 months of 2020,
inflation surged in November. Further interest rate rises may be
needed to keep inflation under control, especially if the lira's
depreciation resumes. (IHS Markit Economist Sharon Fisher)
Consumer price inflation jumped 2.3% month on month (m/m) in
November, pushing year-on-year (y/y) growth to 14.0%, far above the
central bank's 3-7% target. Inflation was driven mainly by pressure
in the transport and food and beverages categories, both of which
reported m/m increases of more than 4%.
Price pressures were considerably weaker, but still significant
in household furnishings and equipment, hotels and restaurants, and
housing and utilities, all of which rose 1% m/m or more. Education
was the only price category to report a m/m decline.
November inflation was even higher when excluding
administrative prices, at 15.9% y/y. Core inflation (excluding
energy, food and beverages, alcohol and tobacco, and gold) reached
13.3% y/y.
Fueled by soaring manufacturing costs, producer price inflation
surged 4.1% m/m in November. The y/y rate jumped to 23.1%, the
highest figure since June 2019.
Turkish inflation was partly driven by a steep depreciation of
the lira, which plunged 39% y/y against the US dollar in November
and 49% y/y against the euro. The lira has strengthened since its
early November lows but nevertheless remains far below year-earlier
levels.
Even with the lira's sharp depreciation, growth in imports has
far outpaced exports this year, triggering a significant widening
of the external trade gap. According to Turkey's Ministry of Trade,
exports fell a preliminary 1.0% y/y in November amid weakening EU
demand, while imports surged 16.1% y/y.
Even with the lira's weakening, November inflation was stronger
than we had expected, pushing 12-month moving average inflation to
12.0%. Assuming that inflationary pressures continue in December,
our latest projection for average annual inflation (at 12.0%) will
be overshot.
Looking ahead to 2021, IHS Markit is currently forecasting that
average annual inflation will reach 12.4%, but that figure may need
to be revised upward as well. The jump in inflation will hurt
Turkish households, which are already struggling with the impact of
the COVID-19 virus pandemic, with the number of new cases surging
in the past week.
According to a report by Newsbase Daily News, Ford Otomotiv
Sanayi (Ford Otosan), a joint venture (JV) between Ford Motor
Company and Koç Holding in Turkey, is constructing an electric
vehicle (EV) battery assembly plant in Kocaeli (Turkey). According
to the source, Ford Otosan has started work on the facility. Haydar
Yenigun, Ford Otosan's general manager, said that the new plant
will be the first integrated EV production facility in Turkey. He
added, "Ford Otosan ranks as one of the largest investors in the
country with EUR2.5 billion [USD3.03 billion] of investments. It
has so far committed EUR56 million to electric car production."
Ford is aiming to complete construction of the plant in 2022 as it
will have a direct impact on production of its Transit EV, which is
due to be manufactured at the Kocaeli-Otosan plant. According to
IHS Markit light-vehicle production forecasts, Ford Otosan
currently manufactures the Transit Custom plug-in hybrid electric
vehicle (PHEV) at the Kocaeli-Otosan plant and is forecast to sell
2,932 units of this model in 2020, while it is projected to sell
2,330 units of the Transit EV in 2022. Ford is also forecast to
start manufacturing the Transit Custom EV at its Yenikoy plant in
Turkey from 2024. (IHS Markit AutoIntelligence's Tarun Thakur)
Israeli-based autonomous vehicle (AV) sensor manufacturer
Innoviz Technologies is reportedly in talks about going public
through a merger agreement with Collective Growth Corporation, a
special-purpose acquisition company (SPAC). Bloomberg reports that
Collective Growth is seeking to raise between USD100 million and
USD350 million in new equity to support this deal. If the deal goes
through, the new combined entity created through the merger will
have a value exceeding USD1 billion. According to the report, the
terms of the deal could change, or talks could fall apart if the
deal is not finalized. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Asia-Pacific
Most APAC equity markets closed higher except for Japan -0.2%;
South Korea +1.3%, India +1.0%, Hong Kong +0.4%, Australia +0.3%,
and Mainland China +0.1%.
US lawmakers have passed a bill requiring foreign companies
trading on US stock exchanges, including the New York Stock
Exchange and NASDAQ, to comply with US audit oversight rules.
According to media reports, Chinese electric vehicle (EV)
manufacturers NIO, Li Auto, and Xpeng might not be compliant
currently with the requirement and could face delisting. Financial
news outlet Barron's reports that, under the bill, all foreign
companies would have to comply with US audit oversight rules within
three years, which means that these companies would have some time
to become compliant, if they are not currently. Under the bill, the
companies would need to be audited by an auditor inspected by the
US Public Company Accounting Oversight Board (PCAOB). Barron's
report quotes Li Auto's filing with the Securities and Exchange
Commission (SEC) on 2 December as saying on the issue, "The audit
report included in this prospectus is prepared by an auditor who is
not inspected by the PCAOB and, as such, our investors are deprived
of the benefits of such inspection. In addition, the adoption of
any rules, legislations or other efforts to increase U.S.
regulatory access to audit information could cause uncertainty, and
we could be delisted if we are unable to meet the PCAOB inspection
requirement in time." The requirement under the bill applies to any
foreign company, not just the three EV companies or other Chinese
companies. Some media reports have focused on the potential impact
of the bill's requirements on China's younger EV companies;
however, IHS Markit has no information to suggest that any
particular company is 'targeted' by the new law. (IHS Markit
AutoIntelligence's Stephanie Brinley)
Japanese automakers Nissan and Honda both reported year-on-year
(y/y) sales gains in the Chinese market during November. (IHS
Markit AutoIntelligence's Nitin Budhiraja)
Nissan's sales in China increased 5.2% y/y to 156,319 units in
November, but are down 6.6% y/y to 1.287 million units in the year
to date (YTD; January to November). Sales of Nissan's
passenger-vehicle joint venture (JV) with Dongfeng, including sales
of the Nissan and Venucia brands, rose by 8.2% y/y to 135,816 units
in November, but are down 7.1% y/y to 1.067 million units in the
YTD.
Sales of Nissan's light commercial vehicles (LCVs), comprising
sales of Dongfeng Automobile Co (DFAC) and Zhengzhou Nissan (ZNA),
declined by 8.2% y/y to 135,816 units in November, but have
increased 0.8% y/y to 195,118 units in the YTD.
In a statement, Honda said that its Chinese sales rose 22.1%
y/y to 171,308 units during November and are up 0.5% y/y to 1.418
million units in the YTD.
Sales of the Guangqi Honda JV were 85,985 units during
November, up 24.5% y/y, and 708,536 units in the YTD, up 1.5% y/y.
Sales of the Dongfeng Honda JV rose 19.8% y/y to 85,323 units in
November and fell 0.5% y/y to 709,588 units in the YTD.
Honda continues to gain traction in the Chinese market thanks
to a strong product line-up. The increasing availability of
full-hybrid options in its key model lines, such as the Accord,
Crider, and CR-V, is helping the automaker to increase its sales.
For Nissan, the Altima and Sylphy were the main drivers of growth
in November.
SAIC-General Motors (GM)-Wuling (SGMW), a joint venture (JV)
between SAIC Motor Corporation, GM, and Wuling Motors, has seen its
sales rise steadily over the past few months thanks largely to its
hot-selling new model, the Wuling Hongguang Mini EV. (IHS Markit
AutoIntelligence's Abby Chun Tu)
According to the automaker, the budget battery electric vehicle
(EV) from SGMW's Hongguang brand is likely to claim the top
position in the monthly sales rankings of EVs with a retail volume
of 33,094 units in November.
In October, the Hongguang Mini EV overtook Tesla's Model 3 in
the EV sales ranking with a retail volume of 20,631 units. To put
this into perspective, the budget BEV model accounted for 23% and
30% of China's EV sales in September and October respectively,
contributing to the recent uptick in China's EV sales.
The surging demand for the Hongguang Mini EV is also helping
SGMW to regain its sales momentum in the Chinese market. The
automaker has reported sales increases for four consecutive months
since July. In the year to date (January to October), SGMW has
narrowed the decline in its sales volumes to 9% year on year
(y/y).
This shows a significant improvement compared with a sales
decline of 23% y/y recorded for January to July.
IHS Markit anticipates SGMW to increase its market share in the
entry-level vehicle segment to 17% in China by the end of the
fourth quarter, improving from 11% in the second quarter.
Although the Wuling Hongguang Mini EV and the Tesla Model 3 are
competing in two different segments and targeting different
consumer groups, the two models have been mentioned together in
recent news reports as examples showing the divide in EV demand in
the Chinese market, and the growing acceptance of EVs in both the
budget and the mass-market EV segments.
Both models have contributed to the sales recovery of China's
EV market and fit well with the Chinese government's plan to spur
EV demand by widening consumer choice, thus reducing the industry's
reliance on subsidies.
Mini-EVs such as the Hongguang Mini EV are a unique offering in
the Chinese market, as most automakers have shifted from smaller
electric models to more-popular C- and D-segment products. The
success of the Hongguang Mini EV is likely to lure more automakers
to the sector with their products.
The Australian Office of the Gene Technology Regulator (OGTR)
has issued a three-year statement of intent on the regulation of
genetically modified organisms (GMOs). It says that the aim of the
2020-2023 plan is the safe management of GMO use and public
confidence in the Office as regulator. The statement outlines the
activities of the Gene Technology Regulator (the regulator) and the
OGTR, and should be read in conjunction with the OGTR stakeholder
engagement framework, the OGTR science strategy and the OGTR
monitoring and compliance framework. The government's vision for
the OGTR is that it continue "to be a high-performing organization
that supports the regulator to achieve the important object of the
Gene Technology Act 2000". The OGTR has set itself four objectives.
They are to deliver efficient and effective regulation that
protects people and the environment; to provide a safe, respectful
and inclusive workplace that is productive and professionally
rewarding; to inform and engage effectively with stakeholders so
that they understand and respect its decisions; and to ensure that
governance arrangements are robust, illustrate best practice and
fulfil all legal obligations. (IHS Markit Crop Science's Robert
Birkett)
Posted 04 December 2020 by Chris Fenske, Head of Fixed Income Research, Americas
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
