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All major European and most US equity indices closed lower,
while APAC markets were mixed. US and benchmark European government
bonds closed sharply higher. European iTraxx and CDX-NA closed
wider across IG and high yield. The US dollar and gold closed
higher, while oil, natural gas, copper, and silver closed
lower.
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Americas
Most major US equity indices closed lower except Nasdaq +0.2%,
which closed at new all-time record high. S&P 500 -0.2%, DJIA
-0.6%, and Russell 2000 -1.4%.
Investors have mostly shrugged off inflation fears, however,
concerns surrounding rising delta variant cases and the potential
disruption of the global economic recovery has resulted in
variations in major equity market performance, such as that between
more restrained Asian stocks and new all-time highs in the US. The
continued solid upturn in the J.P.Morgan Global Manufacturing PMI
also saw regional variations, with extended strength in the
eurozone and the US, while Asia continued to underperform.
Investors reacted with variants in monthly factor performance by
taking on more risk and exposure to momentum stocks, while shunning
previously outperforming deep value shares across many regional
markets. (IHS Markit Research Signals)
US: Value measures such as Forward 12-M EPS-to-Enterprise Value
were particularly weak performers among large caps, while higher
risk small cap shares ranked in the bottom decile of 60-Month Beta
outperformed
Developed Europe: Investors tempered their optimism in high
momentum shares gauged by Rational Decay Alpha with low risk
exposure to names captured by 24-Month Value at Risk
Developed Pacific: High quality firms were especially rewarded,
as represented by Inventory Turnover Ratio
Emerging markets: Investors took on a renewed interest in high
momentum, high risk names, as confirmed by outperformance of
Rational Decay Alpha and underperformance of 24-Month Value at
Risk, respectively
10yr US govt bonds closed -9bps/1.35% yield and -7bps/1.98%
yield. 10s are 39bps below the 2021 peak closing yield of 1.74% and
30s are 50bps below the multi-year peak closing yield of 2.48% set
on the 18 March.
CDX-NAIG closed +1bp/48bps and CDX-NAHY +4bps/273bps.
DXY US dollar index closed +0.3%/92.55.
Gold closed +0.6%/$1,794 per troy oz, silver -1.2%/$26.17 per
troy oz, and copper -0.6%/$4.25 per pound.
Crude oil closed -2.4%/$73.37 per barrel and natural gas closed
-1.7%/$3.64 per mmbtu, with the former reaching an almost 7-year
intraday high of $76.94 per barrel at 4:20am ET and then declining
4.7% to $73.29 per barrel by 12:30pm ET.
After five days of failed talks, OPEC+ ministers cancelled a
formal meeting on 5 July 2021 to decide on how and by how much to
increase oil supply from August on. Informal negotiations are
continuing, but there is no indication as to when a new formal
meeting will be convened. In an official communique, OPEC said the
date of the next meeting would be decided in 'due course'. The
OPEC+ group and the UAE now have a narrow time window of two weeks
to resolve their differences and re-establish collective production
guidance to the global market before August production levels are
set and commercial considerations make themselves felt. (IHS Markit
Energy Advisory's Roger
Diwan, Karim
Fawaz, Ian Stewart, Edward Moe, and Sean Karst)
An agreement on increasing production by 400,000 b/d monthly
from August through December was seemingly in place, but the
negotiations reached an impasse when the UAE, the third largest
producer in OPEC, refused to accept an extension of the current
output restraint agreement to the end of 2022, unless it got a
bigger quota. The UAE reasoned that its oil output capacity had
grown, and the 2018 production level used for its baseline unfairly
penalized it by allocating it a smaller quota than it deserves. The
UAE apparently wants its baseline, which would define its share of
the OPEC+ output pie, to be raised by nearly 700,000 b/d in any
extension of the current agreement, or possibly a new agreement. It
has signaled flexibility on the potential timing as long as the
principle is accepted and adjustments scheduled.
Fundamental dichotomy at the heart of core OPEC. The UAE
captured headlines as the source of the negotiation impasse, but
the Saudi proposal reflected an intent to formalize an extended
management framework. While the UAE's decision to push back on the
agreement has roots in broader strategic considerations, the Saudi
proposal itself was also a clear source of friction that
exacerbated strategic differences.
Data from Israel suggest Pfizer Inc.'s vaccine is less
effective at protecting against infections caused by the Delta
variant of COVID-19 but retains its potency to prevent severe
illness from the highly contagious strain. The vaccine protected
64% of inoculated people from infection during an outbreak of the
Delta variant, down from 94% before, according to Israel's Health
Ministry. It was 94% effective at preventing severe illness in the
same period, compared with 97% before, the ministry said.
(WSJ)
Averaged over the last week, the count of seated diners on the
OpenTable platform was 9.0% below the comparable period in 2019.
Since Memorial Day weekend, this average has touched zero (relative
to 2019) twice. In essence, restaurant activity appears to have
nearly fully recovered. Meanwhile, box office revenues last week
were 57.6% below the comparable week in 2019, close to readings in
four of the last five weeks. The recovery in movie-theater
activity—an indoor and socially dense activity that has been
disrupted by streaming services—still has a long way to go.
(IHS Markit Economists Ben
Herzon and Joel
Prakken)
Hyundai Motor Company has announced an investment of USD100
million in SolidEnergy System (SES), a US lithium-metal battery
startup company, reports Reuters. The investment in the purchase of
a stake in the startup will help Hyundai in securing SES's battery
technology. Hyundai has signed a joint development agreement (JDA)
and an equity investment contract with SES. SES separated from the
Massachusetts Institute of Technology (MIT) in 2012. SES works on
the development of lithium (Li)-metal batteries (LMBs). These
batteries are more efficient and have higher energy density than
lithium-ion batteries (LIBs), as well as conventional graphite
batteries. SES offers Li-metal technology in the Apollo Cell format
for automotive applications. SES shareholders include General
Motors (GM), which invested USD139 million in SES in April 2021 to
boost its battery development. (IHS Markit AutoIntelligence's Tarun
Thakur)
Patterson-UTI has announced it will acquire Pioneer Energy
Services for approximately USD295 million, which includes the
retirement of all Pioneer Energy Services' debt. Consideration for
the acquisition includes issuance of 26,275,000 shares of
Patteron-UTI common stock plus payment of USD30 million. Subject to
regulatory and shareholder approval, the deal should close in the
fourth quarter of 2021. With the acquisition, Patterson-UTI gains
16 super-spec drilling rigs in the US and extends its geographic
reach with eight pad-capable rigs in Colombia. (IHS Markit Upstream
Costs and Technology's Chris
Alexander)
Costa Rica's Congress approved on 1 July the first reading of a
bill to approve the three-year, USD1.75-billion Extended Fund
Facility (EFF) agreed with the International Monetary Fund (IMF) in
January 2021. Prior to definitive passage of the bill, a second
vote is required and scheduled for 12 July. The original agreement
with the IMF entailed approval of the Public Employment Bill by May
2021; this was approved by Congress on 17 June in its first reading
but still requires approval from the Constitutional Court of the
Supreme Court and a second plenary vote. Six other bills are
awaiting discussion and Congressional approval. These include
legislation to create a global income tax system, setting a maximum
tax rate of 27.5% for personal income tax from 2023, introducing a
new tax on lottery prizes, eliminating tax exemptions, and imposing
a four-year corporate tax of up to 30% on the profits of 14 public
companies. Definitive approval of the EFF on 12 July would permit
the IMF's first disbursement of USD290 million to Costa Rica, but
further disbursements would be conditional on the government
gaining congressional approval for the wider fiscal measures agreed
with the IMF. (IHS Markit Country Risk's Veronica Retamales
Burford)
The Central Bank of Chile (Banco Central de Chile: BCC)
reported that the country's unadjusted monthly economic activity
indicator, which is a proxy for GDP, accelerated from 14.1% year on
year (y/y) in April to 18.1% y/y during May, setting a new
historical record. (IHS Markit Economist Claudia
Wehbe)
The strong positive unadjusted result was mainly driven by
contributions in services and commercial activities followed by
goods production, because of the lowest comparison base recorded
during 2020 in May and also to better adaptation of households and
businesses to lockdowns and mobility restrictions during the
coronavirus disease 2019 (COVID-19)-virus pandemic.
The 51.3% y/y increase in commercial activity was propelled by
gains in wholesale and retail trade. The 16.8% y/y rise in services
was led by personal services, mainly education and healthcare.
Gains in manufacturing production explained a 7.5% y/y rise in
goods production. The 8.2% y/y gain in the production of other
goods category was mainly fueled by construction, which more than
offset a modest drop in mining activity.
Europe/Middle East/Africa
Major European equity indices closed lower; Italy -0.8%, UK
-0.9%, France -0.9%, Germany -1.0%, and Spain -1.0%.
10yr European govt bonds closed sharply higher; UK -8bps,
Germany/France/Italy -6bps, and Spain -5bps.
iTraxx-Europe closed +1bp/47bps and iTraxx-Xover
+6bps/233bps.
Brent crude closed -3.4%/$74.53 per barrel.
Eurozone unemployment dropped by 306,000 in May, the third
straight decline and the biggest since November 2020. The
three-month moving average decline was 154,000 as of May, roughly
three times April's equivalent fall. (IHS Markit Economist Ken
Wattret)
The harmonized unemployment rate fell from 8.1% to 7.9% in May,
down by 0.6 percentage point compared with the post-COVID-19
pandemic peak in August and September 2020.
Since the initial wave of COVID-19 in March 2020, the eurozone
unemployment rate has risen by just 0.8 percentage point net, a
surprisingly modest increase when set against the huge output and
expenditure losses during the pandemic. As of the first quarter,
the latest data available, eurozone GDP was still 5.1% below its
pre-pandemic level in the fourth quarter of 2019.
A comparison with the post-global financial crisis (GFC) period
highlights the remarkable recent resilience of eurozone labor
markets. Between early 2008 and mid-2010, during a less severe
recession, the eurozone unemployment rate rose by 3 percentage
points (from a similar trough of 7.3% up to a peak of 10.3%).
Eurozone retail sales volumes rebounded by 4.6% month on month
(m/m) in May, albeit following a 3.9% m/m drop in April. Strong m/m
rebounds in France (9.9%) and Germany (4.2%) were key to May's
rebound, again following weakness in April. Following May's bounce,
eurozone retail sales volumes are now 3.4% above their pre-pandemic
level back in February 2020.
Germany's ZEW gauge of expectations slipped to 63.3 from 79.8,
the lowest since January and below all estimates in a Bloomberg
survey. Still, a measure of current conditions turned positive for
the first time in two years, indicating more respondents described
the situation as good than bad. (Bloomberg)
Germany May factory orders fell 3.7% M/M vs +0.9% expected,
prior -0.2%. Domestic orders grew by 0.9% while foreign orders
declined by 6.7% in May. Outside Euro zone orders tumbled 9.3%.
(Seeking Alpha)
The Volkswagen (VW) Group's software unit, Cariad, and Audi
will team up with a number of technology partners to work on
autonomous vehicle (AV) technology with the aim to bring the
results of the research to production. According to Automotive News
Europe (ANE), they will form a working group under the umbrella
organization The Autonomous, which is dedicated to developing AV
technology, with the aim to develop 'safe software' that will
contribute to eventual mass adoption of this technology in
production vehicles. The other participating members are sensor
fusion software specialist BASELABS, software developer CoreAVI,
Japanese automotive component supplier Denso, Germany's Fraunhofer
Institute for Experimental Software Engineering (IESE), Dutch
semiconductor maker NXP, the Swedish Royal Institute of Technology
and autonomous software provider TTTech Auto. (IHS Markit
AutoIntelligence's Tim Urquhart)
French hypercar manufacturer Bugatti, which was 100% owned by
the Volkswagen (VW) Group, has been folded into a new entity with
Croatia's Rimac to form Bugatti Rimac LLC, according to a company
statement. The new entity will be 55% owned by a new company called
the Rimac Group, which the Rimac Automobili hypercar company and
the newly formed Rimac Technology are part of. Rimac Technology
will continue to work with other OEMs by developing and sharing
high level electric vehicle (EV) technology. The other 45% of the
Bugatti Rimac LLC entity will be owned by Porsche AG. The ownership
structure of the Rimac Group sees founder Mate Rimac retain a 37%
stake in the company, and Porsche retains the same 24% stake it
held in the previous Rimac entity, Rimac Automobili. Hyundai also
retains the same shareholding it had in Rimac Automobile in the new
Rimac Group with a 12% holding, and other investors hold the
remaining 27% of the newly constituted company. Porsche chairman
Oliver Blume and deputy chairman Lutz Meschke will both serve as
supervisory board members at the new joint venture (JV). (IHS
Markit AutoIntelligence's Tim Urquhart)
Fred Olsen Windcarrier (FOWIC) has confirmed that one of the
contract awards it announced in May 2021 is for a turbine transport
and installation (T&I) scope for Vestas at Iberdrola's Baltic
Eagle wind farm offshore Germany. The T&I of 50 x V174-9.5 MW
turbines will take place in 2024, with FOWIC's DP2 jackup Blue
Tern, which has a maximum working water depth of 65 meters. The
unit has a 1,200-metric-ton main crane capacity. FOWIC has previous
Baltic Sea wind farm T&I experience, having deployed jackup
Brave Tern to the Wikinger project in 2017. The three T&I
contracts FOWIC disclosed in May 2021, including the Baltic Eagle
award, have a combined value of USD147 million (EUR124 million).
(IHS Markit Upstream Costs and Technology's Genevieve Wheeler
Melvin)
Danish GDP losses in 2020 and the first quarter of 2021 caused
by the COVID-19 virus pandemic turned out to be much shallower than
initially estimated, in early 2021, growing net trade contributed
positively to much smaller declines in the headline growth. (IHS
Markit Economist Michal Plochec)
In the final release, Statistics Denmark revised up its
detailed real GDP estimates for the first quarter of 2021, to -1.0%
quarter on quarter (q/q) from -1.3% q/q. The fourth quarter of 2020
has also been revised up, to 0.9% q/q from 0.8% q/q).
When looking at the detailed expenditure breakdown, the main
drag on growth in the first quarter remained private consumption,
but it is now estimated to have contracted by 4.4% q/q (instead of
4.9%). The main factor behind the upward revision was net trade, as
exports are now estimated to have increased by 3.9% q/q in the
first quarter while imports declined by 3.4% q/q. This implies a
much wider trade surplus, as before the revision the first
quarter's exports and imports had been reported to have grown by
6.1% and 1.6% respectively, and the reported positive gap had been
significantly smaller.
Annual figures have also been revised up. GDP in 2020 is now
estimated to have contracted by only 2.1% year on year (y/y),
revised up from -2.7%, which was already one of the best results in
Europe.
Bank financing growth is weakening in Emerging Europe as loan
moratoria will be expiring. Loans that were put under moratoria
during the COVID-19 virus shock comprise the highest share of loan
portfolio in Hungary, Slovenia, and Croatia, according to the Euro
Banking Association (EBA). In Hungary, moratoria were automatic
unless customers asked to opt out, while Croatian and Slovenian
economies contracted the most in 2020, by 7.7% and 6.1%,
respectively. (IHS Markit Economist Vaiva
Seckute)
The non-performing loans (NPL) ratios in March increased
slightly only in Poland, Latvia, and Czechia and decreased in most
of the other countries in the region. In addition, the number of
loans under moratoria has declined in Emerging Europe owing to a
lower take-up of new moratoria and an increasing number of
borrowers that started to repay their loans.
However, a large share of loans that were put under moratoria
is currently classified as stage 2 (still performing, but
exhibiting increasing credit risk). For example, although Romania
and Slovakia are not the leaders in terms of loans under moratoria,
around 50% of those loans are under stage 2.
Stage 2 loans under moratoria comprise the largest share of
loan portfolio in Slovenia, Slovakia, Romania, Poland, and
Bulgaria. Bulgaria and Poland had higher total NPL ratios than
other countries in the region. The Bulgarian National Bank,
however, is reporting a somewhat lower NPL ratio, namely 4.8% for
the first quarter. The higher NPL level in the country is related
to legacy bad loans from the global financial crisis and the
collapse of Corpbank in 2014.
The loan stock to NFCs has been decreasing in most Emerging
Europe countries in 2021 as banks have tightened lending standards
for corporates, especially those in the COVID-19-virus-affected
industries such as retail and hospitality. Loan stock growth to
households continued rising in all countries, sustained by robust
demand for housing loans however, the pace of growth has
decelerated significantly in some, namely Hungary, Bulgaria,
Croatia, Poland, and Slovenia.
On 1 July, the Central Bank of the Republic of Turkey (CBRT)
announced an update on reserve requirements "to improve the
effectiveness of monetary transmission mechanism". In particular,
the decision raises the required reserve ratio for foreign-exchange
deposits by 200 basis points for all maturity brackets, effective
from 19 July. Moreover, in an effort to boost lira deposits, the
CBRT will also apply an additional remuneration rate on required
reserves denominated in local currency and will exempt deposits
converted into local currency from the reserve requirement
liabilities. (IHS Markit Banking Risk's Greta
Butaviciute)
Asia-Pacific
APAC equity markets closed mixed; South Korea +0.4%, Japan
+0.2%, India 0%, Mainland China -0.1%, Hong Kong -0.3%, and
Australia -0.7%.
China's cyberspace regulator had reportedly suggested that Didi
Chuxing (DiDi) should delay its initial public offering (IPO) and
to evaluate its network security. The recommendation by Cyberspace
Administration of China (CAC) was made weeks before DiDi went
public, reports Reuters. DiDi recently launched an IPO in the US
that valued the company at USD67.5 billion. Following this, the CAC
ordered the removal of DiDi's app from app stores to protect
"national security and the public interest", after finding that the
ride-hailing giant had illegally collected users' personal
information. The regulator is concerned that DiDi's vast data
troves would fall into foreign hands because of the increased
public exposure that comes with US listing. DiDi collects a large
amount of real-time mobility data every day, of which some is used
for building autonomous vehicle technologies and traffic analysis.
(IHS Markit Automotive Mobility's Surabhi Rajpal)
Freetech, an autonomous vehicle (AV) startup, has raised more
than USD100 million in a Series A funding round from China Internet
Investment Fund, Huiyou Capital, and Dongfeng Bank of
Communications, among others. Freetech plans to use the infused
capital towards scaling the production of its solutions, which
include vehicle perception and control using cameras, radar, and
sensors, reports KrASIA. Freetech was established in 2016 and
focuses on developing new Level 3 autonomous capabilities, in
addition to supplying its current Level 2+ offerings. The company
claims that it supplies its intelligent driving products to over 40
automakers including FAW Group, SAIC Motor, Changan Automobile,
Geely Auto, and Dongfeng Motor. (IHS Markit Automotive Mobility's
Surabhi Rajpal)
Hengyang city in China has launched an intelligent
transportation project with an investment of CNY500 million (USD80
million). The autonomous vehicle (AV) project is led by Mogo Auto
Intelligence and Telemetics Information Technology. Under the
project, Mogo Auto is to provide a Smart City Transportation Brain
for real-time monitoring and overall scheduling to meet citizens'
transportation demands. The project is claimed to be the largest of
all Level 4 autonomous trials so far, with a designed mileage of
200 kilometers (km). (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Shandong province in China launched its first hydrogen-powered
intercity vehicle network at the end of June, including 170
cold-chain and slag trucks, reports Global Government News.
According to the report, the vehicles are to operate between the
eastern city of Qingdao and Linyi city in the west of the province.
The vehicles are expected to help reduce the province's overall
carbon-dioxide emissions by 20,000 metric tons a year. The
manufacturer of the trucks, Qingdao Dexian New Energy Automobile
Manufacturing, claims that each truck has a range of up to 450
kilometers and can be filled in five minutes. (IHS Markit
AutoIntelligence's Nitin Budhiraja)
Japan's real household expenditures fell by 2.1% month on month
(m/m) on a seasonally adjusted base in May following three
consecutive months of growth. Low base effects continued to support
robust year-on-year (y/y) growth at an 11.6% rise. The m/m weakness
largely reflected declines in clothing and footwear and
transportation and communication because of the negative effects of
COVID-19 containment measures. However, the negative effects were
softer than those of the second state of emergency in the first
quarter of 2021. (IHS Markit Economist Harumi
Taguchi)
Nominal monthly average cash earnings fell by 0.8% m/m on a
seasonally adjusted base in May but rose by 1.9% y/y. The m/m
weakness was due largely to a 4.5% decline in total hours worked
from the previous month, reflecting cuts in operating hours under
the state of emergency in many prefectures.
Total hours worked rose by 6.8% from a year earlier largely
thanks to low base effects. An increase in the number of employees
also helped lift cash earnings.
Vietnamese conglomerate Vingroup JSC chairman Pham Nhat Vuong
plans to invest USD2 billion to penetrate the United States'
electric vehicle (EV) market, reports the Vietnam News Brief
Service. The conglomerate plans to sell 15,000 EVs in the US next
year and raise annual sales to 160,000-180,000 units in the future,
which is equivalent to 1% of the country's vehicle market share,
highlights the report. (IHS Markit AutoIntelligence's Jamal
Amir)
Malaysia's monthly frequency data for April and May were
inconclusive, with April export numbers falling, but other sectors
growing in the prior month. However, these data will be
significantly affected by the negative effects of the COVID-19
lockdown that started in June. (IHS Markit Economist Dan Ryan)
Malaysia's central bank continues to hold steady, with the
policy rate still at 1.75%. The ringgit has remained in a narrow
range around 4.14 per US dollar despite the lockdown in June.
Industrial production for the second quarter is looking poor,
with a sharp drop in March being only partially offset by a small
increase in April. However, wholesale sales, both nominal and real,
showed a strong positive correction in April that offers a good
start for their second-quarter levels.
Labor data for April showed promise for the second quarter,
with the unemployment rate falling to 4.5%, well below the 4.9%
average of the first quarter.
Posted 06 July 2021 by Chris Fenske, Head of Fixed Income Research, Americas, S&P Global Market Intelligence
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