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Most major US equity indices closed higher, and all major APAC
and European market were lower. US government bonds closed higher
with the curve flatter on the day, while most benchmark European
bonds were lower on the day. European iTraxx closed wider across IG
and high yield and CDX-NA was flat on the day. The US dollar and
gold closed higher, while natural gas, oil, copper and silver were
lower on the day.
Please note that we are now including a link to the profiles of
contributing authors who are available for one-on-one discussions
through our Experts
by IHS Markit platform.
Americas
Most major US equity indices closed higher, except for Russell
2000 -0.6%; Nasdaq +0.5%, S&P 500 +0.4%, and DJIA +0.3%.
10yr US govt bonds closed flat/1.53% yield and 30yr bonds
-2bps/2.08% yield.
CDX-NAIG closed flat/54bps and CDX-NAHY flat/305bps.
DXY US dollar index closed +0.3%/94.27.
Gold closed +0.1%/$1,762 per troy oz, silver -0.3%/$22.53 per
troy oz, and copper -1.1%/$4.15 per pound.
Gas markets swung sharply on Wednesday after Russia's president
Vladimir Putin said his country was prepared to stabilize the
soaring global energy prices that are threatening to curb
industrial activity and sharply raise inflation. UK and European
natural gas prices shot higher early in the day to trade at close
to 10 times their level from the beginning of the year. But prices
abruptly reversed course hours later when Putin hinted that
Russia's state-backed monopoly pipeline exporter, Gazprom, may
increase supplies to help Europe avoid a full-blown energy crisis.
(FT)
Henry Hub natural gas reached a new almost 13-year intraday
high of $6.45 per mmbtu, before dropping precipitously to close
-10.1%/$5.68 <span/>per
mmbtu.
Crude oil closed -1.9%/$77.43 per barrel.
Companies shook off worries over the COVID delta variant and
hired at a faster-than-expected pace in September, according to a
report Wednesday from payroll processing firm ADP. Private jobs
rose by 568,000 for the month, better than the Dow Jones estimate
from economists of 425,000 and ahead of the downwardly revised
340,000 reading in August. The initial August report showed growth
of 374,000. (CNBC)
The Federal Reserve Bank of New York (NY Federal Reserve) for
the first time has linked the indirect risks that climate change
poses to the banking sector. The staff of the regional reserve bank
examined the impact on banks with loans to the oil and gas sector
by using a stress test approach that was developed in response to
the 2008 global subprime mortgage crisis. (IHS Markit Net-Zero
Business Daily's Amena
Saiyid)
In a recently released report, Hyeyoon Jung, Robert Engle, and
Richard Berner of the NY Federal Reserve found that the exposure
for some of these banks arising from indirect climate risk to be
"economically substantial."
"This report shows that this risk is so concentrated in the
equity of the world's largest banks that it could threaten their
ability to retain prudential capital reserves, and in turn limit
their ability to withstand financial shocks that could threaten
global financial stability as a whole," IHS Markit CleanTech and
Climate Executive Director Peter Gardett told Net-Zero Business
Daily.
The staff reached this conclusion after measuring climate risk
in 27 large global banks in the UK, US, Canada, Japan, and France
that together hold more than 80% of the syndicated loans made to
the oil and gas industry.
Their report, however, stopped short of recommending any course
of action for the US Federal Reserve Board, which plans to include
climate change risk as part of its framework to assess the
financial stability of banks that it oversees, and is in the throes
of completing a study.
Dow announced several developments related to circular plastics
production during its 2021 Investor Day on 6 October. Each of the
moves concerns the supply of pyrolysis oil, a naphtha-like
steam-cracker feedstock derived from plastic waste. (IHS Markit
Chemical Advisory)
In Europe, Dow has expanded on an initial 2019 agreement with
Fuenix Ecogy Group to build a second plant in Weert, Netherlands,
with the capacity to process 20,000 metric tons/year of waste
plastics. The resulting pyrolysis oil will be used to produce
circular plastics at Dow's Terneuzen site in the Netherlands.
Dow has also finalized an agreement with Gunvor Petroleum
Rotterdam, a refinery located in the Port of Rotterdam,
Netherlands, to purify pyrolysis oil. Gunvor will supply the
cracker-ready feedstock to Dow beginning this year. Dow is
separately fast-tracking the design, engineering, and construction
of a market development-scale pyrolysis oil purification unit in
Terneuzen.
In the US, Dow has established a multiyear agreement with New
Hope Energy (Tyler, Texas) to supply pyrolysis oil. New Hope Energy
in May announced a pyrolysis oil supply agreement with CPChem.
Dow says it has received or is on track to receive
International Sustainability & Carbon Certification (ISCC) for
each of its major European and US sites. The certification, which
must be renewed annually, allows Dow to guarantee the circularity
of plastics supplied to customers.
In April, Dow announced a partnership with Mura Technology to
support the rapid scaling of Mura's new Hydrothermal Plastic
Recycling Solution (HydroPRS) advanced recycling process. The
world's first HydroPRS plant is in development in Teesside, UK,
with the first 20,000-metric tons/year line expected to begin
supplying feedstock to Dow in 2023.
California will be tightening the requirements for using the
"chasing arrows" recycling symbol and when claims regarding
recyclability can be made, just one of a package of bills signed by
Gov. Gavin Newsom (D) this week. The new recycling law is likely to
affect hundreds of companies that will need to change their
labeling practices—especially those made with resins
#3-7—and opponents warn it could send more materials to
landfills. (IHS Markit Food and Agricultural Policy's Joan Murphy)
Newsom said the bills he approved will raise consumer awareness
and industry accountability and complement the $270 million
investment to modernize recycling systems as part of his proposed
$15 billion climate package.
Under the legislation, products will be prohibited from showing
the chasing arrows symbol unless they meet "recyclable" goals
spelled out in the California Truth in Labeling for Recyclable
Material legislation.
Under current practices, the vast majority of single-use items
are used once and then landfilled, incinerated or dumped into the
environment, according to advocates, who say only 15% of single-use
plastic is recycled.
Newsom hailed new bills he signed the same day to limit
exposure to perfluoroalkyl and polyfluoroalkyl substances (PFAS).
Newsom signed AB 1200 that prohibits disposable food packaging from
containing intentionally added PFAS by January 1, 2023 and requires
cookware manufacturers to disclose the presence of hazardous
chemicals such as PFASs on product labels and online by January 1,
2024.
The US Department of Justice (DOJ) has announced that Taro
(US), Novartis (Switzerland)'s Sandoz unit, and Apotex (Canada)
have agreed to pay a total of USD447.2 million to resolve
allegations of price-fixing for various generic drugs. Within this
total, Taro has agreed to pay USD213.2 million, Sandoz USD185
million, and Apotex USD49 million, with these civil settlement
payments being in addition to criminal payments previously paid by
the companies. As part of the settlement, each of the companies has
also entered into a five-year corporate integrity agreement (CIA)
with the Department of Health and Human Services' Office of the
Inspector General (OIG), with these CIAs including internal
monitoring and price transparency provisions as well as other
compliance measures. The DOJ settlement relates to allegations by
the government that, between 2013 and 2015, all three companies
paid and received compensation prohibited by the Anti-Kickback
Statute through arrangements on price, supply, and allocation of
customers with other pharmaceutical manufacturers for certain
generic drugs manufactured by the companies. (IHS Markit Life
Sciences' Milena
Izmirlieva)
Ouster has agreed to acquire solid-state LiDAR startup Sense
Photonics in an all-stock deal, according to a company statement.
Ouster says that it will buy 100% of the capital stock and property
of Sense Photonics for 9.5 million Ouster shares. Once the
acquisition has been completed, Ouster will establish a new
business division, Ouster Automotive, which will be headed by Sense
Photonics CEO Shauna McIntyre and will focus on mass-market
adoption of digital LiDAR in consumer and commercial vehicle
industry verticals. The new business will integrate Sense
Photonics' 200-metre-range solid-state LiDAR into Ouster's
multi-sensor LiDAR suite. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Prysmian Group announced that it obtained the notice to proceed
with the USD 220 million contract to supply the subsea power cable
system for the Vineyard Wind 1 project. The contract had been
awarded in 2019. Prysmian's scope covers the design, manufacture,
installation and commissioning of an HVAC cable system composed of
two 220 kV three-core cables. A total of 134 km (83 mi) of power
cables will be supplied. Offshore installation will be performed by
Prysmian's cable lay vessels Cable Enterprise and Ulisse. The
company says delivery and commissioning of Vineyard Wind 1 is
scheduled for the fourth quarter 2023. The offshore wind farm will
consist of 62 wind turbines that will generate 800 MW. It will be
located 15 miles south of Martha's Vineyard, an island in
Massachusetts. Water depth in the area ranges from 37 to 49 m (121
to 161 ft). (IHS Markit Upstream Costs and Technology's Amey
Khanzode)
Canada's merchandise trade balance has registered three
consecutive—and six total—surpluses in 2021 so far, after
consistent deficits since late 2014.This month's export gain was
supported by higher levels of natural gas, crude oil, and coal
pushing energy product exports up 5.1% m/m. (IHS Markit Economist
Evan Andrade)
The merchandise trade balance reached a surplus of $1.9 billion
in August, after posting a surplus of $778 million the month
prior.
Nominal exports grew 0.8% month on month (m/m) to $54.4
billion—advancing for a third consecutive month—while
imports declined 1.4% m/m to $52.5 billion.
On a volume basis, real exports advanced a further 2.3% m/m
while imports fell 2.5% m/m.
Automotive trade took a bite out of both sides of the trade
ledger, as exports fell 7.3% m/m and imports fell a further 11.1%
m/m, driven almost entirely by lower volumes.
Dow plans to build the industry's first net-zero carbon
emissions ethylene and derivatives complex at the company's Fort
Saskatchewan, Alberta, Canada, site by 2030. The project includes a
new world-scale, 1.8-million metric tons/year (MMt/y) "net-zero
carbon emissions" steam cracker, scheduled for start-up by 2027,
according to a Dow official. That would be followed by a retrofit
of existing assets to get the entire site to net-zero Scope 1 and
Scope 2 carbon dioxide (CO2) emissions. The Fort Saskatchewan
investment includes an autothermal reformer (ATR) to convert
cracker off-gas into "circular hydrogen" for fuel in the process,
replacing natural gas or other fossil fuels. CO2 from the ATR would
be captured and transported to The Alberta Carbon Trunk Line
(ACTL). (IHS Markit Chemical Advisory)
The project would decarbonize 20% of Dow's worldwide ethylene
capacity, and downstream investment at Fort Saskatchewan would grow
polyethylene (PE) supply by 15%, the company says. The project
would more than triple Dow's ethylene and PE capacity from its Fort
Saskatchewan site.
Dow announced the project at its 6 October investor day, where
it also set a target to generate $3.0 billion/year of additional
EBITDA over the next decade while keeping capital expenditures at
or below depreciation and amortization levels of roughly $2.9
billion/year across the cycle. Roughly $1 billion of the EBITDA
growth would come from the Fort Saskatchewan investment. Dow also
announced broader carbon-reduction actions today, including
additional renewable energy agreements in the Americas and Europe,
and plans to provide initial supply of fully circular polymers to
customers starting in 2022. The Fort Saskatchewan investment is
subject to final approval by Dow's board and various regulatory
agencies.
Mexico's President Andrés Manuel López Obrador (AMLO) sent a
constitutional amendment draft law to Congress on 1 October that
seeks to strengthen the state's role in the power, lithium, and
hydrocarbon sectors. The president has said that he would pursue
implementation even if the amendment fails to be approved in
Congress, but is likely to first pressure opposition lawmakers by
accusing them of wrongdoing and subjecting them to personal public
pressure in efforts to secure the required two-thirds majority.
(IHS Markit Country Risk's Jose Enrique Sevilla-Macip)
The amendment reinforces a policy that is already under
implementation. The bill's key objective is to ensure that the
state--owned utility company, the Federal Electricity Commission
(Comisión Federal de Electricidad: CFE), controls at least a 54%
share of the generation market (by reference to government-assessed
generating capabilities), with the remainder to be held by private
sector firms. According to government figures, 62% of total
national demand is currently covered by private generators while
the CFE provides 38%. Within the proposed adjustment, the CFE would
assume the functions of the National Centre of Energy Control
(Centro Nacional de Control de Energía: CENACE), which is currently
the independent organization responsible for operating the
country's power grid.
A ban on private-sector lithium mining is likely to slow
development in the three-year outlook. AMLO's proposal includes a
ban on private exploitation of lithium, reflecting the importance
that his government assigns to the mineral in its energy transition
policy. However, lithium-mining concessions already granted to the
private sector would be respected if companies provide evidence
that exploration work is under way. As of February, there were 36
private lithium-mining projects registered with Mexico's Ministry
of the Economy (Secretaría de Economía: SE), but only three
companies were active: Canada's Organimax and One World Lithium and
British-Chinese owned Bacanora Lithium.
The failure to approve the amendment by 2022 would encourage
AMLO to develop an increasingly radical stance ahead of a potential
presidential recall referendum. If MORENA is unable to gain
approval for the bill by 2022, the issue is likely to become key in
the campaign for a referendum over presidential recall, legally
scheduled for April 2022 but dependent on obtaining sufficient
public backing (by way of signatories seeking recall).
Europe/Middle East/Africa
All major European equity indices closed lower; UK -1.2%,
France -1.3%, Italy -1.4%, Germany -1.5%, and Spain -1.7%.
Most 10yr European govt bonds closed lower except for UK -1bp;
Germany/France/Spain +1bp and Italy +3bps.
iTraxx-Europe closed +1bp/52bps and iTraxx-Xover
+8bps/266bps.
Brent crude closed -1.8%/$81.08 per barrel.
Western European passenger car registrations fell back further
during September. According to our latest forecast, registrations
in the region declined by 26% year on year (y/y) last month to
886,378 units. Nevertheless, earlier substantial gains have helped
to keep volumes in positive territory in the year to date (YTD).
For the first three quarters of 2021, registrations are up 6.5% y/y
at around 8.238 million units. The further downswing in the market
during September has led to the seasonally adjusted annual rate
(SAAR; D11) falling back to 9.643 million units, while the final
trend cycle (D12) figure sits at 9.830 million units. We have also
published a comparison with 2019 data that underlines the continued
weakness of the market compared with pre-COVID-19 pandemic levels,
showing a 25.8% decline last month compared with September 2019 and
a 24.9% retreat when comparing the YTD 2021 and 2019 figures. Last
month was yet another weak one for Western Europe following a
relatively flat September 2020. One of the big factors dragging
down the performance last month was a lack of supply of vehicles
due to the ongoing semiconductor shortage, which has been hitting
output around the world and is continuing to do so. Besides the
direct impact on the supply of vehicles to customers from
factories, the duration of the shortage has depleted inventories to
much lower levels than usual as OEMs have been unable to restock.
(IHS Markit AutoIntelligence's Ian Fletcher)
Denmark hopes to become a leader in sustainable farming by
setting a goal to reduce greenhouse gas emissions in agriculture by
at least 55%. On 4 October, the Danish government announced the new
2030 target after agreeing a green farming strategy with a majority
of the country's political parties. The strategy outlines different
measures the government will support to achieve the needed 7.4
million tons of carbon dioxide-equivalents (CO2e) reduction by
2030. It sees the greatest potential in the country's large
livestock sector, with a four million ton decrease of CO2e possible
through biorefineries, better management of manure and feed
additives. It hopes another one million tons of CO2e can be reduced
through doubling the country's organic area and rewetting around
100,000 hectares of low-lying land. The remaining reduction would
be met through other measures including the promotion of
protein-rich crops, afforestation and extensification of existing
farms while there is another target to reduce nitrogen emissions by
10,800 tons by 2027.The government said farmers must be
incentivized to switch to more sustainable production and it will
spend around 3.8 billion Danish kroner (€383 million) to help food
producers adapt to this transition. (IHS Markit Food and
Agricultural Policy's Steve Gillman)
According to the preliminary monthly GDP data published by
Statistics Sweden (SCB), Sweden's GDP decreased by 3.8% month on
month (m/m) in August. In annual terms, however, the economic
output was still higher than a year ago by 2.4%. (IHS Markit
Economist Marie-Louise Deshaires)
Exports of goods were the main contributor to this downturn. In
August, Swedish exports of goods amounted to SEK115.0 billion,
while imports of goods amounted to SEK125.3 billion. As a result,
the net trade balance was -SEK10.3 billion. The bulk of the deficit
came from trade of goods with EU countries. Trade of goods with
countries outside the European Union resulted in a surplus of
SEK6.4 billion, while EU trade resulted in a deficit of SEK16.7
billion. While the EU trade deficit moderately widened compared
with July (SEK13.7 billion), the non-EU trade surplus narrowed
significantly by almost SEK14 billion, mainly driven by a
SEK9-billion contraction in the exports of goods to non-EU trading
partners.
Household consumption also decreased in August, for the second
consecutive month, dropping by 1.1% compared with July. On an
annual basis, household consumption increased by 4.6%. The main
annual positive contribution came from spending on recreation and
culture and goods, while the largest negative impact resulted from
a drop in the consumption of other goods and services.
According to the latest monthly production value index (PVI)
published by the SCB, calendar-adjusted private-sector output in
August decreased by 4.7% m/m. On an annual basis, private-sector
production still rose by 3.4% year on year (y/y), driven by a 5.3%
y/y increase in service production. Among private service fields,
the information and communications industry contributed the most to
private-sector production, growing by 13.1% y/y. Motor vehicle
sales, in contrast, contributed negatively to services production,
decreasing by 4.4% y/y.
The Saudi Ministry of Finance has published a pre-budget
statement for the year 2022 including updated annual fiscal
projections until 2024. Compared to the previous budget statement
from December 2020, the revenue projection for 2021 has been lifted
considerably, which is mainly due to the higher oil price level.
The latter had been projected at USD50 per barrel for 2021, but the
recovery of the price in the first half of the year allowed the
ministry to increase the projections to an average annual level of
USD67 per barrel for 2021 and lift the revenue outlook as a result.
(IHS Markit Economist Ralf
Wiegert)
The revenue outlook for 2022 through 2024 has been increased,
too, although the nominal revenues for 2022 (SAR903 billion or
USD241 billion) are actually lower compared to the estimated
revenues for 2021 (SAR930 billion). Given that the outlook for GDP
growth has been lifted strongly for 2022 to a rate of 7.5% (from
3.4% as published previously), the only plausible reasons for why
revenues should decline in 2022 is either a markedly lower oil
price assumption or a reduction of the value-added tax (VAT) rate
and, hence, non-oil revenues. The latter seems more likely given
that Crown Prince Mohamed bin Salman had signaled that the VAT rate
would be dialed back as soon as the budget balance had been
restored.
The spending outlook has been confirmed, although expenditure
estimates for 2021 were raised from SAR990 billion in the previous
budget statement to SAR1,015 billion in the update. This means that
spending is still expected to decline in 2022 and 2023; spending
will edge up slightly only from 2024 onwards. IHS Markit remains
cautious about these conservative spending projections and we
continue to assume a slightly higher expenditure path.
After contracting 26% y/y in the second quarter of 2020 on the
back of strict COVID-19 pandemic-related restriction measures
introduced in April 2020, Botswana's real GDP expanded by 36% y/y
during the second quarter of 2021. The record growth rate largely
reflects low base effects and a gradual resumption of economic
activities postponed or restricted due to measures taken by the
government to curb the spread of the COVID-19 virus. On a quarterly
basis, Botswana's real GDP growth decelerated to 0.2% in the second
quarter, from 5% in the first quarter. (IHS Markit Economist Archbold
Macheka)
Economic growth in the second quarter was broad-based, with
activity in all industries expanding, except agriculture, forestry
and fishing, which contracted 8.4% y/y as real value added of
livestock farming shrank 17.2% y/y because fewer cattle were
marketed during the quarter under review. The public administration
and defence sector, which remained the major contributor to GDP,
accounting for 18.5%, grew 5.6% y/y in the second quarter of 2021,
compared with 1.3% y/y in the second quarter of 2020.
Mining and quarrying accounted for 14.2% of total GDP by
growing 153% y/y in the second quarter of 2021, after declining
60.8% y/y in the corresponding quarter in 2020. The sharp rebound
was driven mainly by a significant increase in the diamond
industry's real value added of 172.2% y/y. This increase was thanks
to diamond production in carats, which surged by 202.8% y/y as
rough diamond demand gradually picked up.
Although still not functioning at full capacity, Botswana's
economy is not far off its pre-pandemic growth pace, but various
hurdles to maintaining this growth path persist. The country's
COVID-19 vaccine rollout has been slow, with only 234,777 people,
representing 9.8% of the total population, fully vaccinated as of 4
October. Botswana is securing its vaccines under the World Health
Organization-backed COVAX scheme and has signed up for 940,800
doses, but has so far received less than 10% of the total order.
Additional agreements to supply vaccines have been reached with
mainland China and US pharmaceutical company Moderna, while
donations have since come in from India and mainland China.
Asia-Pacific
All major APAC equity markets closed lower; Hong Kong -0.6%,
Australia -0.6%, India -0.9%, Japan -1.1%, and South Korea
-1.8%.
LG Electronics has said that its advanced driver assistance
systems (ADAS) front camera will be deployed in the Mercedes-Benz
C-Class, reports the Yonhap News Agency. The camera, which is
co-developed by LG Electronics and Daimler, enables vehicle assist
functions such as automatic emergency braking (AEB), lane keeping
assist, lane departure warning (LKA), and traffic sign recognition.
It said that the camera is powered by algorithms developed by its
vehicle components solutions (VS) business unit, incorporating
technologies of telecommunications, telematics, and image
recognition, as well as artificial intelligence (AI) and deep
learning. It has obtained ISO 26262 certification from independent
inspection body TÜV SÜD. LG Electronics is expanding its presence
in the future mobility sector with three focus areas: infotainment,
powertrain, and auto lighting systems. The VS division reported
sales of KRW5.80 trillion in 2020, up by 6.1% from 2019. (IHS
Markit Automotive Mobility's Surabhi Rajpal)
US-based wireless charging technology company WiTricity has
announced that its patented electric vehicle (EV) charging
technology is all set to debut in the South Korean market soon. The
wireless EV charging technology will be first made available as
factory-installed equipment in Hyundai's Genesis GV60 electric
utility vehicle, the first dedicated EV under the Genesis brand
(see South Korea: 30 September 2021: Genesis unveils its first
dedicated EV, the GV60). The GV60 will initially be available for
sale in South Korea. Notably, the Hyundai Motor Group had
previously demonstrated WiTricity's wireless charging technology at
the 2018 Geneva Motor Show. According to WiTricity, the concept of
wireless charging also has the potential to provide vehicle-to-grid
(V2G) power and dynamic charging to power vehicles in motion in the
future. (IHS Markit AutoIntelligence's Jamal Amir)
Ola has acquired geo-analytics technology platform GeoSpoc for
an undisclosed amount, reports Livemint. This acquisition will
enable Ola to build next-generation mapping technology by
converting satellite imagery into real-time maps as well as 3D,
high-definition (HD), and vector maps. la, which operates in over
100 cities in India, has expanded to several international markets,
including Australia, New Zealand, and the United Kingdom. Enhanced
geo-spatial services will provide Ola with improved urban planning,
including road networks, better public transportation, and to
pre-empt congestion spots. (IHS Markit Automotive Mobility's
Surabhi Rajpal)
Posted 06 October 2021 by Chris Fenske, Head of Fixed Income Research, Americas, S&P Global Market Intelligence
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