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Equity markets closed mixed across each region, while gold had
its worst day since early-June only one day after hitting its
all-time high. iTraxx and CDX indices were flat-to-slightly tighter
on the day, with both indices noticeably tighter on the week across
IG and high yield. The US added 1.8 million jobs in July, but the
data indicates that the pace of rehiring slowed substantially in
the wake of the increases in COVID-19 infections that began in
early-June across the US.
Americas
US nonfarm payroll employment rose 1.8 million in July, a sharp
slowing from a 4.8-million increase in June. The unemployment rate
declined 0.9 percentage point to 10.2%. This report is consistent
with our view that, broadly speaking, the economic recovery lost
momentum in July. (IHS Markit Economists Ben Herzon and Michael
Konidaris)
The slowing in employment was evident in many sectors. Private
service-sector employment rose 1.4 million in July following a
4.2-million increase in June. Employment in goods-producing
industries (manufacturing, construction, mining, and logging) rose
only 39,000 in July following a 515,000 increase in June.
This pattern is consistent with our estimate that monthly GDP
barely rose in July following a sharp increase in June. Several
high-frequency indicators point to a stall in the broad economic
recovery. The most relevant for today's report was a plateau and
then reversal of the trend in revenues earned at small business in
July (from the Opportunity Insights Economic Tracker). The momentum
for this indicator heading into August is bad (negative).
Employment is slowing and remains far short of the pre-pandemic
level. Increases in payroll employment since the April trough have
reversed only 42% of the two-month decline from February to April.
It will take a reacceleration in aggregate output to pull
employment back to pre-pandemic levels, which we do not see
happening in the near term.
In other details in today's report, the average workweek
declined 0.1 hour to 34.5 hours and the index of aggregate weekly
hours rose 1.0%. The latter is on track to grow at roughly a 25%
annual rate in the third quarter.
Stimulus talks between the White House and congressional
Democrats broke down on Friday, leading Donald Trump to vow that he
would use his "authority as president to get Americans the relief
they need". Democrats have rallied around a far larger stimulus
plan than Republicans and the two sides remain deeply divided over
Democratic calls for $1tn in support for state and local
authorities facing declining tax revenues and soaring healthcare
costs during the coronavirus pandemic. (FT)
Most US equity markets closed higher except for Nasdaq -0.9%;
Russell 2000 +1.6%, DJIA +0.2%, and S&P 500 +0.1%.
10yr US govt bonds closed +3bps/0.57% yield and 30yr bonds
+4bps/1.23% yield.
CDX-NAIG closed flat/65bps and CDX-NAHY -2bps/387bps, which is
-4bps and -46bps (chart below), respectively, week-over-week.
Crude oil closed -1.7%/$41.22 per barrel.
As of 5 August, IHS Markit estimates that the share of global
gasoline demand in countries under major restrictions worsened
again last week, rising by 1% to 54%. Government restrictions grew
more severe in countries representing 5% of global demand,
including large restriction increases in Vietnam, Spain, Peru,
Indiana, and Washington. Even countries that have somewhat reduced
restrictions from their April peak maintain some containment
measures in place and on a demand-weighted basis, restrictions in
most regions have stayed stable or trended upward over the last
month. Mobility too continues to stagnate in most major demand
countries, with none of the largest consumers except South Korea
having returned to Jan 2020 travel levels in terms of workplace and
retail travel. In a handful of US states and advanced economies,
retail travel has surpassed workplace travel, and returned closer
to Jan 2020 levels. However, it's worth noting that in the US,
trends in the Google travel data appear to have increasingly
diverged from OPIS' estimated gasoline sales, which have continued
to recover albeit at a decreasing rate. The prospect of this
underestimate being replicated globally might represent a minor
cause for optimism about gasoline demand surpassing estimates based
on mobility. (IHS Markit Energy Advisory's Roger Diwan, Karim
Fawaz, Justin Jacobs, Edward Moe, and Sean Karst)
Gold closed -2.0%/$2,028 per ounce, which was its biggest daily
decline since 5 June, ending the week +2.1% week-over-week.
Outstanding US nonmortgage consumer credit increased by $9
billion to $4.12 trillion in June after declining a cumulative $96
billion over the prior three months. (IHS Markit Economist David
Deull)
The 12-month change in outstanding consumer credit edged down
0.1 percentage point to 0.9%, the lowest since November 2010, as
spending has fallen and incomes have been supplemented by federal
stimulus.
Revolving (mostly credit-card) consumer credit fell $2 billion
(seasonally adjusted) in its fourth consecutive decline. The
12-month growth rate of this category was -7.5%.
Nonrevolving credit increased $11 billion, and its 12-month
growth rate was unchanged at 3.9% for the third consecutive month.
This category includes student and auto loans.
The ratio of nonmortgage consumer credit to disposable personal
income was 23.3% in June, up 0.4 percentage point from last month,
as extraordinary fiscal stimulus, which has bolstered aggregate
personal income, took a step back from April and May.
As consumers have pulled back on spending because of COVID-19,
they have taken the opportunity to pay down credit card debts but
have not made much of a dent in auto and student loans, which
continue to grow at a brisk pace.
Ride-hailing giant Uber reported a net loss of USD1.78 billion
in the second quarter of 2020. This loss is attributable to
stock-based compensation expenses for employees and restructuring
related charges. (IHS Markit Automotive Mobility's Surabhi Rajpal)
The company's revenues shrunk to USD2.24 billion in the second
quarter, a decrease of 29% year on year (y/y).
The fall in revenues was the result of a decline in the number
of monthly active users across rides, bike shares, and food
deliveries, reaching 55 million, down from 99 million a year
earlier.
Gross bookings, a number used to track customer demand, reduced
35% y/y to USD10.22 billion.
Uber's demand for its core business, ride hailing, was battered
by COVID-19 virus pandemic, which resulted in a decline in its
revenues by 67% y/y to USD750 million in the second quarter.
Meanwhile, revenues of its food delivery business, Uber Eats,
rose 103% y/y to USD1.21 billion.
Freight revenue was USD211 million, up 27% y/y in the
quarter.
Canada's total employment expanded 2.4% month on month (m/m),
raising employment to 93% of pre-pandemic levels while total hours
worked is lower at 88.8%. The overall gain can be attributed to the
hefty gain in Ontario (up 150,700, or 2.2% m/m), but employment
expanded the fastest in Alberta, at 3.2% m/m. (IHS Markit Economist
Arlene Kish)
Net employment increased 418,500 positions in July, a softer
gain than expected.
The increase was concentrated in part-time positions (up
345,300) and in services-producing industry employment (up
347,900).
The labor force participation rate ticked only 0.5 percentage
point higher to 64.3% while the unemployment rate edged down 1.4
percentage points to 10.9%.
Since bottoming in April, Canada has regained nearly 1.7
million jobs, or just over half of the jobs lost, during this
recovery stage.
Canada's Ivey Purchasing Managers' Index (PMI) rose 10.3 points
to 68.5 in July, which is the highest reading since April 2018.
(IHS Markit Economist Alexander Minelli)
Purchasing managers' spending activity showed moderate
improvement in July and the employment index improved by the most,
adding 4.8 points to reach 57.6 as Ontario caught up with most
other provinces, lifting restrictions.
The prices index tacked on 4.1 points to 60.5, indicating mild
inflation pressure. The inventories index, which was the highest in
overall value, was relatively unchanged, falling 0.1 point to 61.7
as purchasing managers accommodate for customer demand.
The supplier deliveries index saw the largest drop, 3.3 points,
to a reading of 50.1, indicating delivery times remained comparable
with June.
At its 5 August monetary policy committee, the Central Bank of
Brazil (Banco Central do Brasil: BCB) decided to cut the policy
rate (SELIC) from 2.25% to 2.00% and hinted that further cuts are
unlikely as the real rate is approaching zero, i.e., the (nominal)
policy rate is almost the same as the inflation rate. (IHS Markit
Economist Rafael Amiel)
As of the end of June, inflation amounted to 2.1% while core
inflation, which excludes items with volatile prices such as energy
and agricultural products, was 1.4%. At the current levels, the
policy rate is at its historic low. The BCB targets inflation to be
at 4.0% +/- 1.5 percentage points.
The bank assesses that the core inflation measure in Brazil is
below the bank's targets in the policy horizon (next 2 years).
The BCB assesses that the current policy rate is below its
structural value; this value is relatively high as it is pushed up
by a sizable fiscal deficit and high debt that needs to be financed
and rolled over, offering higher rates.
The very weak state of the Brazilian economy justifies a
strongly stimulative monetary policy. IHS Markit assesses that it
is only relatively stimulative as the rates that commercial banks
charge for their loans to corporations and consumers are still
sizable.
The BCB highlights a number of risks regarding future action:
favoring lower inflation, the output gap - the difference between
the potential output and actual output - remains wide, which means
that additional demand can be easily met by increases in production
without the need to increase prices.
This downside risks may intensify if the COVID-19-virus
outbreak's negative impact on demand extends further than
anticipated and if precautionary savings because of the pandemic
increase.
Europe/Middle East/ Africa
Most European equity markets closed higher except for Spain
-0.1%; Germany +0.7%, Italy +0.2%, and UK/France +0.1%.
10yr European govt bonds closed mixed; Italy/Spain flat, France
+1bp, Germany +2bps, and UK +3bps.
iTraxx-Europe closed -1bp/54bps and iTraxx-Xover -5bps/343bps,
ending the week -6bps and -33bps, respectively, week-over-week.
Brent crude closed -1.5%/$44.40 per barrel.
Seasonally and calendar-adjusted German industrial production
excluding construction grew by 10.8% month on month (m/m) in June,
compared with a 9.2% month-on-month (m/m) gain in May. (IHS Markit
Economist Raj Badiani)
The production level in June was still 13.8% below its
pre-COVID-19 lockdown level in February.
In annual terms, production stood 13.8% below the level in June
2019.
At the peak of the COVID-19 virus lockdown, industrial output
shrunk by 28.8% during March-April, compared with a decline of
22.7% during the 2008-09 global financial crisis, which spanned
eight months.
Total production including construction rose notably for the
second straight month, up by 8.9% m/m in June after a 7.4% m/m rise
in May. However, this stands against a cumulative fall of 24.9%
during March-April.
The breakdown of manufacturing output reveals that
strengthening investment goods output was the main engine of growth
in June, rising by 18.3% m/m after a 27.3% m/m rebound in May. Both
intermediate and consumer goods production posted stronger
improvements in June after a lacklustre performance in May.
Production in the automotive industry continued to revive in
June, increasing by 54.7% m/m. However, it remained around
one-fifth lower compared with February's level, the month before
the national lockdown.
Mercedes-Benz Trucks has started a second testing phase of its
eActros electric heavy truck in the Netherlands, according to a
company statement. The truck has already been successfully operated
in real world environments by freight and logistics companies in
Switzerland and Germany, and now testing is branching out to the
Netherlands too. Following the 10 units on trial in Germany and
Switzerland, eight units are going to new customers in the
Netherlands, Germany, and Belgium; Dutch freight provider Simon
Loos is the first recipient of the second batch of eActros to be
put on real-world trial operations. The initial trials in
Switzerland and Germany have fed back some very interesting and
tangible data to Mercedes Trucks engineers, with the most pertinent
being that the truck's range is extremely consistent at 200km. This
has proved consistent irrespective of load, route, or the type of
territory the truck drives through. This is extremely important as
future commercial operators will have to be very sure of the daily
range capability of the truck; 200km is perfect for the kind of
delivery duties the fixed chassis eActros is designed for. (IHS
Markit AutoIntelligence's Tim Urquhart)
After several months of declines, in June Danish industrial and
manufacturing output grew by 2.9% and 4.0% month on month (m/m),
respectively. On a three-month rolling basis, industrial output is
down by 10.1% year on year (y/y) and manufacturing output by 7.4%
y/y. (IHS Markit Economist Daniel Kral)
Among the main sub-components, chemicals grew by 23% y/y,
although this is driven by a base effect, as June 2019 was
extremely weak.
Manufacture of furniture was up by 4.1% y/y and pharmaceuticals
up by 3.5% y/y.
The largest drops were in manufacture of electronic components,
down by 23.4% y/y, electrical equipment, down by 14.5% y/y, and
metals, down by 13.6% y/y.
In 2019, Danish manufacturing output grew by 4.4%, almost
exclusively driven by pharmaceuticals subcomponent, which grew by
15.3% and has the largest weight in the index (20.1%). The high
base effects are a contributing factor to the relative
underperformance in 2020 (Chart 3).
Despite the strong growth in June, industrial and manufacturing
output remains 5.0% and 4.4% below February levels, prior to the
impact of COVID-19 pandemic.
Danish manufacturing PMI rebounded strongly in July, to 57.4, a
remarkable turnaround from the April low of 38.2. The output
sub-component was up to 64.9 in July, from 31.9 in April,
indicating a continued strong rebound in production in the coming
months.
Danish passenger car registrations have recorded growth during
July. According to the latest data published by the Danish Car
Importers' Association (De Danske Bilimportører), passenger car
demand increased by 13.4% year on year (y/y) to 18,952 units, with
most of the growth being centered on subcompact crossovers and
sport utility vehicles (SUVs). (IHS Markit AutoIntelligence's Ian
Fletcher)
Registrations in the year to date (YTD) are still down by 22.7%
y/y to 107,367 units on the back of earlier COVID-19 virus-related
declines.
The trade association also revealed that light commercial
vehicle (LCV) registrations grew by 7.4% y/y to 1,995 units in
July, although its YTD remained down by 16.2% y/y at 15,982
units.
Furthermore, Danish registrations of medium and heavy
commercial vehicles (MHCVs) remained weak with a fall of 15.1% y/y
to 163 units in July and are now down by 33.3% y/y at 2,143 units
in the YTD.
In June, on a seasonally and working-day-adjusted basis, Dutch
manufacturing output was up by 2.1% month on month (m/m) but down
by 8.8% year on year (y/y) and by 9.2% compared to February, prior
to the impact of the COVID-19 virus pandemic. Even before the
pandemic, manufacturing output has been on a declining trend,
peaking in early 2018. (IHS Markit Economist Daniel Kral)
On a seasonally unadjusted basis, average daily output of the
Dutch manufacturing sector was down by 9.7% y/y. On a three-month
moving average basis, output was down by 10.9% y/y, down from 8.2%
in May and 4.6% in April.
In June, all major sub-components were a drag. The biggest
drops were recorded in repair and installation of machinery, which
fell by 28.0% y/y, transport industry, declining by 17.9% y/y, and
metals, down by 16.4% y/y.
At 47.9 in July 2020, the Dutch manufacturing purchasing
managers' index has improved significantly since the May low of
40.5. The output sub-index jumped to 49.2 in July, close to the
critical 50-level indicating expansion in annual terms.
Yandex has begun testing a fleet of autonomous cars in Ann
Arbor, Michigan (United States), reports VentureBeat. The fleet
includes the company's fourth-generation autonomous Hyundai Sonatas
created in partnership with Hyundai Mobis, as well as Toyota
Priuses. Yandex said it had planned to provide rides in its
autonomous taxis in Detroit, Michigan, in June during the North
American International Auto Show (NAIAS), but that event was
cancelled as a result of the COVID-19 virus pandemic. Dmitry
Polishchuk, head of Yandex's autonomous vehicle division, said,
"Ann Arbor, with its bigger size and more progressive regulatory
environment, will enable us to take this experience a step
further." Yandex has chosen Ann Arbor as it is one of the few
cities that allows autonomous vehicles to operate without a human
behind the wheel. Currently, Yandex is only allowed to transport
passengers in its driverless vehicles in the western Russian town
of Innopolis. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Asia-Pacific
APAC equity markets closed mixed; Hong Kong -1.6%, China -1.0%,
Australia -0.6%, India flat, and South Korea +0.4%.
Business reopenings and cash benefits helped boost Japan's
household expenditures in June, but continued declines in cash
earnings could weigh on the recovery of consumer spending. (IHS
Markit Economist Harumi Taguchi)
Japan's monthly cash earnings fell by 1.9% year on year (y/y)
in June.
The continued contraction was due largely to a 24.6% y/y drop
in non-scheduled cash earnings, reflecting a 23.9% y/y decline in
non-scheduled hours worked in response to continued containment
measures for COVID-19.
Special earnings (mainly seasonal bonuses) also continued to
decline with a 2.4% y/y slide. Although the number of full-time
employees continued to increase, offsetting a sustained decrease in
the number of part-timers, scheduled earnings for full-time
employees fell by 0.1% y/y, the first contraction since April
2014.
Japan's real household expenditures rose by 13.2% month on
month (m/m) in June following three consecutive months of decline,
although the figure was down 1.1% from a year earlier.
The solid rebound reflected surges in spending in clothing and
footwear, culture and recreation, transportation, and miscellaneous
items because of the reopening of non-necessary stores and
businesses following the lifting of a state of emergency in late
May. Despite the decline in cash earnings, cash benefits helped
boost spending for household durables while spending on
stay-home/work-from-home lifestyle areas eased.
Honda's earnings took a steep hit during the first quarter of
the fiscal year (FY) ending 31 March 2021 owing to the COVID-19
virus pandemic. During the three months ended 30 June, the
automaker reported a consolidated net loss of JPY80.8 billion
(USD765.6 million), compared with a JPY172.3-billion net profit in
the corresponding period of last FY. (IHS Markit AutoIntelligence's
Isha Sharma)
Loss before income tax amounted to JPY73.4 billion, including
JPY440 billion from the impact of the pandemic.
The company's operating income plunged to a loss of JPY113.6
billion during the period from a profit of JPY252.4 billion a year
ago.
This was mainly due to a decrease in profit from lower sales
revenue and model mix amounting to JPY467.8 billion and unfavorable
currency exchange rate of JPY10.8 billion, which were partially
offset by decreased selling, general, and administrative (SG&A)
expenses of JPY91.4 billion, a cost reduction worth JPY15.6
billion, and a reduction in research and development (R&D)
costs worth JPY5.5 billion.
Sales revenues dropped by 46.9% year on year (y/y) to JPY2.1
trillion mainly on account of a decrease in vehicle sales.
By volume, Honda's group-wide unit sales during the three-month
period declined by 40% y/y to 792,000 units.
Sales in the automaker's two largest markets - Asia and North
America - reached 473,000 units (down by 14.6% y/y) and 159,000
units (down by 67.8% y/y), respectively. Its Japanese sales
declined by 28.7% y/y to 129,000 units.
Japan's Ministry of Economy, Trade, and Industry (METI) has
launched a mobility-as-a-service (MaaS) project in Shiojiri City,
Nagano Prefecture. The 'Shiojiri Project' includes partners such as
Mitsubishi Corporation, Next Mobility Company, and the municipal
government of Shiojiri City. The project will include trials of an
artificial intelligence (AI)-based on-demand bus service called
KnowRoute for specified, inter-regional routes, and autonomous
vehicles for intra-regional routes. The project is expected to
deploy these services officially from the beginning of fiscal year
(FY) 2021. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Toray Industries reports a 62.8% drop in net income for its
fiscal first quarter ended 30 June, to ¥9.5 billion ($90 million),
compared with ¥25.6 billion a year earlier. Operating income
plummeted 63.7% year on year (YOY) to ¥12.5 billion. Revenue was
¥397.6 billion, a decrease of 22.5% YOY.
Sales by Toray's fibers and textiles segment were ¥145 billion,
a decline of 25.9%. Operating income plunged 50.3% YOY to ¥7.2
billion.
Sales by Toray's performance chemicals business decreased 21.2%
YOY to ¥155.6 billion and operating income plunged 52% YOY to ¥8.1
billion.
Toray says that in the resins business, demand from automotive
and industrial applications declined in Japan and overseas. The
chemicals business was pressured by a decline in the basic
chemicals market.
In the films business, sales of packaging materials were
strong, reflecting the growing demand for home meals.
Demand for battery separator films for lithium-ion secondary
batteries and polyester films remained low. The company says that
COVID-19 drove down the performance of this business.
In the carbon fiber composite materials unit, wind turbine
blade and casing applications remained strong in industrial
applications. Aircraft applications were hurt by a decline in the
production rate of large-sized passenger aircraft. Operating income
fell 73.4% YOY to ¥1.7 billion on sales of ¥45.4 billion, down by
26.2% YOY.
Sales by Toray's environment and engineering segment were ¥37.2
billion, a decline of 11.2% YOY. Operating income plunged 40% YOY
to ¥800 million. The company says that demand for reverse osmosis
membranes and other products grew strongly and that shipments to
some regions were curtailed by the pandemic.
Australia's federal government has provided a grant of
AUD838,000 (USD604,510) to support the nationwide rollout of 150
smart electric vehicle (EV) chargers in an effort to encourage the
adoption of EVs in the country while mitigating their impact on the
nation's electricity grid. According to caradvice, the government
has partnered with electricity provider Origin Energy to begin a
two-year trial that will provide chargers to both private owners
and fleets. The AC chargers will be fully subsidised for trial
participants and will offer 7 kW of charging power to residential
customers and 22 kW for fleet operators. EV sales make up only a
small percentage of Australia's vehicle sales, but consumer
interest in EVs is growing rapidly thanks to the arrival of an
array of new models, especially the Tesla Model 3. According to
data from the Federal Automotive Chamber of Industries, a total of
283 EVs were sold to private buyers in Australia in the first five
months of 2020, compared with 181 units in the same period last
year. (IHS Markit AutoIntelligence's Abby Chun Tu)
Geely Auto has announced its sales results for July. The
combined sales volumes of Geely- and Lynk & Co-branded vehicles
in July totaled 105,218 units, up 15% year on year (y/y). The data
include sales in the Chinese market and exports. (IHS Markit
AutoIntelligence's Abby Chun Tu)
Sales volumes in China were 100,695 units in July, up 15% y/y.
In the year to date (YTD), Geely's total sales volumes were 635,664
units, down 14% y/y, which represents 45% of the company's target
of 1.41 million units in 2020.
A breakdown of Geely Auto sales by vehicle type shows sport
utility vehicles (SUVs) are still in high demand, along with
sedans. SUVs and sedan sales stood at 66,387 units and 35,581 units
respectively in July.
Geely Auto's sales of multi-purpose vehicles (MPVs) totalled
3,250 units in July.
The sales volumes of Lynk & Co brand surged 78% y/y in July
to 15,331 units.
The strong results in July also marked an all-time high in
sales for the Lynk & Co brand since its sales began in late
2017.
The automaker's exports volumes rose by 13% y/y during July to
4,523 units.
Geely's July sales were underpinned by the strong performance
of the Lynk & Co brand. The brand jointly introduced by Geely
Auto and Volvo Cars, has been aggressively expanding its product
line-up in the Chinese market to five models covering the B to D
segments.
Leading Chinese probiotic materials supplier, Scitop, filed an
IPO on the Science and Technology Innovation Board (the equivalent
of NASDAQ at Shenzhen on July 27,) and became the first domestic
publicly listed company which specializes in probiotics supplies.
It is mainly engaged in the research and development, production
and sales of compound food additives, edible probiotic products,
animal and plant microecological preparations. Its products are
widely used in the food industry, healthcare, animal husbandry,
agricultural planting and more. It is exploring the build of a
complete supply chain for the probiotic lactic acid bacteria
industry. The IPO is aimed at raising CNY489 million (USD69.9
million) for ramping up the production capacity. (IHS Markit Food
and Agricultural Commodities' Hope Lee)
Posted 07 August 2020 by Chris Fenske, Head of Capital Markets Research, Global Markets Group, S&P Global Market Intelligence
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