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US equity markets closed higher today on renewed hopes of a US
stimulus bill, and European and APAC markets closed mixed.
Benchmark European government bonds closed mixed, while US bonds
closed at their highest yields since early-June. iTraxx and CDX
indices closed tighter across IG and high yield, while oil, gold,
silver, and the US dollar all closed lower on the day.
Americas
US equity markets closed higher today; Russell 2000 +2.1%,
DJIA/Nasdaq +1.9%, and S&P 500 +1.7%.
10yr US govt bonds closed +6bps/0.80% yield and 30yr bonds
+5bps/1.59% yield, with both bonds at their highest yields since
early-June.
CDX-NAIG closed -2bps/56bps and CDX-NAHY -15bps/382bps.
The IHS Markit's AAA Municipal Analytics Curve (MAC) increased
3bps on the long end of the curve today, which is +8bps
week-over-week for 10yr and longer maturity bonds.
DXY US dollar index closed -0.1%/93.62.
Gold closed -0.9%/$1,891 per ounce and silver -0.1%/$23.90 per
ounce.
Crude oil closed -1.8%/$39.95 per barrel.
IHS Markit prepares three plausible and integrated long-term
energy scenarios to 2050, built by country and sector using experts
from across our economics, energy, automotive, agriculture, life
sciences, and maritime divisions. Each scenario outlines a unique
set of assumptions which include the rate of COVID-19 containment,
economic recovery, geopolitical environment, and focus on reducing
global greenhouse emissions (GHGs) through policies and carbon
pricing. Implications for primary energy demand and energy sectors
vary starkly by scenario. There are opportunities and risks that
will cause portfolios to be rebalanced for both scale and growth.
(IHS Markit Energy Advisory's Roger Diwan and Susan Farrell)
Base case, "Rivalry" scenario: Total liquids demand (including
crude, condensate, NGLs, biofuels, GTL and CTL) grows through 2030
and into the mid-2040s before beginning a gentle decline. Natural
gas demand continues to increase strongly throughout the
period.
Greener "Autonomy" scenario: Total liquids demand never
recovers from the 2020 downturn, and peak oil already passed in
2019. Strong emphasis on decreasing oil in the transport sector
keeps downward pressure such that by 2050, Autonomy demand is some
38 MMb/d lower than in the Rivalry scenario. In this scenario, gas
demand growth stalls in the early 2030s as the share of renewables
grows.
Dysfunctional "Discord" scenario: Projects a world in which
overall economic growth and energy demand are weak for years
following the 2020 recession. That results in a "status quo" where
the growth of renewables is stunted and oil and gas rise
slowly.
The below chart shows the Jan 2019 - June 2020 monthly
investment value changes (estimated net value of buys/sells) of oil
& gas exploration and production company's debt and equity held
by US actively managed mutual funds that report their holdings
monthly. The data indicates that there were sizable equity outflows
coinciding with debt inflows the first four months of 2019, with
September 2019 being the only month that reported net equity
inflows and debt outflows. There were substantial outflows of both
debt and equity investments in March 2020, with inflows into debt
significantly outpacing equities the three months that
followed.
The minutes from the policy meeting of the Federal Open Market
Committee (FOMC) held on 15 and 16 September were released on 7
October. There were few surprises in the minutes, which support an
outlook for Federal Reserve interest-rate policy broadly consistent
with our expectation that the target for the federal funds rate
will remain at its current setting—a range of 0% to ¼%,
sometimes referred to by policymakers as the effective lower bound
(ELB)— until inflation is on track to rise above 2%. In our
forecast, that first occurs in 2026. However, there was
disagreement among policymakers about the nature of the FOMC's
forward guidance, specifically, about the conditions that would
need to be met before it would be appropriate to lift-off from the
ELB. Those disagreements in evidence at last month's policy meeting
could foreshadow vigorous debates in the future, once the recovery
continues to the point that labor markets are on track to reach
maximum employment and inflation is on track to reach 2%, and then
run moderately above that rate. In other areas, the FOMC made no
decision in September about forward guidance with respect to the
balance sheet, specifically about expansion in its Treasury and
agency MBS portfolios. It did direct the Open Market Desk (at the
Federal Reserve Bank of New York) to acquire commercial
mortgage-backed securities only to support smooth market
functioning rather than to steadily increase such holdings. CMBS
constitute a very small portion of the Fed's securities portfolio,
so the impact of this change is modest. (IHS Markit Economists Ken
Matheny and Chris Varvares)
President Trump renewed calls for Congress to pass individual
coronavirus relief measures, including more aid for airlines and
direct checks for many Americans, after he halted negotiations with
Democrats on a larger package until after the election. (WSJ)
Faraday Future's CEO reportedly says the electric vehicle (EV)
startup may become a publicly traded company through a special
purpose acquisition company (SPAC) and is in talks with an unnamed
potential partner. A Reuters report cites Faraday Future CEO
Carsten Breitfeld as saying, "We are working on such a deal … and
will be able to announce something hopefully quite soon." However,
the executive declined to name the potential partner. Breitfeld
also said that Faraday Future would be able to deliver its first
EV, the FF91, about nine months after securing funding and would
begin volume production about 12 months after the potential deal.
Reuters reports that previously Faraday Future indicated that it
wanted to raise USD800-850 million to finance the FF91's launch.
Breitfeld also indicated that Faraday is working with a contract
manufacturer on building the model in Asia, although the startup
will first produce it at the company's plant in California, United
States. Faraday Future has had a slow start and the report states
that founder Jia Yueting no longer has shares in the company, after
finalizing his personal bankruptcy in June. Breitfeld reportedly
said that Jai's stake in the company had been affecting the
company's ability to secure funding. Today, the company is more
than half-owned by its employees through an executive partnership
and an employees' stock ownership plan. (IHS Markit
AutoIntelligence's Stephanie Brinley)
After a small decrease in the previous month, Canada's Ivey PMI
fell sharply, down 13.5 points to 54.3 in September, to the lowest
reading since May 2020, indicating purchasing managers' spending
activity softly improved. (IHS Markit Economist Chul-Woo Hong)
The employment decreased 2.3 points to 53.8, likely suggesting
marginal job growth.
The inventories index fell for the third successive month, down
6.8 points to 44.1, which was the first contraction mode since May
2020.
The supplier deliveries index was the largest mover as it fell
10.6 points to 40.7.
After easing supply disruption in the previous three months,
purchasing managers noted a significant delay in delivery times,
likely because supply-chain pressure because of the COVID-19
pandemic continued.
The price index rebounded 2.7 points to 60.3, implying mild
inflation pressure.
While the Ivey PMI indicated very modest growth, the IHS Markit
manufacturing PMI jumped in September, which was the fifth
consecutive monthly increase, reflecting the solid improvement in
manufacturing business conditions.
In the meantime, the CFIB business barometer was unchanged at
59.2. After the expected strong rebound in the third quarter, real
GDP will modestly increase in the fourth quarter partly because of
the high level of uncertainty related to the COVID-19 outbreak,
with rapidly rising new COVID-19 cases.
In September, Mexican light-vehicle sales dropped 22.8% year on
year (y/y), production declined 13.2% y/y, and exports were down
13.1% y/y. Mexico's light-vehicle sales continued to decline y/y in
September on the impact of the COVID-19 pandemic, although the
situation has improved since April. (IHS Markit AutoIntelligence's
Stephanie Brinley)
With sales down in Mexico and main export market the United
States, light-vehicle production and exports also continued to
decline y/y last month. In the year to date (YTD), Mexico's
light-vehicle sales decreased 30.5% y/y.
Despite the collapse in sales, the brands' rankings have
remained relatively consistent. Nissan maintains its lead in the
Mexican market. In September, Nissan sold 17,072 units, a decline
of 10.7% y/y, and Nissan luxury brand Infiniti sold 74 units, down
30% y/y and up 20 units from August 2020.
Nissan was followed in the rankings by General Motors (GM) with
sales of 10,288 units, down 40.4% y/y and down from more than
12,000 units in August 2020.
Volkswagen (VW) held third place with 8,255 units sold, down
25.1% y/y.
Audi's sales are reported separately from parent VW's sales,
and Audi's sales increased 8.3% y/y to 1,005 units.
Although Toyota has typically been in fourth position, Kia took
that place in September, with sales of 6,803 units, an 11.8% y/y
decline.
Toyota sold 4,936 units in September, down 40.2% y/y.
Chinese automakers BAIC and JAC had been making strong efforts
in the Mexico market, and JAC's sales were 352 units in September.
BAIC's sales, however, dropped to 138 units, from 306 units in
September.
Mexico's production had been forecast to remain at between 3.7
million and 3.9 million units through 2025. As COVID-19 is
affecting the global economy, and Mexico's production was halted
from 31 March through nearly all of May, IHS Markit forecasts
Mexican light-vehicle production to drop to 2.98 million units in
2020. A recovery to the 3.8-million-unit level of 2019 is not
expected until 2026.
After growing at a pace above 8% in each of the previous three
months, Brazil's industrial production increased 3.2% in August,
consistent with IHS Markit's expectations of a bounce-and-fade
path; July's growth figure has been revised upwards from 8.0% to
8.3% by the National Statistics Office of Brazil (Instituto
Brasileiro de Geografia e Estatistica: IBGE). All these figures
refer to month-on-month (m/m) comparisons based on seasonally
adjusted data. (IHS Markit Economist Rafael Amiel)
After the debacle of March and April, and the bounce-back in
May-July, the growth pattern has started to normalize, not just in
terms of the lower growth rate but also the number of sectors
posting expansion. Of the 26 sub-sectors, 14 posted growth in
August and 12 posted declines compared with July.
The IBGE also publishes a diffusion index, which measures what
percentage of products have grown with respect to the total
surveyed in the industrial production index. In August, compared
with July, 57.9% of items posted expansion. This compares with
almost 80% in July (versus June) and is below the average for the
month of August in the 2012-19 period.
The recent strong growth is fading away and this should be the
trend for the next two to three quarters as the bounce-back from
low levels disappears. Production of intermediate goods, which
account for half of the weight in the index, has already surpassed
levels recorded in 2019.
Prices of beef cattle ended September at record levels in
Brazil amid heated demand, especially on the foreign market, and
tight supplies of slaughter-ready animals. (IHS Markit Food and
Agricultural Commodities' Ana Andrade and Max Green)
The Cepea/B3 indicator price for fed cattle ended the month at
BRL256.70 per 15kg unit (USD3.03/kg) - up 58% year-on-year. For
September as a whole, the Index averaged BRL248.49, 8.7% higher
than in August.
Although the price of slaughter-ready animals is high,
producers who specialize in finishing beef cattle have seen their
margins squeezed by the high cost of calves and lean cattle.
In September (until Sept. 29), the average ESALQ/BM&F
Bovespa Index for calf (Mato Grosso do Sul) closed at a record
BRL2,164.19 per animal, 3.4% higher than in August. Meanwhile, the
average price for lean cattle in São Paulo in September (until
Sept. 29) closed at BRL3,352.85, up 7.3% m/m and 39.3% higher in
the annual comparison.
The high cost of corn and soymeal means Brazilian cattle
farmers are also having to pay more for feed inputs, while imported
inputs have become more expensive because of the weakness of the
Real against the US dollar. It is important to note that farmers
are having to supplement cattle diets because parts of Brazil have
been facing unusually dry weather.
For October, there should be an increase in the number of
animals supplied from feedlots, but this will not be enough to
bring down prices.
On the demand side, the extension of the government's Covid-aid
package is helping support beef prices on the domestic market.
There is scope for further increases when consumers receive their
salaries at the start of October, but prices may now be close to
the maximum that domestic consumers can absorb.
Wholesale prices of beef cuts in the state of São Paulo ranged
from BRL14.25 (USD2.52)/kilo to BRL19.00 (USD3.36)* on September
30.
Meanwhile, exports are still performing well, with China
importing substantial volumes of Brazilian animal protein
throughout 2020 despite Chinese concerns over Covid-19
contamination.
So far this year, from January to September, Brazil shipped
around 1.3 million tons of beef (fresh, chilled and frozen) - the
highest volume ever exported in the period.
Fitch Ratings has downgraded Bolivia's long-term
foreign-currency issuer default ratings from B+ to B (60 on IHS
Markit's generic scale) and has revised its outlook for Bolivia
from Negative to Stable, stating that ongoing economic policy
challenges and political risks are incorporated in the downgraded
rating. (IHS Markit Economist Jeremy Smith)
Even after the change, Fitch's B rating remains more optimistic
than that of IHS Markit, which was downgraded from 55 (B+) to 65
(CCC) in May as a result of Bolivia's increasing debt burden and
falling international reserve levels.
Fitch notes that collapsing domestic demand has provided a
reprieve from mounting pressure on Bolivia's foreign reserves,
which are needed to maintain a BOB6.9:USD1.0 currency peg, although
such pressures may return as the economy and import demand
recover.
IHS Markit considers the boliviano to be significantly
overvalued, and foreign reserves dwindled to a level of around
USD3.6 billion in July, down from a peak of USD13.5 billion in
2014, although foreign-reserve levels had recovered to around
USD6.5 billion by mid-September.
Meanwhile, falling hydrocarbon and tax revenues, along with
large increases in social transfers to households during the
coronavirus disease 2019 (COVID-19) virus pandemic, will cause
Bolivia's government deficit to rise from 6.9% of GDP in 2019 to a
projected 10.8% in 2020. The deficit is primarily financed by the
central bank as Bolivia has struggled to secure access to external
credit in 2020.
Bolivia's short-term debt structure is relatively stable. Fitch
projects Bolivia's overall debt/GDP ratio to rise to 56% in 2020, a
significant increase from 44% in 2019 but below the median level of
B-rated countries. Fitch also makes note of the high proportion of
Bolivia's debt owed to its central bank (14%) and various
multilateral creditors (23%) on concessional terms.
According to the National Institute of Statistics and
Information (Instituto Nacional de Estadística e Informática),
Peru's consumer price index increased by 0.16% month on month (m/m)
in September and by 2.26% year on year (y/y). (IHS Markit Economist
Jeremy Smith)
The m/m price increase in September was principally driven by
0.60% price increases in the transportation category. Higher prices
for gasoline and diesel petroleum, automobile parts and
accessories, and highway transportation more than offset decreasing
airfares.
In addition, rising prices for housing rental, gasoline, and in
the electricity category (0.52% m/m) contributed to the monthly
increase. Within this category, home natural gas, propane gas,
residential electricity, and home repair items experienced
significant price increases.
The prices in two categories, food and non-alcoholic beverages,
as well as clothing and shoes, each declined marginally (-0.01%
m/m).
A slight upward pressure on inflation is expected in the short
term as demand recovers along with the process of gradual economic
reopening, and as the Central Reserve Bank of Peru (Banco Central
de Reserva del Perú) adopts an aggressive expansionary monetary
policy stance, opting in September to hold the policy rate at
0.25%, although downside risk exists in the form of a second wave
of COVID-19 cases that will require a prolonged lockdown.
Overall, however, IHS Markit projects inflation to be below the
2.0% annual target for 2020, falling within the lower band of the
target range because of weak domestic demand amid a harsh economic
recession.
Europe/Middle East/Africa
European equity markets closed mixed; Germany +0.2%, Italy
flat, UK -0.1%, France -0.3%, and Spain -0.4%.
10yr European govt bonds closed mixed; Italy/Spain flat, France
+1bp, and UK/Germany +2bps.
iTraxx-Europe closed -1bp/53bps and iTraxx-Xover
-4bps/317bps.
Brent crude closed -1.5%/$41.99 per barrel.
Eurozone retail sales volumes are now 3% above their
pre-pandemic level in February, a bright spot amid widespread
signals that the rebound in activity is losing momentum. (IHS
Markit Economist Ken Wattret)
Eurozone retail sales volumes jumped by 4.4% month on month
(m/m) in August, a significantly stronger increase than expected
(market consensus +2.4% m/m, according to Reuters' survey).
This was the third strong increase in the past four months and
left the level of sales 3.1% above where it was in February prior
to the coronavirus disease (COVID-19) virus-related collapse in
March and April.
The overall recovery in retail sales again masks divergent
trends across the categories of expenditure.
Sales of textiles, clothing, and footwear increased
exceptionally strongly in August, by 7.7% m/m. Nonetheless, the
level of sales in this category remained more than 10% below where
it was back in February.
Mail order and internet sales in August were more than 18%
above their February level, with sales rebounding by over 12% m/m
following a similar-sized drop in July.
Across other categories of spending, the picture remains mixed.
The level of sales of pharmaceutical and medical goods in August
was broadly unchanged from February, while that of electrical
equipment and furniture was up by over 4%.
The latter's category of sales is one of the areas of retail
spending benefitting from substitution effects away from
expenditure on services, which are being disrupted far more by the
COVID-19 virus pandemic. Note that for many of the largest eurozone
economies, retail sales account for less than half of overall
consumer expenditure.
The strong "carry over" effect stemming from some exceptionally
large gains in recent months implies that the third quarter will
experience a very high quarter-on-quarter (q/q) growth rate in
retail sales. By way of illustration, no change in the level of
sales in September would yield a q/q rise of around 11% in the
third quarter, a record high (following a 5% q/q decline in the
second quarter).
However, as highlighted above, retail sales provide only a
partial picture of household consumption. Although the latter is
also likely to see a strong rebound in the third quarter's GDP
breakdown, following a record contraction in the second quarter,
the level of household consumption is going to remain a long way
down on its pre-COVID-19-virus position, in contrast to retail
sales.
Persistently lower-than-expected core inflation rates in
particular reinforce our long-held forecast of a further expansion
of ECB asset purchases by December. (IHS Markit Economist Ken
Wattret)
Having surprised significantly to the downside in August,
September's 'flash' HICP data for the eurozone delivered another
round of downward surprises.
The headline inflation rate remained negative in September,
edging down from -0.2% to -0.3%, having fallen below zero in August
for the first time since mid-2016. This was a modest downward
surprise of 0.1 percentage point relative to market consensus
expectations (of -0.2%, based on Reuters' survey).
There were much larger downward surprises on core inflation
measures. The rate excluding food, energy, alcohol, and tobacco
prices slipped from 0.4% to 0.2% in September, a new record low for
the series and 0.3 percentage point below the market consensus
expectation. This rate is now two-thirds of a percentage point
below its average from April to June.
August's exceptional softening in inflation rates for both
non-energy industrial goods and services had been expected to
reverse in September, as seasonal "noise" washed out of the data.
In fact, both rates decelerated further, with services inflation
now at just 0.5%, a record low and one-third of its rate a year
ago.
That these rebounds failed to occur would have come as a major
surprise to the European Central Bank (ECB) as well. Given the
complications with accurately measuring inflation due to the
COVID-19 virus pandemic, the central bank will be treating
inflation figures with a higher degree of caution than usual at
present.
Nonetheless, the persistence of recent downward surprises on
underlying inflation rates is an alarming development, and with the
ECB already on high alert to potential deflation risks, it cements
the case for additional policy easing in the period ahead.
Germany's production recovery stalled in August, largely owing
to a setback in the automotive sector, while manufacturing orders
progressed anew, standing only 2% below year-ago levels. The focus
should be on the latter, as September's PMI data and the sectoral
and geographic breakdowns of August's production and orders are
encouraging for the short-term outlook. (IHS Markit Economist Timo
Klein)
Seasonally and calendar-adjusted German industrial production
excluding construction slipped marginally by 0.2% month on month
(m/m) in August, interrupting the recovery observed since May. The
initial cumulative rebound of 24.5% during May-July had followed
the March-April plunge of almost 29%, but this still means that
production in August remained almost 12% below February's
pre-pandemic level and nearly 16% below the average back in
2018.
Total production including construction also posted -0.2% m/m
in August as construction output was in line (-0.3% m/m). Given its
previous outperformance, construction activity in August was less
than 3% below the average of the fourth quarter of 2019, whereas
production in construction remained 10% lower than in late
2019.
In August, the differences among the three general types of
manufacturing goods were quite pronounced. A setback for investment
and consumer goods output contrasted with an ongoing recovery for
intermediate goods.
A different split according to industrial branches shows that
car output experienced a major setback (-12.5% m/m) following its
initial recovery during May-July. Although the regional timing of
summer holidays could play a role here, it should be noted that
automotive production in August was almost a quarter below the
fourth-quarter-2019 level. This in turn was already 17.5% below the
average car output in 2017, the last healthy year before
sector-specific problems emerged.
In other key industrial branches, the monthly output change
varied between a strong increase of 6.3% m/m in the metal sector
and declines in the machinery and equipment (-1.8%) and chemicals
and pharmaceutical sectors (-2.6%).
Meanwhile, manufacturing orders data were unambiguously
positive. The overall increase by 4.5% m/m was spread quite evenly
across intermediate, investment, and consumer goods. Foreign demand
- which had suffered the most during February-April - outperformed,
broadly returning to the average level seen in the final quarter of
2019.
Big-ticket orders were at average levels in August, as
demonstrated by the series excluding big-ticket items also
increasing by 4.5%.
Among foreign orders (6.5% m/m), eurozone demand improved the
most (14.6% m/m versus 1.5% for non-eurozone orders), reversing the
developments observed in July (8.3% versus 20.1%).
The orders split by industrial branch show that demand in the
machine-building industry recovered the most in August (11.4% m/m),
followed by the metal processing sector (6.3%), which had improved
sharply in June-July already. Although orders increased elsewhere
too, their gains were much more modest - especially in the
automotive sector (0.9%).
The BMW Group has posted a strong third-quarter sales result
with an uplift of 8.6% year-on-year (y/y) to 675,680 units as the
company's sales bounced back after the COVID-19 ravaged first half
of the year. (IHS Markit AutoIntelligence's Tim Urquhart)
According to a company statement this helped reduce the
year-to-date (YTD) decline to 12.5% y/y to 1,638,316 units.
The BMW Group's board member for customer, brands, and sales
Pieter Nota said, "Thanks to our strong model line-up, we were able
to increase our third-quarter sales year-on-year, despite the
lasting effects of the coronavirus pandemic. We are especially
pleased with the sales growth of almost 50% in electrified
vehicles. This makes electromobility a substantial growth driver.
We have already delivered around 10,000 fully-electric MINIs since
the start of the year. This shows how much our customers appreciate
this car."
In the third quarter BMW brand sales rose by 9.8% to 585,336
units, with this figure being helped by the facelifted 5-Series and
all-new 2-Series Gran Coupé.
The Mini brand managed to post growth 1.9% y/y in the third
quarter although its sales for the first three quarters were down
by 20%.
On a regional basis the company managed to post a sales
increase of 12.1% y/y in Germany to 85,579 units in the third
quarter, although it was down by 16% y/y in the YTD.
In the European region, 648,107 BMW Group vehicles have been
delivered since the start of the year, a decline of 19.7%.
Spain's latest production and survey data suggests that
conditions in the industrial sector are uncertain after the initial
surge in output as a result of factories reopening after the
national lockdown. (IHS Markit Economist Raj Badiani)
The industrial sector in August posted its fourth successive
output gain, but at a much-reduced pace.
The sector is now operating normally, after the national
lockdown to contain the COVID-19 virus shut many Spanish factories
throughout most of March and the first half of April.
Specifically, output rose by 0.4% month on month (m/m) in
August after m/m gains of 9.6% in July, 13.6% in June and 14.3% in
March. However, it remains 3.0% lower when compared to February's
level, which is assumed to be the effect of the national
lockdown.
Rising output between July and August was led by reviving
consumer durables and capital goods output, rising by 5.1% m/m and
3.8% m/m, respectively. This was partly offset by falling output of
consumer non-durables, down by 1.1% m/m.
Nevertheless, in annual terms, industrial production in August
was still 5.7% lower than a year ago. And in the first eight months
of 2020, it was still 12.8% lower when compared to a year
earlier.
France's current-account deficit declined from EUR5.7 billion
(USD6.7 billion) in July to EUR4.7 billion in August. Although
August's shortfall was the lowest in four months, it was still
significantly above the levels reached before the COVID-19-virus
pandemic as a result of substantially large deficits on the goods
and services balances. (IHS Markit Economist Diego Iscaro)
Despite collapsing external demand and extremely low oil
prices, France's balance of payments has been severely affected by
substantially weaker external demand, particularly for transport
material, which represents around 23% of France's exports of
goods.
This is clear from the merchandise trade balance, which, on a
customs basis, widened again in August. It stood not far from
June's historic high of EUR8.1 billion (EUR7.7 billion, up from
EUR7.0 billion in July). Although merchandise exports fell by 0.6%
month on month (m/m), imports rose by 1.1% m/m.
August's decline in merchandise exports was the first since
April and they are now 16.6% below their level in February.
Merchandise imports, on the other hand, are "just" 8.3% below their
pre-pandemic level.
Exports of transport material in August were around one-third
below their February level, while exports of mechanical/electrical
and chemical goods were 10% and 9.7% below their pre-pandemic
level, respectively.
On the services side, restrictions to movement of people also
resulted in substantially lower travel receipts. However, it should
be noted that the travel balance has remained relatively unchanged
in surplus (EUR892 million in August) as French residents' travel
abroad also substantially declined.
Meanwhile, the surplus on the combined primary and secondary
balances remained stable compared with July at EUR272 million.
However, this is well below compared with a monthly average of
EUR750 million in 2019.
IHS Markit expects net trade to be a drag on growth during the
remainder of the year. Although restrictions on domestic services
are still in place, it is likely that domestic demand for imported
goods (such as household equipment and electronics) will continue
to outpace external demand for French products, particularly
aircraft, automobiles, and luxury goods.
Statistics Sweden (SCB) reports that Sweden's private-sector
production grew by 1.2% month on month (m/m) in August, a
deceleration compared with average growth of 2.1% m/m in May-July.
On an annual basis, production was down by 3.9% year on year (y/y)
in August, a mild improvement compared with July (-4.4% y/y). (IHS
Markit Economist Daniel Kral)
On a monthly basis, the main driver of growth in August was
manufacturing, up by 7.0% m/m. Services were down by 0.3%, the
first monthly decline since April, after growth of 4.5% m/m in
July. Construction data are not available (see Chart 1), although
its performance was largely unaffected by the COVID-19-virus
pandemic since March.
On an annual basis, in August manufacturing was up by 0.2% y/y,
a remarkable turnaround from April when it was down by 17.0% y/y,
while services were down by 5.5% y/y, a deterioration compared with
-3.9% in July.
On a cumulative basis, private-sector production in July was
down by 4.1% compared with January. Industry was down by 0.3%,
while services by 6.3%.
The Russian light-vehicle market has made a small improvement
during September, according to data compiled by the Association of
European Businesses (AEB). Registrations in the month grew by 3.4%
year on year (y/y) to 154,409 units. However, the toll taken by
measures implemented to prevent the spread of the COVID-19 pandemic
during the first half has meant that registrations over the first
three quarters of 2020 are down by 13.9% y/y to 1,094,805 units.
(IHS Markit AutoIntelligence's Ian Fletcher)
On a brand basis, the leader this month remained AvtoVAZ; its
registrations increased by 11.9% y/y to 35,264 units, and may have
been helped by a substantial order from the Russian
government.
Kia took second place with 20,402 units, helped by an increase
of 6.3% y/y in September.
Other big volume brands in the market have also risen this
month. Renault was up 5.1% y/y to 14,007 units as the Logan and
Sandero put in solid gains, while Volkswagen (VW) improved 11.7%
y/y to 10,674 units thanks to its Polo and Tiguan. Skoda also
jumped by 31% y/y to 9,616 units on the introduction of the new
generation Rapid and a surge in Octavia demand.
It was not all positive though as Toyota recorded a fall of
9.7% y/y to 8,494 units despite a jump in RAV4 registrations, as
Nissan dropped 24.2% y/y to 5,623 units, not helped by weaker
Qashqai sales.
Chairman of the AEB Automobile Manufacturers Committee, Dr
Thomas Staertzel said that the AEB is "hoping for a relatively
stable fourth quarter without serious business limitations, despite
currently worsening pandemic situation" and is forecasting that
light-vehicle registrations will stand at 1.522 million by the end
of the year. IHS Markit expects a weaker performance though, with
our current expectations being that the country's passenger car
market will fall by 21% y/y to 1.295 million units, while the LCV
category will drop 21.5% y/y to 87,600 units.
The Bank of Central African States (Banque des États de
l'Afrique Centrale: BEAC) maintained its policy rate at 3.25%
during a monetary policy committee (MPC) meeting held on 30
September, with the impact of the COVID-19-virus pandemic on the
Economic and Monetary Community of Central Africa (Communauté
Économique et Monétaire de l'Afrique Centrale: CEMAC) region
expected to be less than initially anticipated. (IHS Markit
Economist Archbold Macheka)
With that, the BEAC upgraded its GDP forecast for the region to
a 3.1% year-on-year (y/y) decline for 2020 from the initial June
2020 estimate of a 5.9% y/y contraction, driven by the measured
lifting of COVID-19-virus containment measures and the recovery in
global oil prices after the sharp drop experienced in March 2020.
Nonetheless, the services sector, particularly hotels, transport,
and entertainment, continues to be severely affected by the
lingering effects of the restrictions.
The BEAC kept the marginal lending rate at 5.0% and the
marginal deposit rate at 0.0%, while the reserve requirement ratio
was also maintained at 7.0% and 4.5% on demand and forward
liabilities, respectively. In making these latest decisions, the
MPC noted ongoing risks to the global economy and CEMAC growth
prospects emanating from the uncertainty posed by COVID-19-virus
pandemic developments.
Annual inflation in the CEMAC region is expected to accelerate
to an average of 2.6% y/y in 2020, compared with 2.0% y/y in 2019,
driven by both demand and supply-side pressures on the back of
COVID-19-virus-related disruption.
The bloc's current account is now forecast to register a
deficit of 4.7% of GDP in 2020 (compared with an initial estimate
of 7.3% of GDP in June 2020) thanks to recovering external demand
and global oil prices.
The budget deficit (commitment basis excluding grants) is
expected to come in at an improved 2.6% of GDP in 2020 against the
4.5%-of-GDP deficit projected in June 2020.
Foreign-exchange reserves are anticipated to remain above the
three-month coverage threshold for imports of goods and services
while the rate of external coverage of the currency is expected to
rise to 69.9%, against 67.1% a year earlier, supported by funding
to various member states within the framework of the International
Monetary Fund (IMF)'s Rapid Credit Facility and Rapid Financing
Instrument.
The stock of net foreign assets will also benefit from the
sustained recovery in global oil prices and improvement in the
repatriation of export earnings under the new foreign-exchange
regulations introduced in 2019.
IHS Markit expects all the CEMAC member countries' economies to
contract in 2020 because of the impact of the COVID-19-virus
pandemic and the significant drop in global oil prices. The Central
African Republic (CAR)'s GDP is predicted to fall by 2.0% y/y in
2020, while contractions are also forecast at 2.1% y/y for
Cameroon, 2.4% y/y for Gabon, 4.5% y/y for Chad, 6.5% y/y for the
Republic of Congo, and 7.7% y/y for Equatorial Guinea.
Asia-Pacific
Most APAC equity markets closed higher except for Japan -0.1%;
Australia +1.3%, Hong Kong +1.1%, South Korea +0.9%, and India
+0.8%.
Australia's Treasurer Josh Frydenberg announced on Tuesday (6
October) the government's largest budget deficit in seven decades
in an effort to get more Australians back to work. Earlier in the
day, the Reserve Bank of Australia (RBA) left monetary policy on
hold, but signaled openness to doing more to bolster the economy.
(IHS Markit Economist Bree Neff)
In Frydenberg's budget update for fiscal year (FY) 2020-21
(year ending 30 June 2021), the underlying cash balance will now
return a deficit worth 11% of GDP (AUD213.7 billion, or USD153
billion) as the government has enacted several waves of stimulus
measures to support the economy through the coronavirus disease
2019 (COVID-19) virus pandemic.
Under the new budget assumptions, gross government debt is
forecast to rise to AUD872 billion (44.8% of GDP) by the end of FY
2020-21, and the government expects it to stabilize around 55% of
GDP over the next decade as fiscal deficits persist.
In his budget speech, Frydenberg indicated that the budget
initiatives are focused heavily on enabling Australians to return
to work. The government's projections are for the unemployment rate
to reach 8% by the end of this year and will still average 6% in FY
2022-23, which means that the government is planning for a slow
decline in the unemployment rate.
Key initiatives to boost employment include a four-year,
AUD14-billion infrastructure spending plan (focused on 'shovel
ready' work), a hiring credit of AUD100-200 per week if hiring new
employees aged 16-35 years, as well as an expansion of first-time
home buyer assistance to bolster the housing construction sector.
In a well-signaled move, the government is also proceeding with
planned personal income tax cuts and threshold adjustments from FY
2022-23 to the current fiscal year.
A number of initiatives will also focus on improving business
cashflows to enable them to boost hiring and move forward
investment plans. One initiative will allow firms to fully
write-off the value of eligible asset purchases or improvements to
existing depreciable assets between October 2020 and June
2022.
Additionally, companies with turnover of up to AUD5 billion
will be able to apply tax losses from the fiscal years 2019-20,
2020-21, and/or 2021-22 to offset their tax bills in FY 2020-21 and
FY 2021-22.
The RBA maintained its targets for the cash rate target and
yield for three-year Australian Government Securities (AGS) at
0.25% following the 6 October meeting of the bank's monetary policy
board. In its post-decision press statements, the board indicated
that it expected the economic recovery in Australia to take some
time with challenges along the way, and that both fiscal and
monetary support would be required for a prolonged period.
Unless there is another severe domestic outbreak of COVID-19
infections, significant fiscal activity is unlikely before the FY
2021-22 budget is announced in May 2021. The fact that the
right-of-center Liberal-National governing coalition is planning
fiscal deficits for a decade is politically highly significant in a
country where both sides of the political spectrum seek to tout
their fiscal prudence.
inDriver has launched a ride-hailing service in Vietnam by
agreeing contracts with drivers of 260 cars and 300 motorbikes,
reports Nikkei Asian Review. The company's service is currently
available in Da Nang, Can Tho, Hai Phong, and Thua Thien Hue.
inDriver plans initial launches in outlying areas of Vietnam before
expanding into the biggest cities. inDriver's ride-hailing model,
Real Time Deal (RTD), allows users to set the price of the trip for
their selected route, and the driver then has the option to either
accept the price or negotiate an increase. inDriver was founded in
2013 in Yakutsk (Russia) but has since moved its headquarters to
New York (United States). The company offers a unique business
model that allows the driver and the passenger to directly
negotiate lower fares with the aim of enhancing ride-hailing access
for users. Currently, the company has 50 million users in more than
300 cities and has to date raised USD15 million in funding. (IHS
Markit Automotive Mobility's Surabhi Rajpal)
India's Dr Reddy's Laboratories has joined the United Nations
(UN)-led Science Based Targets initiative (SBTi), committing to
reduce its greenhouse gas (GHG) emissions by 55% by 2030. According
to a press release, the Indian drug manufacturer has committed to
reducing its Scope 1 and 2 GHG emissions by 55% by 2030, from the
base year 2017/2018, in line with global targets to limit global
warming to below 1.5°C above pre-industrial levels. G V Prasad,
co-chair and managing director of Dr Reddy's Laboratories, said,
"Continuous improvement in our environmental performance is a
notable aspect of our sustainability journey. We are delighted to
join SBTi in taking a science-based approach to set our GHG
emission reduction targets and accelerating our efforts to creating
a positive impact on our planet." The company stated that, as of
fiscal year 2019-20, Dr Reddy's had reduced its combined Scope 1
and Scope 2 emissions by 13% over the 2017/2018 baseline; this
reportedly puts the company on track to achieving the GHG reduction
targets by 2030. According to the Carbon Trust, Scope 1 emissions
refer to direct emissions from owned or controlled sources, while
Scope 2 emissions "cover indirect emissions from the generation of
purchased electricity, steam, heating and cooling consumed by the
reporting company". (IHS Markit Life Sciences' Sacha Baggili)
Pharmaceutical sales in India's domestic market grew 4% year on
year (y/y) to reach INR131.7 billion (USD 1.8 billion) in September
2020. According to data from the AWACS pharmaceutical research
division of the All-India Organisation of Chemists and Druggists
(AIOCD), sales for September 2020 were 4% higher than the INR126.04
billion recorded in September 2019, reflecting a rebound from a
year-on-year decline of 2% in August 2020. The growth in September
was driven mainly by higher sales of cardiovascular drugs,
anti-diabetic drugs, anti-infective drugs, and vitamins. Commenting
on these latest figures, the AIOCD said, "The Indian pharma market
for the first time has come back very strongly after five months of
COVID-19 crisis." Although pharmaceutical exports have largely
remained strong in recent months, the rebound in domestic market
sales follows several months of stagnant or negative growth due to
COVID-19 pandemic-related containment measures. (IHS Markit Life
Sciences' Sacha Baggili)
Posted 07 October 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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