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The US and China's equity markets closed higher today, while
most other markets closed modestly lower on the day. Gold closed at
another multiyear high and US credit indices were tighter across IG
and high yield, while US government bonds and the dollar closed
lower on the day. The US surpassed 3 million confirmed COVID-19
cases and additional safety precautions and closures are being
mandated across the country to slow the spread, as some hospitals
are already near or above full capacity.
Americas
The U.S. surpassed 3 million confirmed COVID-19 cases less than
a month after crossing the 2 million mark, as the virus spread
rapidly in the nation's three most populous states. Climbing case
counts in California, Texas and Florida drove the U.S. to a new
single-day record of infections, with 60,000 new cases reported,
according to data from Johns Hopkins University. (WSJ)
US equity markets closed higher; Nasdaq +1.4%, Russell
2000/S&P 500 +0.8%, and DJIA +0.7%.
10yr US govt bonds closed +2bps/0.67% yield.
DXY US dollar index closed -0.4%/96.42 and is at its lowest
point since 11 June.
The US Federal Reserve's unprecedented 10-month intervention in
short-term borrowing markets has been wound down today. The volume
of the Fed's operations in the repo market fell to zero this week
after the central bank's latest 28-day loan matured on Tuesday,
taking a final $53.2 billion out of the market. (FT)
Gold closed +0.6%/$1,820 per ounce and came a bit closer to the
all-time high close of $1,876 per ounce on 2 Sept 2011.
CDX-NAIG closed -1bp/73bps and CDX-NAHY -24bps/486bps (graph
below).
Crude oil closed +0.7%/$40.90 per barrel.
Outstanding US nonmortgage consumer credit fell by $18 billion
(0.4%) in May even as consumer spending rebounded. (IHS Markit
Economist David Deull)
The 12-month growth rate of outstanding consumer credit fell a
further 0.8 percentage point to 0.9%.
Revolving (mostly credit card) consumer credit accounted for
the entire decrease, falling $24 billion (2.4%, seasonally
adjusted) after a $58-billion plunge in April, by far the largest
on record. This category of outstanding consumer credit contracted
7.2% versus May 2019.
Nonrevolving credit outstanding increased $6 billion,
recovering half of its April decline. Its 12-month growth rate
edged down 0.1 point to 3.8%. This category includes student and
auto loans.
In the first quarter of 2020, the average interest rate on all
credit card accounts was 15.1%, a return to the highest level seen
since 2001.
The ratio of nonmortgage consumer credit to disposable personal
income was 23.1% in May, a full percentage point above its April
level, which had been pulled down by a surge in disposable personal
income owing to federal stimulus payments.
Consumer spending plunged in April by 12.6%, then rebounded
8.2% in May. Revolving consumer credit fell only 5.4% in April, but
kept falling the next month, a sign that federal income support to
households helped to cushion households from the shutdowns in
business activity and to stimulate the May rebound in consumer
spending.
Outstanding nonrevolving credit was back to business as usual
in May, as student loans remain unaffected by the pandemic and
consumers purchased autos at a brisk pace.
United Airlines said it could be forced to shed almost half its
U.S. workforce, telling 36,000 employees that they could be
furloughed from Oct. 1 because of the pandemic-driven slump in
passenger demand. The airline said those receiving mandatory WARN
notices of potential furloughs include 15,000 flight attendants,
2,250 pilots and 11,000 customer service staff. United said
employees could be rehired when demand recovers. (WSJ)
New York based clothing retailer Brooks Brothers, which has
about 500 stores globally and employs 4,000 people, filed for US
Chapter 11 bankruptcy protection today and said it had secured $75
million in financing to tide it through the bankruptcy as it
intended to find a buyer and avoid liquidation. (FT)
Chevron Phillips Chemical (CPChem; The Woodlands, Texas) says
it will take longer than originally planned to make a final
investment decision (FID) on the USGC II Petrochemicals Project, an
$8-billion joint venture with Qatar Petroleum (QP; Doha, Qatar).
The company cites uncertainty created by the COVID-19 pandemic.
Front-end engineering and design (FEED) of the project continues.
"As with other capital-intensive activities, we are closely
monitoring economic developments and moderating timing to preserve
optionality on this project," says a statement from CPChem. "In
light of uncertainty created in the wake of the COVID-19 pandemic,
our company intends to defer a final investment decision while it
revisits market conditions and project fundamentals." The company
says it has not set a new date for FID. Orange, Texas, where CPChem
already has two high-density polyethylene (HDPE) plants, remains
the preferred location for the project, says the company. According
to a local newspaper, The Beaumont Enterprise, Orange County
authorities have approved a 10-year, 100% tax break for the project
that must enter effect no later than 1 January 2024. CPChem and QP
announced the USGC II Petrochemicals Project in July 2019. At the
time, they expected FID by 2021 and completion in 2024. CPChem
would hold a 51% share, provide project management and oversight,
and be responsible for the operation and management of the
facility. Centered on a 2 million metric tons/year (MMt/y) ethylene
plant, the project would also include two downstream 1 MMt/y HDPE
plants.
Canadian company LeddarTech has acquired Israeli-based sensor
fusion and perception software company VayaVision for an
undisclosed amount. LeddarTech will integrate its open platform
with VayaVision's raw data sensor fusion and perception software
stack to accelerate time to market while reducing development costs
and risks. This will enable LeddarTech to demonstrate its first
perception software stack, Leddar Pixell LiDAR sensor, later this
year, with production expected next year. LeddarTech CEO Charles
Boulanger said, "The acquisition of VayaVision adds a vital
building block by combining their sensor fusion and perception
technology with LeddarTech's proven LeddarEngine platform. The
existing single sensor solutions in the market do not provide the
performance, flexibility, scalability, and cost-effectiveness that
the market needs for mass deployment." LeddarTech develops
high-performance, low-cost LiDAR solutions for advanced driver
assistance system (ADAS) and autonomous vehicle applications. LiDAR
sensors are necessary for autonomous vehicles (AVs) as they measure
distance via pulses of laser light and generate 3D maps of the
world around them. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Europe/Middle East/ Africa
European equity markets closed lower across the region; Spain
-1.6%, France -1.2%, Germany -1.0%, and Italy/UK -0.6%.
Most 10yr European govt bonds closed slightly higher except for
UK being flat on the day; Italy, Spain, France, and Germany all
-1bp.
iTraxx-Europe closed flat/62bps and iTraxx-Europe
+2bps/365bps.
Brent crude closed +0.5%/$43.29 per barrel.
Statistics Sweden (SCB) reports that Sweden's private-sector
production contracted by 10.0% year on year (y/y) in May, after a
contraction of 9.4% y/y in April. On a monthly basis, production
was down by 0.4% month on month (m/m) in May, after a drop of 7.4%
m/m in April. (IHS Markit Economist Daniel Kral)
Among the main sub-components, the main drag in May came from
industry, down by 15.5% y/y, and services, down by 9.4% y/y. The
decline in construction was relatively mild, at just 2.1% y/y (see
Chart 1).
On a monthly basis, the main drag in May came from services,
which were down by 0.8% m/m, after a drop of 4.2% in March and 6.3%
in April.
Industry expanded modestly in May, at 0.5% m/m, but from a low
base, given the cumulative decline of almost 17% between January
and April.
On a cumulative basis, private-sector production in May was
down by 10.7% compared with January. Industry was down by 16.2%,
services down by 11.3%, while construction was up by 5.7%.
The drop in Sweden's private-sector production in May is unlike
that in many European economies, for which the bottom was reached
in April with a rebound from May.
In Sweden, the cumulative decline in January-April was much
milder than in other European countries, with the overall economy
growing in the first quarter, as Sweden has pursued a fundamentally
different approach in handling the COVID-19 virus.
Dutch consumer prices increased by 1.6% year on year (y/y) and
0.3% month on month (m/m) in June, according to the national
consumer price index (CPI) measure, and by 1.7% y/y and 0.5% m/m
according to the EU-harmonized measure. This means that the large
positive differential versus the eurozone, present through 2019 due
to higher VAT and energy taxes, has again started to open up. (IHS
Markit Economist Daniel Kral)
Among the biggest drivers of the increase in June were prices
of alcohol and tobacco, which increased by 10.5% y/y, and food
prices, which were up by 2.7% y/y. The large increase in the former
is due to higher excise duties on tobacco, coming into effect on 1
April, which is gradually feeding into higher prices as old stocks,
with the lower excise duty, are sold off.
Prices on transport jumped in June, in line with an increase in
oil price. This follows few months of declines, when oil was
trading at multi-year lows.
Core inflation jumped to 2.6% y/y in June, up from 2.2% in May.
This was among the highest rates in the eurozone, linked to a still
historically tight labor market due to limited employment losses
thanks to government support measures.
Dutch core inflation, which excludes energy, food, alcohol and
tobacco, is close to the highest since mid-2013. It reflects
government support measures being successful in maintaining
employment and demand in the economy.
Real-time activity trackers, such as Google's mobility report,
also show that consumer activity has picked up strongly. By early
July, the Netherlands has among the strongest improvements in
Europe in retail and recreation traffic compared to the
pre-COVID-19 baseline.
The BMW Group has posted a decline in sales for the first half
of the year of 23% year on year (y/y) to 962,575 units. (IHS Markit
AutoIntelligence's Tim Urquhart)
The rate of decline at least moderated substantially in June
with a 9% y/y fall to 218,876 units.
In terms of the brand by brand breakdown for the first half of
the year, the BMW passenger car brand fell 21.7% y/y to 842,153
units.
Mini experienced a larger decline in sales during the first
half of 31.1% y/y to 118,862 units, while Rolls-Royce, like the
overall ultra-premium passenger car market, took a significant hit
with a 37.6% y/y fall to 1,560 units.
The Group did report an increase in its sales of electrified
vehicles, which were up 3.4% y/y to 61,652 units.
In terms of the company's major sales regions, combined BMW and
Mini sales were down 32.3% y/y to 372,428 units in Europe in the
first half of the year.
In the US, they were down 30.6% y/y to 133,844 units, while
China is further ahead in its recovery cycle with only a 6.0% fall
of BMW and Mini brand sales to 329,069 units in the first half of
the year.
Belgian agrochemical company Globachem (Sint-Truiden) has
increased its capital participation in the German plant protection
product company, Plantan. Globachem has been a minority shareholder
in Plantan since 2010. The increased stake follows the exit of the
French agrochemical group, Phyteurop, from the business. Part of
the French company's share is being acquired by Globachem's holding
company, while Plantan's founders, the Rübner family, is purchasing
the rest. The two have become the only shareholders of Plantan.
Globachem is a family-owned business. In 2019, it acquired the
research and development capabilities of UK company Redag Crop
Protection and renamed it Globachem Discovery. Plantan supplies
crop protection products for all arable and specialty crops in
Germany and Austria. (IHS Markit Crop Science's Sanjiv Rana)
CGG's Sercel has acquired a 34% shareholding in AMBPR, a
start-up company that designs and markets autonomous robots for
repairing (sanding and painting) large metallic structures, used in
the maritime and energy industries. The two companies have also
signed an exclusive industrial partnership agreement whereby Sercel
will manufacture AMBPR robots at its Saint-Gaudens site in France.
The terms of this agreement also provide for Sercel increasing its
stake in AMBPR to 51% in 2021. Since its creation in 2017, AMBPR
has developed a prototype robot based on an instrumented
articulating boom lift that can work autonomously to clean, sand
and paint the sides of ships in dry dock. With the manufacturing
support of Sercel, AMBPR expects to sell its first units within the
next six months. (IHS Markit's Upstream Costs and Technology's
Kamila Langklep)
State Secretariat for Economic Affairs (SECO) data reveal that
Switzerland's seasonally adjusted unemployment increased modestly
by 5,503 people or 3.7% month on month (m/m) to 155,200 in June.
(IHS Markit Economist Timo Klein)
This is lower than the 159,925 originally reported for May,
which has now been revised down sharply to 149,647. Nevertheless,
the declines between roughly 150,000 in mid-2016 and an interim
low-point of around 105,000 in the third quarter of 2019 have been
unwound during the last nine months.
Upward momentum thus has slowed earlier than expected. The
seasonally adjusted unemployment rate, which had hovered at a
17-year low of 2.3% in 2019, increased from 3.2% in May (revised
down from 3.4%) to 3.3% in June. Note that this is measured against
a fixed labor force figure used as the denominator, which is
currently at 4,636,100 (2015-17 average; last adjusted in June
2019).
Among other labor market indicators, seasonally adjusted job
vacancies also appear to be stabilizing. They increased by 1.0% m/m
to 28,561 in June, with May's level revised up quite massively from
21,013 to 28,288.
The latest data suggest that the Swiss unemployment rate will
not exceed the 4% level during this crisis. That said, some of the
people that were on short-time work scheme in April may well end up
losing their jobs during the next 6-12 months, therefore the
cyclical peak in unemployment will probably be reached only in
mid-2021 or even later.
Credit ratings agency Fitch Ratings has changed its rating
outlook for Ethiopia to Negative amid increased risks stemming from
the COVID-19 virus pandemic, while reaffirming its rating at B
(equivalent to 57.5/100 on IHS Markit's numerical scale). Fitch
stated that the slowdown in economic growth amid the pandemic will
put pressure on the already weak external financing needs. (IHS
Markit Economist Alisa Strobel)
Fitch's outlook revision suggests that an upgrade to Ethiopia's
investment-grade rating is less likely, as Ethiopia's import
coverage remains critically low and political instability and
balance-of-payments strains present downside risks.
According to the ratings agency, Ethiopia's rating reflects a
modest expected increase in general government debt, while taking
into account that debt levels are expected to decline gradually
once growth momentum returns.
Asia-Pacific
APAC equity markets closed mixed; China +1.7%, Hong Kong +0.6%,
South Korea -0.2%, Japan -0.8%, India -0.9%, and Australia
-1.5%.
The Reserve Bank of Australia (RBA) maintained its targets for
the cash rate target and yield for three-year Australian Government
Securities (AGS) at 0.25% following the 7 July meeting of the
bank's monetary policy board. Economic data has largely remained
weak, and the RBA indicated that the current uncertainty is likely
to keep the current loose monetary policy settings in place for
some time. (IHS Markit Economist Bree Neff)
The RBA's decision to hold was largely expected, with recent
retail sales, labor market, dwelling approvals, and trade data
continuing to show the negative effects of the COVID-19 virus
pandemic. Additional uncertainty is arising from the outbreak of
COVID-19 infections in Victoria state, and the announcement that
New South Wales is to close their shared state border for the first
time since 1919 to limit the spread of the virus.
The RBA again reiterated that it would not raise the policy
interest rate until progress is made towards full employment, and
that it believes that headline consumer price inflation will hold
sustainably within the bank's inflation target range of 2-3%. The
bank's policy board assessed that both monetary and fiscal policy
support would be necessary "for some time".
Trade data continues to highlight the weakness in domestic
demand, with broad-based weakness in imports during May, led by a
sharp 47% m/m plunge in consumer imports of transport equipment.
Merchandise exports have proven slightly more resilient, although
there was a sharp fall in coal product exports in May (down 13%
m/m, seasonally adjusted) and cereals exports (down 31% m/m). The
result is that the country has maintained a goods and services
trade surplus despite the COVID-19 virus pandemic.
The recent economic data highlights the uncertainties in the
economy. Retail sales surged back to a seasonally adjusted 16.9%
month on month (m/m; see below), led by a likely one-off spike in
spending at apparel retailers and department stores. However,
dwelling approvals were down - led by a 29.9% year-on-year (y/y)
contraction in non-house dwellings in May - whereas home approvals
have proven far more stable.
Fitch Ratings affirmed Australia's long-term rating at AAA (0
on IHS Markit's numerical scale) but shifted the sovereign's
outlook to Negative from Stable. The shift in outlook stemmed from
the anticipated sharp contraction in economic activity and build-up
in government debt related to the COVID-19 viral pandemic. (IHS
Markit Economist Bree Neff)
Fitch expects Australian GDP growth to contract sharply (May
forecast -5%) for 2020 due to the pandemic, and indicated that the
high level of uncertainty and risk to the country's economic
outlook from the COVID-19 virus was a key factor behind the
Negative outlook for the sovereign.
Additionally, Fitch indicated that sustained weak economic
growth over the medium term could heighten Australia's economic and
financial stability risks due to high household debt levels, which
stood at 186.8% of disposable income at the end of 2019.
Fitch highlighted that the Commonwealth government has
announced multiple fiscal packages worth 10% of GDP to be carried
out over the next four years (although the bulk of the spending is
for 2020-21). According to Fitch, the fiscal deficit is expected to
swell to 6.9% of GDP for the fiscal year (FY) ended 30 June 2020
and to 9.0% of GDP in FY 2020-21 from the increased spending, as
well as weaker-than-expected revenues.
As a result, the agency expects gross general government debt
to rise to just over 60% of GDP by June 2024, up from 41.9% in June
2019 and well above the 44% median value for AAA-rated peers.
According to Fitch, a downgrade could arise from a failure to
implement adequate fiscal consolidation measures to rein in the
general government debt accumulation over the medium term.
Japan's current-account surplus for May fell by 27.9% year on
year (y/y) to JPY1.2 trillion (USD11.0 billion) on a non-seasonally
adjusted basis, but rose by 225.3% (or JPY568.7 billion) to JPY821
billion on a seasonally adjusted basis. (IHS Markit Economist
Harumi Taguchi)
The y/y decline was largely due to a 10.9% y/y (or JPY249
billion) drop in primary income, reflecting lower income from
portfolio investment, while the trade deficit softened by 18.1% y/y
(or JPY123 billion).
The trade deficit softened, reflecting a larger contraction of
imports (down 27.7% y/y), although the decrease of exports widened
to 28.9% y/y.
Although the service balance deficit narrowed from the previous
month on a seasonally adjusted basis, the deficit was largely due
to a decrease in the travel balance because of a 99.9% y/y drop in
the number of tourist arrivals in response to entry bans from an
expanded list of countries/regions.
Mobileye has partnered with Japan's largest transport operator,
WILLER, to begin testing robotaxis on public roads in Japan in
2021. Following this, the companies plan to launch fully driverless
mobility services in 2023, while conducting similar services in
Taiwan and other Southeast Asian markets. The companies will
leverage each other's expertise as Mobileye will provide its
automated vehicle technology and WILLER will offer services
adjusted to each region and user tastes. Mobileye, an Israeli-based
company acquired by US chip-maker Intel, offers vision-based
systems to support advanced driver assistance systems (ADAS) and
automated vehicle solutions. Recently, Intel acquired Israeli
public transit app Moovit to help Mobileye develop robotaxis, with
plans to launch them in early 2022. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
Nissan has received JPY832.6 billion (USD7.8 billion) in
financing from its creditors since April this year to improve its
cash position and help to offset declining sales due to the
COVID-19 virus pandemic, according to Reuters citing the latest
annual securities report by the automaker. In addition to this
funding, Nissan has said it has JPY1.1 trillion in net cash in its
automotive business, and credit lines of up to JPY1.3 trillion.
(IHS Markit AutoIntelligence's Nitin Budhiraja)
Mainland China's foreign exchange (FX) reserves increased for
the third consecutive month to USD3.1 trillion in June, up CNY10.6
billion from May, according to a release by the State
Administration of Foreign Exchange (SAFE) on 7 July. (IHS Markit
Economist Yating Xu)
Rising valuation for FX held is the main contributor to the
sequential increase in FX reserves while the current account as
well as capital and financial account were stable. USD index fell
by 0.9% during June, driving up assets dominated in euros and pound
sterling.
Given the sustained recovery in domestic economy over the past
months, the exchange rate of CNY rose by around 1% in June and
overseas capital continued to flow into the share market.
China's passenger vehicle retail sales dropped 8% in June from
a year earlier, according to the China Passenger Car Association
(CPCA). Total retail volumes have not been released by the
association. The CPAC's data tracking weekly retail sales show that
retail passenger vehicle sales were under pressure in June. (IHS
Markit AutoIntelligence's Abby Chun Tu)
The China Association of Automobile Manufacturers (CAAM) still
expects strong wholesale growth of 11% year on year in June as the
market continues to recover from the COVID-19 virus outbreak.
IHS Markit expects light-vehicle sales to have increased by
3.7% in the second quarter, followed by growth of 1% in the third
quarter and a decline of 10% in the fourth quarter.
The market will face headwinds heading into the second half of
2020 as Chinese economic growth is forecast at 0.5% this year owing
to the expected severe export collapse resulting from the global
economic recession.
For the full year 2020, we anticipate light-vehicle sales in
China to decline by 13.4% to 21.5 million units, followed by a
rebound of 9% in 2021.
Ford has announced plans to begin testing
vehicle-to-infrastructure (V2I) technology on designated roads in
the Chinese city of Changsha, reports Gasgoo. The V2I function is
based on cellular vehicle-to-everything (C-V2X), a technology that
allows vehicles to communicate directly with other vehicles,
pedestrians, devices, and roadside infrastructure. The automaker
has partnered with Hunan Xiangjiang Intelligent Science and
Technology Innovation Center to test the function, which is set to
be launched for trial use this year. The function will be available
to Ford owners in China through over-the-air (OTA) updates to the
automaker's in-vehicle communication and infotainment system,
SYNC+. This move is in line with Ford's aim to deploy C-V2X
technology in its vehicles in China during 2021. In September 2018,
Ford demonstrated C-V2X technology at the 2018 World Internet of
Things Expo in Wuxi (China) for the first time on public roads in
China, with a view to improving automated vehicles and safety
worldwide. (IHS Markit Automotive Mobility's Surabhi Rajpal)
South Korean battery maker LG Chem has partnered with GS Caltex
to develop electric vehicle (EV) battery specialized services using
big data, according to a company statement. For this, the two
companies have also signed a memorandum of understanding (MoU) with
Signet EV, Soft Berry, KST Mobility, and Green Car. The companies
are planning to develop services by 2021. After completing the
empirical project by 2021, LG Chem and GS Caltex will launch
domestic service businesses and expand the battery specialized
service business to overseas charging markets starting in 2022. The
purpose of this MoU is to use EV big data collected at charging
stations to find various battery specialized services, and LG Chem
and GS Caltex agreed to first develop a battery safety diagnostic
service. The battery safety diagnostic service will save driving
and charging data in a cloud server while an EV (Green Car, KST
Mobility) charges at a GS Caltex Charging Station, and using the LG
Chem big data analysis and battery service algorithm, the current
status and dangers of the battery will be checked and provided not
only on the charger panel (Signet EV), but also the driver's mobile
phone (Soft Berry). (IHS Markit AutoIntelligence's Jamal Amir)
The police at Visakhapatnam in Andhra Pradesh State, India, say
they have arrested the CEO and two directors, as well as nine other
officials, of LG Polymers India (LGPI; Mumbai), an affiliate of LG
Chem, for a styrene gas leak from tanks at the company's
polystyrene (PS) plant near Visakhapatnam. The gas leak on 7 May
killed 15 people and made about 1,000 people ill. The arrests were
made a day after a high-level committee, appointed by the state
government to probe the accident, submitted its report to the chief
minister of Andhra Pradesh. The police say that the committee's
report disclosed that the accident occurred due to poor design of
the tanks; an inadequate refrigeration and cooling system; the
absence of circulation systems; inadequate measurement parameters;
weak safety protocols; poor safety awareness; and inadequate risk
assessment and response.
Vehicle production in Vietnam plunged 46.8% year on year (y/y)
during May to 9,156 units, according to data released by the ASEAN
Automotive Federation (AAF). During January-May, total vehicle
production in the country fell by 42.1% y/y to around 46,245 units.
(IHS Markit AutoIntelligence's Jamal Amir)
Posted 08 July 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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