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Most APAC equity markets closed higher except for Mainland
China, while European markets were mixed and major US indices were
lower. US government bonds closed lower and the curve steepened,
and benchmark European bonds were mixed. European iTraxx credit
indices were flat across IG/high yield and CDX-NA indices were
modestly wider on the day. WTI, gold, and silver were lower and
copper closed higher. The midsized US stimulus bill appears to be
making progress, but challenges still exist relating to the
Democrat's provisions for state and local government aid and
Republican's push to shield entities from COVID-19 related
operating liabilities.
Americas
US equity markets closed lower; Nasdaq -1.9%, Russell
2000/S&P 500 -0.8%, and DJIA -0.4%.
10yr US govt bonds closed +2bps/0.94% yield and 30yr bonds
+3bps/1.69% yield.
CDX-NAIG closed +1bp/52bps and CDX-NAHY +3bps/300bps.
DXY US dollar index closed +0.1%/91.09.
Gold closed -1.9%/$1,839 per ounce, silver -3.0%/$23.99 per
ounce, and copper +0.3%/$3.51 per pound.
Crude oil closed -0.2%/$45.52 per barrel.
The Federal Trade Commission and a bipartisan group of 46
states filed broad antitrust lawsuits against Facebook Inc. on
Wednesday, alleging the social-media giant engaged in a years long
campaign to buy up or freeze out nascent technology companies that
one day might have become rivals. The FTC's case is its most
ambitious in recent memory and seeks to unwind Facebook's prior
acquisitions of the photo-sharing app Instagram and messaging
service WhatsApp. It comes just weeks after the Justice Department
brought an antitrust lawsuit targeting Google's flagship search
business. Each federal agency now has its own once-in-a-generation
case at the same time, a signal of the level of U.S. concern about
the power of dominant online platforms. (WSJ)
California reported 30,851 new COVID-19 cases, topping the
record of 30,075 set over the weekend. The average rate of positive
tests over 14 days reached 8.8%, the highest since the spring.
Hospitalizations jumped 3.8% in the past 24 hours to a record to
11,965 patients. With cases soaring, much of the state is now in
lockdown as officials warn of intensive-care units becoming
overwhelmed. (Bloomberg)
Average consumer credit- and debit-card spending during the
week ending 29 November was 11.6% below the January average,
according to the Opportunity Insights Economic Tracker, down
sharply from prior weeks. This could reflect unusually low "Black
Friday" shopping, much of which may have occurred online in
surrounding days (and weeks). Meanwhile, the IHS Markit
GDP-weighted US weekly containment index rose 3.9 index points this
week to a value of 50.6. Nearly three-quarters of the increase
reflected new restrictive measures in California, with the balance
accounted for by tightening conditions in five other states (Ohio,
Colorado, Oregon, Rhode Island, and Maine). The increase in the
containment index this week extended a string of increases over the
last eight weeks, as new COVID-19 cases have been surging, and was
by far the largest increase over this period. (IHS Markit
Economists Ben Herzon and Joel Prakken)
The October JOLTS report suggests that the labor market
recovery is losing steam, with employment still short of the
pre-pandemic peak. The number of hires edged lower to 5.8 million
and the number of job openings edged up to 6.7 million in October.
Both are hovering near their long-term pre-pandemic averages. (IHS
Markit Economist Akshat Goel)
Job separations rose to 5.1 million in October but are well
below the all-time high of 10.0 million reached in April.
The layoffs and discharges rate edged up to 1.2% in October.
The quits rate, a valuable indicator of the general health of the
labor market, was unchanged at 2.2%, just shy of the two-year
pre-pandemic average of 2.3%.
Over the 12 months ending in October, there was a net
employment loss of 5.7 million.
There were 1.7 workers competing for every job opening in
October. In the two years prior to the pandemic, the number of job
openings exceeded the number of unemployed in every report.
Mitsubishi Chemical says it has acquired a greenfield property
at a large integrated site at Geismar, Louisiana, and plans to
advance a feasibility study for the design and construction of a
350,000-metric tons/year methyl methacrylate (MMA) plant there. The
facility will be the third and largest to employ ethylene-based
Alpha production technology developed by Mitsubishi's Lucite
International subsidiary. The company in March this year announced
its intention to build an Alpha MMA plant on the US Gulf Coast but
it did not disclose the project's location. Mitsubishi says the
location at Geismar is suitable due to readily available key raw
materials, logistics infrastructure, integrated services, and a
skilled workforce. The project is in the early engineering stage
and scheduled for a final investment decision in early 2022. If
approved, the plant would commence production in 2025. The two
existing Alpha MMA plants are a wholly-owned Mitsubishi unit in
Singapore and a joint venture with Sabic at Jubail, Saudi Arabia.
Mitsubishi announced in November that it would close an MMA plant
on the US Gulf Coast. It said it had decided to end production of
MMA and methacrylic acid at Beaumont, Texas, in an effort to boost
competitiveness. Production at this plant will be terminated on 28
February 2021. It has the capacity to produce 135,000 metric
tons/year of MMA. (IHS Markit Chemical Advisory)
A Tesla US Securities and Exchange Commission (SEC) filing
indicates the company will sell common shares to raise USD5.0
billion, through an Equity Distribution Agreement with several
banks and securities companies authorized to sell shares of common
stock through an "at-the-market" offering up to USD5.0 billion.
This funding round is the third time Tesla has gone this route in
2020, as it looks to generate cash to support capital investment in
new German and US assembly plants, as well as in new products like
the Cybertruck. Tesla took similar actions in September and
February 2020, raising USD5 billion and USD2 billion, respectively.
According to Tesla's SEC filing, at close of the NASDAQ where its
shares are traded, common stock was valued at USD641.76 per share.
At the end of the third quarter of 2020, Tesla's financial
reporting indicated it had USD14.5 billion of cash and cash
equivalents on hand. (IHS Markit AutoIntelligence's Stephanie
Brinley)
US chemical production is regaining momentum after the
first-half shocks linked to the global COVID-19 pandemic, according
to ACC's Year-End 2020 Chemical Industry Situation and Outlook. US
chemical production volume excluding pharmaceuticals is expected to
fall by 3.6% in 2020 followed by growth of 3.9% in 2021. The US
decline is the sharpest since the 2008 and 2009 financial crisis.
Global chemical volumes are expected to fall 2.6% in 2020, the
largest drop in at least 40 years, followed by a 3.9% rebound next
year. "The post-pandemic outlook is for broad-based growth in
chemicals supported by solid fundamentals," said Martha Moore,
senior director of policy analysis and economics at ACC. "Growing
customer demand, stabilizing export markets, and a competitive edge
linked to domestic supplies of shale gas and natural gas liquids
(NGLs) are among the factors pointing to continued gains in U.S.
chemistry." US basic chemicals demand fell 1.3% in 2020 helped a
bit by continued growth in plastic resins, one of the areas to
maintain positive growth, up 0.9%, this year. Basic chemicals
should rebound with 5% growth in 2021, led by 6.9% growth for
plastic resins. US specialties volumes were down 10.8% in 2020 as
lockdowns were especially negative for oilfield chemicals, rubber
processing, foundry chemicals, and printing ink sectors. Specialty
volumes are forecast to improve 2.4% in 2021 led by recovery in
rubber processing, antioxidants, plastic compounding, catalysts,
plastic additives, and lubricant additives. (IHS Markit Chemical
Advisory)
There was no change to any of the Bank of Canada's interest
rates. Plus, in conjunction with the extraordinary forward
guidance, large-scale asset purchases of at least $4 billion per
week will continue as needed. (IHS Markit Economist Arlene Kish)
Canada's third-quarter economic bounce was within the bank's
expectations. Going forward, the outlook remains "choppy" as
fast-rising daily COVID-19 counts and current containment measures
will weaken growth momentum heading into next year until the wide
distribution of a vaccine, which should strengthen demand and the
economic recovery.
The Bank of Canada will keep the overnight rate at 0.25% until
the inflation rate hits 2% on a sustainable basis, which is
expected in 2023.
The economic and inflation outlooks are generally aligned with
the Bank of Canada's expectations of a couple of months ago. The
development of effective vaccines provides support for
strengthening demand, but the uncertainty regarding the global and
domestic distribution of the vaccine against the backdrop of the
virus's rapid spread, deepening the severity of the pandemic, poses
a risk of some "set back recoveries" in many regions. In contrast,
monetary policy remains accommodative and prices for many
commodities are rising, supporting the outlook for Canada.
Inflation is low, with higher prices for some food items
driving a slight acceleration in inflation to 0.7% in October. Core
inflation measures remain below 2%. While the economic data
suggests that the economy is on track to expand in the final
quarter of the year, another round of restrictions, now expanded
into 2021 in some regions, weighs on the outlook. Excess capacity
will keep price pressures muted for a while longer.
In a press release, Canadian Natural Resource Limited announced
its 2021 capital budget of C$3.2 billion. That compares with
revised 2020 capital budget of C$2.7 billion, announced in May
2020. The company slashed its 2020 capital budget to around C$2.7
billion in response to the commodity price volatility and global
COVID-19 situation, down about 33% from its original capital budget
of C$4.05 billion, announced in December 2019. The 2021 budget
allocates C$1.345 billion to conventional and unconventional assets
and $1.86 billion to long life low decline assets. The company is
targeting 1,190,000-1,260,000 boe/d of production in 2021 (78%
crude oil, Synthetic Crude Oil and NGLs), up 5% from 2020
forecasted levels. Crude oil, Synthetic Crude Oil, NGL production
is targeted to be in range from 920,000 b/d to 980,000 b/d. Long
life low decline production is targeted to be approximately 81% of
total liquids production. (IHS Markit Upstream Companies and
Transactions' Karan Bhagani)
November auto sales in Mexico continued to decline owing to the
COVID-19 virus impact. However, as the US looks to replenish
inventory, production (up by 1.4%) and exports (up by 4.7%) gained
in November. In the YTD, production, sales, and exports were all
down compared with the same period of 2019, and production of
passenger cars continued to decline as LCV production improved.
Mexico's overall light-vehicle sales declined in 2018 and 2019, and
2020 had started off soft prior to the pandemic. November demand
posted a double-digit decline, while YTD results were still down by
28.9%. The latest forecast revision projects that the country's
full-year sales will fall by 29.2% to 934,498 units. IHS Markit
forecasts production in Mexico to slip to 3.03 million units in
2020, compared with 3.82 million units in 2019. The decline in
production is also less sharp than had been expected earlier in
2020. (IHS Markit AutoIntelligence's Stephanie Brinley)
Chile's central bank maintained its monetary policy rate at
0.5% during its 7 December meeting and the use of non-conventional
liquidity and credit support. IHS Markit projects that the stimulus
will be maintained through 2021. (IHS Markit Economist Claudia
Wehbe)
After accelerating since July, monthly inflation fell by -0.1%
in November, mainly driven by a downturn in the categories of
apparel and shoes, and housing and basic services. Annual inflation
decelerated to 2.73% from 2.95% during October.
During October, Chile's monthly economic indicator (a proxy for
GDP) contracted by 1.2% year on year (y/y), a milder drop than the
September -4.8% result. The non-mining sector fell by -1.5% y/y
while the mining sector recovered by 1.6% y/y.
The decline in services and goods production was mainly due to
limits in mobility and disruptions to business activity; although
commerce contributed positively, the overall growth result was
negative. The seasonally adjusted broad indicator contracted by
0.5% during October compared with the September result, amid modest
contractions in both the mining and non-mining sectors.
IHS Markit forecasts that Chile's central bank will maintain
its policy rate into the beginning of 2022, while the
non-conventional measures that provided liquidity to markets and
stimulated credit flow to the economy during the pandemic -
equivalent to approximately 20% of GDP - will be extended as
needed.
Inflation is projected to remain below or close to the
inflation target through 2022. Inflationary pressures are expected
to be contained on the back of excess production capacity and high
unemployment rate, which stood at 11.6% in the August-October
moving quarter - down from the 12.3% recorded in the moving quarter
ended in September. IHS Markit predicts a milder recession for
2020; currently our projection for real GDP growth stands at about
-6.0% for 2020 as various sectors gradually open up again, with the
average growth at approximately 4.5% in 2021-22.
Europe/Middle East/Africa
European equity markets closed mixed; Germany +0.5%, Spain/UK
+0.1%, France -0.3%, and Italy -0.4%.
10yr European govt bonds closed mixed; France +1bp, Germany/UK
flat, and Spain/Italy -1bp.
iTraxx-Europe closed flat/47bps and iTraxx-Xover
flat/241bps.
The latest KPMG and REC UK recruitment survey data, compiled by
IHS Markit, highlighted mixed hiring trends in November. A further
drop in permanent placements contrasted with marked growth of temp
billings. Recruiters indicated that the second national lockdown
and ongoing uncertainty regarding the COVID-19 pandemic led clients
to opt for short-term staff until the outlook brightened and
businesses were operating at more normal levels. (IHS Markit
Economist Annabel Fiddes)
Weaker levels of business activity were highlighted by the
latest UK PMI survey releases, which also showed employment levels
falling sharply. The PMI and Report on Jobs surveys both widely
commented on redundancies, as many companies faced weak demand and
adopted cost-cutting measures. As a result, overall vacancies fell
further, with retail and hospitality the worst affected areas.
The Report on Jobs survey, which monitors over 400 recruitment
consultancies across the UK, provides advance signals of labor
market trends. After rising through the third quarter of 2020,
permanent staff appointments across the UK fell for the second
month running in November as increased COVID-19 infection rates led
to a second national lockdown.
The rate of decline was considerably slower than recorded at
the height of the pandemic earlier in the year. Further disruptions
to business operations led companies to instead opt for short-term
workers, as highlighted by a further marked rise in temp billings,
until market conditions begin to normalize.
The furlough scheme has also meant that the unemployment rate
has remained relatively low through the COVID-19 crisis so far.
However, as more redundancies have been reported, particularly in
consumer-facing sectors such as retail, unemployment has been
creeping up in recent months, rising to 4.9% in the three months to
September; the highest since Q4 2016. The increase in unemployment
was signaled in advance by the substantial increases in staff
availability recorded by the recruitment survey in each month since
April, which have shown candidate numbers rising at the steepest
rate since the global financial crisis.
Official data have likewise highlighted a marked drop in
vacancies since the pandemic hit, and they remain well down on the
levels seen this time last year (-34.6% on an annual basis in the
three months to October 2020). Encouraging, the recruitment survey
data have shown that demand conditions are near stabilizing,
however it's likely to still be some time before vacancy numbers
fully recover.
Detailed sector data reveal that consumer-facing sectors such
as retail and hospitality remained the weakest performers in terms
of permanent vacancies, as restrictions continued to severely limit
business operations and customer numbers. In contrast, the
Nursing/Medical/Care sector has seen the most resilience in 2020 to
date and was the only sector that recorded growth of demand on
average through the year.
Bolt has launched a Zero Emission Transition fund worth
GBP250,000 (USD336,082) to support its drivers' switch to electric
vehicles (EVs) in London, UK. To achieve this, Bolt has partnered
with Ubitricity and Splend to enhance EV infrastructure in the
city. Bolt's partnership with Ubitricity will involve deployment of
new charging points in London neighbourhoods where its drivers
currently reside. Splend will allow Bolt drivers to access a new EV
for a reduced deposit and with this, Bolt expects to add 500 more
drivers into EV network in the first six months of next year. A
portion of the funds will also be spent on developing a tool that
will compare the total cost of ownership of fossil fuel vehicles
with EVs and on corporate social responsibility initiatives. Sam
Raciti, general manager of Bolt, said, "We're confident that the
groundwork being laid by our Zero Emission Transition pilot will
help identify the mechanics that are most efficient at getting Bolt
drivers into electric vehicles, and are excited at the potential
benefit this could have for our drivers and the wider city". (IHS
Markit Automotive Mobility's Surabhi Rajpal)
An initial breakdown of the third-quarter Eurozone employment
sector data highlights outperformance of construction and real
estate and underperformance of retail and recreation. Employment
losses have been particularly large in Spain. (IHS Markit Economist
Ken Wattret)
Eurozone employment rebounded by 1.0% quarter on quarter (q/q)
in the third quarter of 2020 according to Eurostat's second
estimate, a slight upward revision from the initially reported 0.9%
q/q rise (which exceeded market expectations).
Still, as this followed successive q/q contractions, including
a record 3.0% collapse in the second quarter, eurozone employment
remained 2.2% below its fourth-quarter 2019 level despite the
third-quarter rebound.
This translates into a net loss of 3.6 million jobs, following
a 5.2-million decline over the first half of the year. By way of
comparison, employment fell by 4.2 million cumulatively over the
eight quarters from the first quarter of 2008 during the global
financial crisis.
On a year-on-year (y/y) basis, the contraction in eurozone
employment eased to 2.3% in the third quarter of 2020, versus a
record drop of 3.1% in the second quarter. The peak y/y decline
during the global financial crisis was a little over 2%.
Consistent with variations in economic structure, output
losses, and policy support, employment losses have diverged
markedly across the eurozone's member states.
Looking at the largest 11 member states, by far the biggest y/y
decline in employment in the third quarter came in Spain (-5.0%),
followed by France and Portugal (both -2.6%). The smallest declines
were in Belgium (-0.4%) and the Netherlands (-0.5%).
There have also been significant variations in eurozone
employment trends across sectors. Looking at the net adjustments in
levels of employment between the fourth quarter of 2019 and the
third quarter of 2020, the best-performing areas were real estate,
information and communications, construction, and public
administration. They all recorded net increases over the three
quarters.
In contrast, the other eight key sectors recorded significant
net job losses. The biggest declines by far were evident in
wholesale and retail (-4.5%), professional and scientific (3.6%),
and arts, entertainment, and recreation (-3.6%).
Surveys of businesses' employment intentions suggest that the
peak rates of decline in employment are behind us, including IHS
Markit's PMI data, although with the eurozone set for another GDP
contraction in the fourth quarter of 2020, labor market conditions
will remain challenging.
Germany's Federal Statistical Office (FSO) external trade data
for October (customs methodology, seasonally adjusted, nominal)
reveal export and import increases of 0.8% and 0.3% month on month
(m/m), respectively. The recent underperformance of imports needs
to be seen against the background of the surge in August (5.9% m/m)
- in level terms, exports as well as imports are roughly 6% below
the levels both one year ago and in February 2020. (IHS Markit
Economist Timo Klein)
The seasonally adjusted trade surplus, which had dipped
temporarily to EUR15.4 billion (USD18.7 billion) in August,
recovered further to EUR18.2 billion in October, thus approaching
its monthly average of 2019 (EUR18.9 billion) anew. This compares
with April's near 20-year low of EUR3.4 billion.
As in September, October's regional breakdown (see table below
for details) reveals a relatively uniform picture, with the
exception of outperformance by EU countries outside the eurozone.
This reflects the above-average economic resilience of Eastern
European EU members to knock-on effects of the pandemic during its
initial phase.
With respect to non-EU trade, exports to and imports from China
stood out positively at +0.3% and -3.3% year on year (y/y),
respectively. In contrast, exports to the United Kingdom declined
by 11.7% y/y and imports from there even fell by 17.6% y/y as
Brexit foreshadowing effects dampened matters, while trade with the
United States has increasingly been hurt by the deteriorating
pandemic situation (exports: -10.5% y/y; imports: -18.8% y/y).
In unadjusted terms, the trade and current-account surpluses
both slipped in October versus September. The y/y comparison looks
more favorable for the current account, given its increase from
EUR19.0 billion in October 2019 to EUR22.5 billion in October 2020
(enabled mostly by an improving balance for services), whereas the
surplus for merchandise goods declined from EUR21.3 billion a year
earlier to EUR19.4 billion.
Germany's external trade remained on an upward path in October,
but momentum waned compared with preceding months. Foreign demand
from China was still very supportive for exports but not as much as
in September. The resurgence of COVID-19 cases since October and
the ensuing renewed (partial) lockdown in November should lead to a
fresh setback for German trade volumes in the near term. However,
this must not be overstated because the administrative tightening
measures that have been imposed mostly affect the service sector
rather than manufacturing, which is much more dependent on
functioning international trade.
US battery start-up QuantumScape, which has the Volkswagen (VW)
Group as its major shareholder, says research data show that its
latest battery chemistry has the potential to charge twice as
quickly as the cells Tesla is using in the Model 3, according to a
Bloomberg report. The company's current prototype cell can be
charged to as much as 80% of full capacity in 15 minutes, almost
twice as fast as a Tesla Model 3. The company's published
performance data on its latest battery chemistry suggest that
QuantumScape's batteries could offer about 50% more miles than the
same battery electric vehicle (BEV) with current commercial battery
technology. They also can be charged 800 times with minimal
degradation, which is a current industry benchmark. VW made its
investment in Quantum Scape on the basis of the start-up's
impressive research results in the area of solid state battery
chemistry, which is widely tipped as affording a step change in
battery electric vehicle cell technology, which will massively
boost range and cut charging times. Solid state batteries have a
number of advantages over lithium-ion batteries, including low
flammability, higher electrochemical stability, higher potential
cathodes, and higher energy density as compared to liquid
electrolytes. They have the potential to supply more energy than
lithium-ion batteries which will increase range, reduce charging
times and improve safety. (IHS Markit AutoIntelligence's Tim
Urquhart)
Covestro says it now expects full-year 2020 EBITDA to total
€1.44-1.50 billion ($1.74-1.82 billion), compared with previous
guidance of €1.20 billion, due to better-than-expected business
conditions in the fourth quarter. Relatively strong margins in the
polyurethanes and polycarbonates businesses, in particular, are
behind the improved guidance. Covestro also expects full-year free
operating cash flow to total €400-550 million, compared with
guidance of €0-300 million previously, in line with the higher
EBITDA guidance. Core volumes are expected to decline 5-6% for the
full year, unchanged from the previous forecast. The company has
increased its full-year guidance twice since economic conditions
began to improve from the sharp COVID-19 downturn in June. The most
recent increase in guidance came in October. Covestro reported
improving sequential demand trends for the third quarter. In 2019,
Covestro generated full-year revenue of €12.4 billion and EBITDA of
€1.6 billion. (IHS Markit Chemical Advisory)
Polish ice cream exports reached EUR179million (USD216.8
million) in value during the first nine months of 2020; 10% higher
y/y - with full-year 2020 exports therefore set to break a new
record, according to preliminary data from Eurostat. The higher
value was achieved due to an increase in ice cream volume sales,
which in January-September 2020 increased by 7.3% to 80,500 tons.
Around 96% of the volume was destined for the EU, while extra-EU
deliveries took a 5% share in the total export volume. Extra-EU
exports had a 50% increase to 3,600 tons. The biggest increase was
recorded in exports to mature markets, where Polish ice cream was
already present, with shipments to Germany increasing by over 14%
y/y to 22,000 tons, and to France by 71% to 10,000 tons. Poland ice
cream exports, like its consumption, is characterized by
seasonality. In 2019, ice cream exports from March to August
accounted for 72% of the sales volume for the entire year. For this
reason, the export results after eight months of this year, to a
large extent show the shape of foreign demand in 2020. There are
many indications that it will be record-breaking in history. Much
higher demand was also recorded in the UK, where Poland exported
36.3% higher volumes than in the first nine months of 2019 and
amounted to 7,100 tons. In the context of the future sales of ice
cream to the country, it should be noted that if the EU does not
sign a trade agreement with the UK after the end of the Brexit
transition period (1 January 2021), an 8% customs duty rate will
have to be applied. Like other dairy industries, ice cream business
operators had to face the challenges of the development of the
COVID-19 pandemic: restricted demand in the foodservice sector,
shifts in sales channels and product categories. According to Paweł
Wyrzykowski, analyst in the agri-food sector at BNP Paribas Bank
Polska, the increased export demand was an opportunity for Polish
producers to compensate for the lower domestic retail sales in the
first half of the year. According to Nielsen data, the value of
retail ice cream sales in the first half of 2020 was 10% lower than
in the corresponding period last year. As a result, the revenues of
companies involved in the production of ice cream amounted to
PLN1.23 billion (USD333.6 million) and were only 0.7% higher than
in the previous year, according to Pont-Info data. (IHS Markit Food
and Agricultural Commodities' Jana Sutenko)
Russia's state technology investment company Rostec has
announced a debt consolidation plan regarding loans it has made to
AvtoVAZ, according to a Kommersant news agency report. The scheme
will effectively write off AvtoVAZ's debt to Rostec, which
currently stands at RUB20 billion (USD269.75 million). As a result
50% of the debt will be offset against the debt to OAT, one of
AvtoVAZ's main domestic suppliers. The other 50% will be allocated
to increase AvtoVAZ's capital, although it will not result in
growth of Rostec's stake in AvtoVAZ's charter capital as part of
measures to offset mutual claims. The completion of the procedure
for writing off the debts is being delayed due to a shift of
Netherlands-based Alliance Rostec Auto, which owns AvtoVAZ and
operates as a joint venture (JV) between Rostec and Renault, to
having a Russian jurisdiction. As a result, Rostec's stake in
AvtoVAZ will decrease from the current 32.4% to 25%, in a deal that
will improve the company's balance sheet and gearing, which will in
turn make borrowing from other sources easier. (IHS Markit
AutoIntelligence's Tim Urquhart)
Aramco and Baker Hughes start construction of non-metallics
plant in Saudi Arabia. Aramco and Baker Hughes will own the JV
50/50 and develop and commercialize a broad range of non-metallic
products for multiple applications in the energy sector. Both
companies signed a memorandum of understanding to create a
non-metallics JV in July 2019. Novel's new facility is being
developed at King Salman Energy Park (SPARK), in Saudi Arabia's
Eastern Province. Initially, the facility will produce onshore
non-metallic pipelines, including reinforced thermoplastic pipes,
from composite materials. (IHS Markit Upstream Costs and
Technology's Helge Qvam)
South Africa's GDP bounced back by 13.5% quarter on quarter
(q/q) during the third quarter. Economic growth is unlikely to
experience similar strong growth during the fourth quarter. (IHS
Markit Economist Thea Fourie)
South Africa's real GDP bounced back during the third quarter
from a contraction of 16.6% q/q in the previous quarter. The sharp
rebound in economic activity during the third quarter was not
enough to bring GDP back to the pre-COVID-19 virus level. Instead,
the country's headline GDP fell by 6.1% y/y during the third
quarter, leaving overall GDP down by 7.9% year on year (y/y) during
the first nine months of 2020.
All sectors in the South African economy recovered from the low
base in the second quarter, when harsh COVID-19 virus-related
lockdown measures were implemented alongside temporary business
closures. Sectors that showed the strongest gains include mining
and quarrying (contributing 11.8% percentage points to the
third-quarter growth), manufacturing production (16.2 percentage
points), and the wholesale and retail trade sectors (14.1
percentage points).
A strong rebound in household consumer spending (contributing
43.8 percentage points to the third-quarter GDP growth), followed
by exports of goods and services (38.2 percentage points)
positively affected demand-side GDP growth during the third
quarter. A strong inventory drawdown was further mitigated by a
lackluster return in import demand for goods and services over the
period. Fixed capital formation contributed only a meagre 5.2
percentage points to headline GDP growth during the third
quarter.
The rebound in economic activity during the third quarter
exceeded IHS Markit's initial estimates. We have been of the view
that fixed capital formation is unlikely to recover strongly in the
short term while growth will be propelled by household spending and
exports of goods over the period. The slow return in import demand
during the third quarter is likely to reflect ongoing global
supply-chain disruptions and ultimately leave overall GDP higher
than initially expected. Domestic demand and exports have been
supported primarily through a drawdown in inventories over the
period.
Asia-Pacific
Most APAC equity markets closed higher except for Mainland
China -1.1%; South Korea +2.0%, Japan +1.3%, India +1.1%, Hong Kong
+0.8%, and Australia +0.6%.
China's headline Consumer Price Index (CPI) deflation is
largely attributed to the high base effect of pork prices. With
core CPI and services prices remaining in inflation territory and
Producer Price Index (PPI) deflation narrowing, monetary policy is
set to continue to be held stable. (IHS Markit Economist Lei Yi)
Mainland China's Consumer Price Index (CPI) declined 0.5% year
on year (y/y) in November, falling into deflation territory for the
first time since 2009, according to a data release by the National
Bureau of Statistics. Month-on-month (m/m) CPI inflation continued
to edge down to -0.6% m/m, 0.3 percentage point lower than the
October reading.
By component, the 2% y/y food price deflation was the main
driver of the headline CPI decline in November. Sustained supply
restoration further widened pork price deflation to 12.5% y/y in
November, from 2.8% y/y in October. Although overall prices of
consumer goods declined 1% y/y, services price inflation remained
unchanged from October's reading, at 0.3% y/y. The core CPI
excluding food and crude oil rose by 0.5% y/y, unchanged for the
fifth straight month.
PPI deflation narrowed to 1.5% y/y in November, up 0.6
percentage point from October. Month-on-month, PPI inflation
increased from 0.0% to 0.5% in November, with 24 out of 40 surveyed
industrial sectors reporting month-on-month price gains, doubling
the month-ago number.
The pickup in global oil prices in November supported the
improvement in the headline PPI figure. Prices in oil-related
sectors, including petroleum and natural gas exploration and fuel
processing, rose month on month. Prices in the ferrous metals and
non-ferrous metals smelting and pressing sectors increased month on
month, with year-to-date price inflation of the latter sector back
in positive territory. Price deflation of consumer goods
manufacturing further expanded to 0.8% y/y, driven by the
disinflation in the food subcategory.
Cumulatively, the CPI increased 2.7% y/y through November,
compared with 3.0% y/y over the first 10 months of 2020. The PPI
deflated by 2.0% y/y over the first 11 months of 2020, unchanged
from the last release.
The latest CPI release poses slight downward revision risks to
our full-year CPI forecast, which currently stands at 2.8% y/y for
full-year 2020. Despite the headline deflation in November,
persistent core CPI and services price inflation suggests sustained
economic recovery; this growth momentum is expected to last through
2021. That said, the central bank is unlikely to stray from the
current track of fine-tuning monetary policy just to respond to a
pork price-induced CPI deflation.
Nestlé entered China's fast-growing market for meat
alternatives today (9 December) as it launched its plant-based
Harvest Gourmet brand while also inaugurating a new production
facility in Tianjin. The Swiss food giant said the range would
include chicken nuggets, kung pao chicken, braised meatballs,
braised pork belly, sausages and a spicy wok, all of which are a
spin on classic Chinese dishes and are designed to be cooked at
home. It also includes four products aimed at foodservice
customers: burger patties, chicken nuggets, beef mince and pork
mince. As demand for meat substitutes grows in China, several other
large companies have already made a move into the country's
alternative protein market. These include US-based firms such as
Beyond Meat and local players such as Starfield. Harvest Gourmet
products will be made at a new production facility in Tianjin,
which is Nestlé's first plant-based production site in Asia. At a
launch event in Beijing, Qureshi said the new launch showed the
company's commitment to propelling China to the forefront of
plant-based development. Nini Chiang, Nestlé GCR's CMO and Head of
Confectionary and Plant-Based Food, went on the highlight how 2020
has seen a surge in interest among Chinese consumers for
environmentally-friendly meat alternatives. Harvest Gourmet's
official flagship store will officially open on Tmall in December,
with plans afoot to gradually enter Hema offline stores in Beijing
and Shanghai starting from the end of 2020. Nestlé already has a
strong plant-based presence in Europe with Garden Gourmet and in
the US with Sweet Earth brands. The group's Harvest Gourmet range
is already available in Australia. (IHS Markit Food and
Agricultural Commodities' Max Green)
Volkswagen (VW), along with its joint-venture (JV) partner JAC
Motors, will invest CNY20 billion (USD3.06 billion) in an electric
vehicle (EV) plant in Hefei, in eastern China's Anhui province,
according to China Daily. The plant will be set up by the end of
2022, with vehicles due to roll off the assembly line from 2023.
The two partners have also announced that their JV has changed its
name to Volkswagen (Anhui) from JAC Volkswagen. With a 75% stake in
the JV, VW has taken over management control at Volkswagen (Anhui).
The company has also inaugurated its new research and development
(R&D) center in China. It is expected to employ 500 engineers
and technicians by 2025. VW CEO Dr Herbert Diess said, "Volkswagen
Anhui is a promise for stronger partnership and e-mobility power in
China. Within the next three years, we can expect state-of-the-art
MEB production, a new full-electric portfolio and technology
solutions from its R&D center in Anhui. This year's investment
of around one billion Euro accelerates the progress within the
joint venture. Volkswagen Anhui will strengthen China's role in the
electrification and digitalization of the Volkswagen Group." VW
aims to expand the local R&D competence in the localization of
MEB-based derivatives and to drive global synergies. The new
R&D center is expected to play a key role in growing and
optimizing the automaker's new-energy vehicle (NEV) portfolio to
address the differing needs of Chinese customers. (IHS Markit
AutoIntelligence's Nitin Budhiraja)
Headwinds from the resurgence of COVID-19 are likely to weigh
on Japan's near-term recovery, but an economic package announced
recently is likely to support business and employment. (IHS Markit
Economist Harumi Taguchi)
Japan's real GDP growth for the third quarter was revised up to
5.5% quarter on quarter (q/q; or 23.9% q/q annualized) from 5.2%
q/q (or 22.7% q/q annualized), following a 29.2% q/q annualized
drop (downward revision from a 28.8% q/q decrease). The historical
revision included a benchmark-year revision to 2015 (from 2011) and
some methodology changes. The larger-than-expected rebound
reflected upward revisions for domestic demand, particularly for
private consumption and private capital expenditure. The solid rise
in domestic demand was partially offset by a downward revision of
imports largely because of the inclusion of copyright services in
the national account.
Private consumption was revised up from 2.1% q/q to 2.6% q/q,
largely reflecting stronger rises for spending in durable goods and
services. While the improved increase in spending in durable goods
was due partially to a downward revision for the second quarter,
the upward revision in spending in services reflects the inclusion
of September data. The resumption of economic activities in
September (in line with easing social distancing guidelines and
government subsidies) lifted spending in services such as
amusement, eating and drinking, and domestic travel.
The contraction for investment in housing softened to 5.8% q/q
from a 7.9% q/q drop thanks to a change in methodology, as the
revision now includes refurbishing and renovation works and the
sales margins of built-for-sale houses. While the narrower
contraction of capex (down 2.4% q/q from a 3.4% q/q drop) reflected
the latest supply-side data, the continued decline was attributed
to four consecutive quarters of declining investment in machinery
and equipment (down 5.2% q/q) and a 3.7% q/q drop in intellectual
property products. These weaknesses were partially offset by a 9.6%
q/q rise in investment in transport equipment because of the
improved supply chain and the resumption of economic activity.
While the revision was larger than IHS Markit had expected, we
forecast that upward momentum will weaken in the fourth quarter of
2020 and probably in the first quarter of 2021 because the
resurgence of COVID-19 is likely to make consumers cautious over
the short term. Lockdowns in the European Union and some parts of
the US could suppress Japan's exports. Japan's government has
suspended travel subsidies for areas experiencing high COVID-19
infections, and regional governors have asked bars and pubs to cut
their business hours. Requested guidelines on end-of-year sales
have dampened retailers, bars and pubs, and travel-related
businesses. The diffusion indices of current and future business
conditions in the November Economic Watchers Survey weakened by 8.9
points to 45.6 and by 12.6 points to 36.5, respectively.
Japan's real household expenditures rose by 1.9% month on month
(m/m) in October for the third consecutive month of increase.
Year-on-year (y/y) growth also turned positive with a 1.9% rise,
although this was partially due to low base effects, as household
expenditures dropped sharply after the drop-out of front-loaded
demand before the consumption tax increase in October 2019. (IHS
Markit Economist Harumi Taguchi)
The improvement was largely thanks to continued spending
increases in culture and recreation and rebounds in spending for
education and medical care, transportation and communication,
furniture and household utensils, and housing.
Monthly nominal cash earnings declined for the seventh
consecutive month in October, but the contraction continued to
narrow, easing to -0.8% y/y from -1.3% y/y in September. Growth for
scheduled cash earnings turned positive with a 0.3% y/y uptick,
while the decline in non-scheduled cash earnings continued with an
11.7% y/y drop in line with the resumption of economic activity,
which eased decreases in non-scheduled hours worked. However,
growth in the number of regular employees softened to 0.6% y/y,
reflecting a weaker increase in the number of full-time
employees.
Although the government's travel and other subsidies and easing
social distancing guidelines encouraged consumers to leave their
homes and resume household expenditures in October, the resurgence
of COVID-19 is likely to weigh on the recovery over the short term.
Limits on the operating hours of drinking places and
self-containment measures will dampen wages in eating and drinking
services and living-related service; this could bring headwinds for
the recovery for wages.
The resumption of industrial production and business activity
led to solid rises in Japan's machinery orders in a broad range of
industries in October. Private capital expenditure (capex) is
likely to start improving. (IHS Markit Economist Harumi Taguchi)
Japan's private machinery orders (excluding volatiles), a
leading indicator for capex, rose by 17.1% month on month (m/m) in
October following a 4.4% m/m drop in September. The solid increase
reflected growth in orders from manufacturing and non-manufacturing
(excluding volatiles), with rises of 11.4% m/m and 13.8% m/m,
respectively.
The improvement in private machinery orders from manufacturing
largely reflected rebounds in orders from non-ferrous metals,
automobiles, and other transport equipment, as well as continued
increases in orders from chemical products, general-purpose and
production machinery, and miscellaneous manufacturing groupings.
The improvement in orders from non-manufacturing was thanks largely
to continued increases in orders from finance and insurance,
wholesale and retail trade, and transportation and postal
activities.
The October results were stronger than IHS Markit had expected,
and probably mean that the resumption of economic activity has
lifted capacity utilization and corporate cash flows. Although
private machinery orders are volatile month by month, continued
rises in several industries signal that capex will begin to pick
up.
Toyota has launched the completely redesigned Mirai fuel-cell
electric vehicle (FCEV) in Japan, according to a company statement.
The vehicle has three high-pressure hydrogen tanks, instead of two
in the previous model. The compact, high-output fuel-cell stack is
located under the hood (bonnet), and the motor and drive battery
are in the rear. Optimal placement of the fuel-cell stack,
including the hydrogen fuel tank, helps achieve an optimal 50:50
weight distribution between the front and the rear. The model also
features a new front and rear suspension system to achieve light
and clean steering, a suitable vehicle posture when cornering, and
a high-quality, comfortable ride. The 2021 Mirai concept indicates
a dramatic shift from the first generation and promises more in
terms of user-experience technology, with a redesigned user
interface and interior, and a new exterior design language. The
automaker debuted the first version of the Mirai in 2014 as the
first mass-market hydrogen fuel-cell car. Its sales have increased
year on year, rising from about 500 units in 2015 to around 2,477
units in 2019. The upcoming model will be based on the GA-L
platform, replacing the existing MC-M platform. Although the Mirai
is a low-volume model, Toyota is more concerned about continuing
the development of the technology. Currently, the Mirai is sold in
Japan, the United States, and certain countries in Europe.
According to IHS Markit forecasts, we expect global sales of the
Mirai to reach around 1,400 units in 2020 and around 7,400 units in
2021. (IHS Markit AutoIntelligence's Nitin Budhiraja)
Hyundai has signed a memorandum of understanding (MOU) with
South Korean-based LS Electric, a power system and automation
company, to develop a fuel-cell power generation system, according
to a company press release. Under the MOU, Hyundai will provide its
proprietary fuel-cell system and technical support, while LS
Electric will be in charge of manufacturing a power generation
system and building integrated solutions. Hyundai's fuel-cell
system is a 95-kW system installed in its Nexo hydrogen electric
vehicle and its hydrogen-powered trucks and buses. The two
companies plan to introduce a power generation system for pilot
projects in 2021, after demonstrating the power plant. "Hyundai
Motors is pursuing application to various fields such as passenger
cars and commercial vehicles, as well as ships and trains based on
the hydrogen fuel cell system. It is the first step toward
full-scale expansion," said Hyundai Motor Group executive
vice-president and head of the fuel-cell business division, Kim
Se-hoon. (IHS Markit AutoIntelligence's Jamal Amir)
US-based e-commerce giant Amazon is reportedly considering an
investment infusion of around USD100 million into Apollo Pharmacy,
a standalone business of the Apollo Hospitals Group (India), in a
move that would give it "access to Apollo's 3,700 front-end
pharmacy business for hyperlocal deliveries", reports local news
source The Economic Times. The source cites unnamed sources with
knowledge of the deal as stating, "The due diligence just got done
and it seems to be a USD100-million investment", and claiming that
PricewaterhouseCoopers (PwC) has undertaken the due diligence
process. Although reports of a planned investment by Amazon have
not been confirmed by the company itself, the speculation comes
amid mounting competition in the burgeoning e-pharmacy sector in
India. In August, Reliance Industries, an Indian multinational
conglomerate company that includes the bio-pharmaceuticals Reliance
Life Sciences subsidiary, acquired a majority stake in the online
pharmacy outfit Netmeds (India) for INR6.2 billion (USD83 million).
Amazon itself had announced its foray into India's online
pharmaceutical retail space earlier that same month, with the
launch of a trial of a new service, named Amazon Pharmacy, in
Bengaluru. In February 2020, Indian management consultancy firm
RedSeer Consulting projected that the e-pharmacy sector will grow
to a value of around USD16 billion by 2024-25. (IHS Markit Life
Sciences' Sacha Baggili)
The Australian economy has, like the rest of the world,
experienced a steep decline in economic activity as a result of
COVID-19 over the course of 2020. However, different parts of the
economy have suffered in different ways and to varying degrees. To
gain a deeper insight into these sectoral trends, we present new,
previously unpublished, PMI data that track business output and
other key metrics across 15 industry sectors. (IHS Markit Economist
David Owen)
These PMI series include data for six broad industry sectors
from our manufacturing and services survey panels where sample
sizes are large enough to give a reliable indicator for output
trends. Using the IHS Markit sector classifications, these include
basic materials, consumer goods, consumer services, financials,
industrials and technology.
In April, when global containment measures designed to reduce
the spread of COVID-19 were the most severe, four of the six broad
sectors saw record drops in output (since Australia PMI data was
first collected in May 2016), with consumer goods registering its
sharpest fall during May. Basic materials was the only sector to
not see a record downturn in the spring.
As was also the case for published global and regional sector
PMI data, consumer services firms across Australia were notably the
worst-hit by lockdown measures during April. That said, when
restrictions were eased, consumer services activity rose markedly
and at the quickest pace across all six sectors in June.
Employment PMI data meanwhile showed that consumer services
firms also reported the strongest reduction in jobs as a result of
lockdown measures in April. Most sectors registered steep declines
in employment, with technology the only exception as firms saw a
more modest decrease in staffing. Unlike output, however,
employment has largely continued to fall, often reflecting efforts
among companies to cut costs and reduce excess capacity.
More recently, PMI data have shown that the economic impact of
the COVID-19 pandemic lessened over the Australian spring, with a
majority of the broad sectors having posted growth in output in
each month since September. Five of the six sectors saw a rise in
output during the latest survey period, while basic materials firms
reported an unchanged level of production. Growth was strongest
across the financial sector, overtaking industrials (which
registered the second-quickest rate of expansion).
Posted 09 December 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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