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US and European equity markets closed higher across both regions
on the heels of Tuesday's major selloff, while APAC markets were
all lower on the day. European/US government bonds and the US
dollar were all weaker, while iTraxx and CDX high yield closed
tighter. Oil rallied to close higher and recover some of
yesterday's losses and gold closed higher for a second consecutive
day. COVID-19 infection rates in the US continue to decline, which
could translate into an improvement in tomorrow's report on US
weekly initial claims for unemployment insurance.
Americas
US equity markets closed higher today; Nasdaq +2.7%, S&P
500 +2.0%, DJIA +1.6%, and Russell 2000 +1.5%.
10yr US govt bonds closed +3bps/0.71% yield and 30yr bonds
+4bps/1.46% yield.
CDX-NAIG closed -3bps/66bps and CDX-NAHY -14bps/370bps.
DXY US dollar index closed -0.2%/93.24.
Gold closed +0.6%/$1,955 per ounce.
Crude oil closed +3.5%/$38.05 per barrel.
California reported 2,676 new coronavirus cases, the lowest
single-day tally since mid-June, and well below the 14-day average
of 4,630. The state recorded 32 new deaths, less than the 14-day
average of 107. The average rate of positive tests over the past 14
days reached 4.3%, a three-month low. The data may partly reflect
delays in laboratory reporting over the long holiday weekend.
(Bloomberg)
The July JOLTS report illustrates the continued recovery in the
US labor market from the resumption of economic activity across the
country. (IHS Markit Economist Akshat Goel)
The number of hires decreased to 5.8 million in July, moving
towards the pre-pandemic steady state level. The number of job
openings increased to 6.6 million in July, continuing its recovery
from a low of 5.0 million in April.
Job separations inched up to 5.0 million in July but are well
below the all-time high of 10.0 million reached in April.
The layoffs and discharges rate decreased to 1.2% in July; this
is roughly equal to the two-year pre-pandemic average of the rate.
The quits rate, a valuable indicator of the general health of the
labor market, continued to recover and rose to 2.1%; it is still
below its two-year pre-pandemic average of 2.3%.
Over the 12 months ending in July, there was a net employment
loss of 8.2 million.
There were 2.5 workers competing for every job opening in July.
In the two years prior to the pandemic, the number of job openings
exceeded the number of unemployed in every report. This report
illustrates the continued recovery in the labor market from the
gradual resumption of economic activity across the country.
Mall owners Simon Property Group Inc. and Brookfield Property
Partners LP agreed to acquire J.C. Penney Co. out of bankruptcy for
$800 million, keeping the beleaguered department-store chain alive
amid the coronavirus pandemic. The landlords will own about 490 of
Penney's remaining 650 stores outright, a person familiar with the
matter said. They will lease 160 other stores plus distribution
centers from the lenders, which will own those assets in return for
forgiving some of Penney's $5 billion in debt. (WSJ)
Huntsman says its polyurethanes segment is performing well
above expectations owing to continued strength in
construction-related markets, faster improvement in automotive
demand, and higher overall margins. The company says third-quarter
results in its other segments are still roughly in line with
previous guidance. During its second-quarter earnings call on 28
July, Huntsman forecast a 30% year-over-year (YOY) decline in the
segment's third-quarter adjusted EBITDA, but the company now
expects a figure close to the year-ago value of $146 million.
During the second quarter of 2020, the polyurethanes segment turned
in adjusted EBITDA of $31 million, down 80% YOY, and revenue of
$730 million, down 28% YOY, both reflecting lower average selling
prices for methylene di-para-phenylene isocyanate (MDI) and lower
overall polyurethanes sales volumes.
Uber has announced a target of 2040 for 100% of its
ride-hailing fleet globally to be zero-emission vehicles. By 2030,
the company has set a goal of converting all its vehicles to
electric vehicles (EVs) in the United States, Canada, and Europe.
To achieve this, the company has earmarked USD800 million on
programs to help drivers switch to EVs by 2025, including discounts
for vehicles bought or leased from partner automakers. Uber has
partnered with General Motors (GM) to provide special pricing and
financing for Uber drivers in the US and Canada. GM will offer
employee pricing for the purchase of a new 2020 Chevrolet Bolt EV,
as well as offering US drivers access to 20% below manufacturer's
suggested retail price (MSRP) for accessories, including at-home
charging equipment. The company will also work with car rental
company Avis to make EVs more accessible for drivers to rent. Uber
has formed a similar partnership with Renault-Nissan to provide
attractive offers on EVs to drivers in Europe, notably in the
United Kingdom, France, the Netherlands, and Portugal. With this
news, Uber announced the launch of the Uber Green surcharge in 15
US and Canadian cities. Uber drivers running hybrid EVs will get an
extra 50 cents after every Uber Green trip is completed, while
those running a battery EVs will receive an extra USD1.50. By the
end of the year, Uber plans to expand Uber Green in 65 cities
around the world. (IHS Markit Automotive Mobility's Surabhi Rajpal
and Stephanie Brinley)
US startup Ouster, a digital lidar sensor provider, has raised
USD42 million in a Series B funding round. The round was backed by
existing investors including Cox Automotive, Fontinalis Partners,
and Tao Capital Partners, reports TechCrunch. The capital infusion
will be used for product development and to ramp up sales globally.
Angus Pacala, CEO of Ouster, said, "Ouster's digital lidar
architecture gives us fundamental advantages that are winning over
customers in every market we serve. Digital CMOS technology is the
future of lidar and Ouster was the first to invent, build, patent,
and commercialize digital lidar." Ouster, a San Francisco-based
technology company that is engaged in the development of 3D sensing
solutions and lidar sensors for autonomous vehicles, robotics, and
drones. Lidar sensors are necessary for autonomous vehicles as they
measure distance via pulses of laser light and generate 3D maps of
the world around them. The company has raised USD140 million to
date. In January, Ouster launched its second-generation lidar
sensors, which included three new 128-beam models that offer better
resolution in comparison to its previous 64-beam models. The
company announced that its 12-month revenue has grown by 62%, with
third quarter bookings up 209% year on year. Ouster has over 800
customers across 15 markets and has offices in Hamburg and
Frankfurt in Germany, Hong Kong and Suzhou in China, and Paris in
France. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Enterprise Product Partners has announced that is has cancelled
the Midland-to-ECHO 4 crude oil pipeline project ("M2E4") and will
use existing pipelines to support its transportation agreements.
The cancellation of M2E4 will reduce Enterprise's aggregate capital
expenditures in 2020, 2021 and 2022 by USD800 million. The 700 km,
30-inch, 450,000b/d project was announced in the fall of 2019 and
was originally expected to be in service by mid-2021. (IHS Markit
Upstream Costs and Technology's Amy Groeschel)
The lifting of global containment measures is boosting Canada's
demand-side factors, but a growing first wave of infections in some
regions and the onset of a second wave is reducing the odds of a
sustained lift in demand. These downside factors will play into the
Bank's upcoming October Monetary Policy Report (to be released on
28 October). (IHS Markit Economist Arlene Kish)
Domestically, low interest rates and fiscal policy measures are
supporting a grand—if partial—consumer and residential
sector rebound in the third quarter thanks to pent-up demand.
Non-residential investment is soft as business confidence
measures and investment have yet to take off.
Canadian exports are gaining but remain below pre-pandemic
levels.
The Bank of Canada will keep the overnight rate at 0.25% for a
while longer when the inflation rate hits 2% on a sustainable
basis.
The overnight policy rate is unchanged at 0.25%. The Bank rate
of 0.50% and the deposit rate of 0.25% were also unchanged.
Large-scale asset purchases of at least $5 billion per week
continues and will remain in place if needed.
The second-quarter plunge in economic activity was near the
bank's central forecast scenario and the sharp rebound in the third
quarter is coming in stronger than expected in the July Monetary
Policy Report.
Total housing starts in Canada increased 6.9% month on month
(m/m) to 262,369 units. (IHS Markit Economist Jeannine Cataldi)
Overall urban housing starts increased 7.1% m/m, as multifamily
units, hitting an all-time high, showed strong growth, at 9.1%,
while single-family starts declined 1.0% m/m. Rural starts grew by
4.5% m/m.
Ontario and British Columbia were the only provinces to report
higher levels of housing starts in August m/m.
Year-to-date housing starts are above 2019 levels in Ontario,
Quebec, Saskatchewan, and New Brunswick.
With strength in both July and August, real residential
construction spending is expected to surpass year-earlier levels in
the third quarter.
Housing starts growth in Canada was led by the multifamily
segment, which grew 9.1% m/m in August. Ontario saw an increase in
multifamily starts of 49.3% m/m, reaching 92,006 units. British
Columbia also saw growth in the multifamily segment, expanding 6.9%
m/m. The largest declines were in Saskatchewan and Nova
Scotia.
Single-family starts declined by 1.0% m/m in August, after
increasing 10.4% m/m in July. Starts in Quebec reversed course and
fell by 12.1% m/m after growth of 9.8% m/m in the previous month.
Ontario, which saw starts surge last month by 17.1% m/m, leveled
off in August with a gain of just 0.7% m/m.
Copec Voltex, a subsidiary of Copec S.A., an energy and
mobility company, has announced the migration of its electric
vehicle (EV) charging infrastructure to Driivz, an Israeli EV
charging start-up. According to company sources, the Driivz
technology will enable Copec Voltex to continue to deliver
electromobility to Chile's citizens, in a multi-year deal ensuring
sustainable resource management through an integrated cloud-based
platform. The platform includes EV charging operations, network
management, energy management, industry-specific billing, and
driver self-service tools. Doron Frenkel, founder and CEO at
Driivz, said, "Copec Voltex is taking a leadership role in
expanding EV charging in South America." He added, "We are happy to
support Copec Voltex's vision of building a more resilient and
sustainable future for everyone, while enabling them to provide
their customers with a reliable, advanced, easy, and convenient EV
charging experience." Driivz was established in 2012 and offers a
cloud-based end-to-end EV charging operating solution for
operators, users, and utilities. This includes all aspects of EV
deployment from charging, account management, and driver billing to
onsite power management, which allows businesses to optimize output
to chargers in line with site energy demand and costs. (IHS Markit
AutoIntelligence's Tarun Thakur)
Europe/Middle East/Africa
European equity markets closed higher across the region;
Germany +2.1%, Italy +2.0%, France/UK +1.4%, and Spain +1.0%.
Most 10yr European govt bonds closed lower except for Italy
-2bps; UK +5bps, Germany/France +3bps, and Spain +1bp.
iTraxx-Europe closed flat/53bps and iTraxx-Xover
-16bps/312bps.
Brent crude closed +2.5%/$40.79 per barrel.
In July 2020, on a seasonally and working-day-adjusted basis,
Dutch manufacturing output was up by 2.9% month on month (m/m), an
acceleration from an increase of 2.6% m/m in June. On an annual
basis, output was down by 5.7% year on year (y/y) and by 5.9%
compared with February, prior to the impact of the COVID-19-virus
pandemic. (IHS Markit Economist Daniel Kral)
On a seasonally unadjusted basis, in July average daily output
of the Dutch manufacturing sector was down by 5.8% y/y. On a
three-month moving average basis, output was down by 9.2% y/y - an
improvement from 10.9% in June.
In July, most major sub-components were a drag in annual terms.
The biggest drops were recorded in repair and installation of
machinery, which was down by 21.9% y/y; metals, down by 15.2% y/y;
and transport, down by 13.0% y/y.
At 52.3 in August, the Dutch manufacturing purchasing managers'
index has improved significantly since the May low of 40.5. The
output sub-index jumped to 54.7, indicating a continued strong
rebound in output in the short term.
The latest output and survey data reinforce our baseline of a
strong, but partial, bounce back in the third quarter after a
record contraction in the previous quarter. The manufacturing
sector benefits from the reopening of economies mid-year and a
recovery in international trade.
State Secretariat for Economic Affairs (SECO) data reveal that
Switzerland's seasonally adjusted unemployment increased by just
638 people, or 0.4% month on month (m/m), to 156,152 in August (see
table below). This follows a level of 155,514 in July, revised up
by about 500. While these numbers signal the beginning of a
stabilization, they remain above the previous cycle's peak near
150,000 (mid-2016) and are around 50% above the low point of around
103,000 seen in mid-2019. (IHS Markit Economist Timo Klein)
The seasonally adjusted unemployment rate, which had hovered at
17-year lows of 2.3% in 2019, remained at 3.4%. Upward momentum has
slowed down as expected, enabled by the easing of administrative
restrictions since May. The cyclical high of 4.1% seen in 2009 due
to the global financial crisis (GFC) appears unlikely to be reached
this time, although some upward potential remains in the pipeline
owing to an expected increase in company insolvencies in late 2020
and early 2021 once fiscal support measures are scaled back. Note
that the Swiss unemployment rate is measured against a fixed labor
force figure used as the denominator, which is currently at
4,636,100 (2015-17 average; used for rates since January
2017).
Among other labor market indicators, seasonally adjusted job
vacancies are recovering now. They increased by 4.5% m/m to 31,345
in August, with July's level additionally being revised up
modestly. Owing to a base effect, the year-on-year (y/y) decline
decreased slightly from -8% in July to -9% in August, however.
The number of short-time workers - lagging by two months and
unadjusted for seasonal variations - was down sharply in June.
Having reached an all-time high of 1,077,000 in April and declined
to 891,000 in May, the level plunged by 45.2% to 488,312 in June.
This compares with a mere 4,000 in February. The number of lost
working hours plummeted even more strongly in June. Following
April's peak of 90.2 million hours and 57.9 million hours in May,
the level dropped by another 51% to 28.4 million hours.
Nevertheless, this is still six times larger than the maximum
reached during the GFC in 2009, reflecting the huge impact that the
COVID-19 virus pandemic has had on the service sector this
time.
Germany's Agriculture Ministry says it has found a suspected
case of African Swine Fever (ASF) in wild boar carcasses - a
development with major implications for the global pigmeat
industry. The possible infection was found in the state of
Brandenberg, a few kilometers from the border with Poland, where
ASF has been present since 2014. Further tests are being conducted
and German Agriculture Minister Julia Kloeckner will provide more
information as it becomes available on Thursday, according to a
ministry statement. If confirmed, this would be Germany's first
case of ASF - a disease which has already hit ten other EU member
states, while also causing huge losses in Asia and Africa. Based on
past experience, an outbreak would lead several major markets to
close their doors to German pork. Several Asian countries,
including China, Japan and South Korea, normally opt to block
imports from entire countries affected by ASF rather than just the
affected regions. Once the disease is pinned down to a specific
area however, Germany would still be free to export to many other
parts of the world, which recognize EU regionalization
arrangements. Germany has been ramping up defenses against ASF
since the disease spread to western Poland in March 2020. Poland
has already reported 82 cases of ASF on pig farms this year and
more than 3,000 in wild boar. Although the majority of affected
properties are small farms with only a handful of animals, one
recent case was on a property with almost 6,500 pigs. (IHS Markit
Food and Agricultural Commodities' Max Green)
Tesla plans to use giant aluminum casting machines to build the
Model Y in Germany, reports Reuters, citing a Twitter post by CEO
Elon Musk in August. According to the report, Musk stated that the
company intends to replace 70 components glued and riveted into the
electric vehicle (EV)'s rear underbody with a single module made
using an aluminum casting machine. In addition, Reuters reports
unnamed sources as saying that Tesla's next target is to use the
machine to address the vehicle's front module and other parts. On
Twitter, Musk posted, "Will be amazing to see it in operation!
Biggest casting machine ever made. Will make rear body in single
piece, including crash rails." Additionally, a blog that focuses on
Tesla has reported that the company's Gigafactory under
construction in Berlin-Brandenburg, Germany, is to receive eight
large aluminum casting machines, which are being called "Gigapress"
machines. According to Reuters, the Gigapress machines will be
supplied by Italian company IDRA and the machines are the size of a
small house. However, reportedly, the supplier declined to comment
on the matter. Tesla's manufacturing efforts have long been aimed
at simplifying production, and the use of aluminum castings
potentially will reduce the need to connect components, while
getting around some of the difficulties of aluminum stampings.
Although Musk referred to the machine on Twitter, Tesla has not
confirmed when the new casting machines will be installed. (IHS
Markit AutoIntelligence's Stephanie Brinley)
Aeva, a start-up that develops sensing and perceptions
paradigms for autonomous vehicles (AVs), has partnered with German
automotive industry supplier ZF Friedrichshafen to put the sensors
into production. Aeva provides a unique lidar solution by employing
frequency modulated continuous wave (FMCW) technology that can
measure distance as well as instant velocity without losing range.
Under this partnership, Aeva will develop core sensing
functionality, performance, and algorithms of FMCW lidar and ZF
will produce an "automotive grade" sensor that meets the carmaker's
requirements. Soroush Salehian, co-founder of Aeva, said, "From
early on we have believed in building an ecosystem of the world's
most capable partners across the industry and this partnership is
one part of that plan. ZF's capability as one of the largest
Tier-1s globally with expertise in automotive scale production of
sensing systems is a key step to accelerating the introduction of
safe and scalable autonomous vehicles." ZF is increasingly
positioning itself as a supplier of complete systems for AV
functions and is collaborating with other players to expand its
presence in the market. This year, ZF partnered with TuSimple to
co-develop sensors required for autonomous trucks' operation, such
as cameras, radar, lidar, and a central. ZF has confirmed plans for
a Level 4 automation system for commercial vehicle applications,
which it expects to introduce in 2024 or 2025. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
After some brief respite in July, the Danish passenger car
market declined again during August. According to the latest data
published by the Danish Car Importers' Association (De Danske
Bilimportører), registrations declined by 5.8% year on year (y/y)
to 17,608 units last month. (IHS Markit AutoIntelligence's Ian
Fletcher)
Looking at the August results by segment, there were mixed
performances. Traditional types of passenger cars - hatchbacks,
sedans, and station wagons (estates) - mainly recorded steep
declines.
The smallest A segment posted a drop of 26.2% y/y to 1,497
units, while the compact C and mid-size D segments recorded falls
of 35.1% y/y to 2,212 units and 35.6% y/y to 1,327 units,
respectively.
The sub-compact B segment improved by 14.8% y/y to 4,815 units,
while the standalone sport utility vehicle (SUV) category witnessed
a jump of 19.6% y/y to 6,918 units.
When the SUV category is broken down by segment, we can see
that it was the sub-compact B segment that lifted sales in this
category, leaping 94.3% y/y to 4,011 units during the month.
The August decline means that registrations in the year to date
(YTD) are now down by 20.7% y/y at 124,974 units, compounded by the
COVID-19 virus-related declines earlier in the year.
Data for light commercial vehicle (LCV) registrations show a
decline of 10.8% y/y in August to 2,723 units, while YTD sales
stand at 18,704 units, down 15.4% y/y.
Danish registrations of medium and heavy commercial vehicles
(MHCVs) contracted by 14.8% y/y to 299 units in August and are now
down by 31.5% y/y at 2,442 units in the YTD.
Statistics Sweden (SCB) reports that Sweden's private-sector
production grew by 3.2% month on month (m/m) in July, after growth
of 1.6% m/m in both May and June. On an annual basis, production
was down by 4.1% year on year (y/y) in July, a significant
improvement compared with June (-8.5% y/y). (IHS Markit Economist
Daniel Kral)
On a monthly basis, the main driver of growth in July was
services, up by 4.5% m/m, followed by industry, up by 3.4% m/m.
Construction declined for the second consecutive month, by 0.8% m/m
in July, although its performance was largely unaffected by the
COVID-19-virus pandemic since March.
On an annual basis, the main drag in July came from industry,
down by 6.5% y/y, albeit an improvement from -9.1% in June, and
services, down by 3.5% y/y, albeit an improvement from -8.3% y/y in
June. The decline in construction was relatively mild, at just 1.2%
y/y.
On a cumulative basis, private-sector production in July was
down by 5.2% compared with January. Industry was down by 7.3%,
services down by 5.2%, while construction was up by 6.8%.
Leading confidence indicators suggest that the recovery
continued in August. The strong performance and positive leading
indicators present an upside risk to our baseline of a partial
rebound of around 2.5% quarter on quarter (q/q) in the third
quarter of 2020, after a record drop of 8.3% q/q in the second
quarter. For the full year, we expect the Swedish economy to
contract by less than 5%, among the best in Europe.
Norwegian passenger car registrations slipped back during
August, according to the latest data published by the country's
Road Traffic Information Council (Opplysningsrådet for
Veitrafikken: OFV). Registrations in this market fell by 10.5% y/y
to 10,802 units last month. The leading brand during the month was
Volkswagen (VW) with 1,112 units, although its registrations
plummeted 51.3% y/y. By contrast, Audi in second place posted an
increase of 24.2% y/y to 861 units, while Mercedes in third saw its
sales leap 242.3% y/y to 849 units. Elsewhere in the market,
registrations of light commercial vehicles (LCVs) of up to 3.5
tonnes fell 36.4% y/y to 3,015 units during August, meaning that
their year-to-date (YTD) total is now down 26.5% y/y at 19,805
units. At the same time, medium and heavy commercial vehicle (MHCV)
registrations plummeted by 40.5% y/y to 446 units in August,
resulting in their YTD registrations falling by 18.5% y/y to 4,177
units. (IHS Markit AutoIntelligence's Ian Fletcher)
At its September meeting, the National Bank of Kazakhstan (NBK)
decided to keep its base interest rate unchanged at 9.0%, while
keeping the interest-rate corridor at +/-1.5 percentage points.
This decision followed a 50-basis-point cut in July, when the
spread between interest rates for standing facilities for liquidity
provision and liquidity withdrawal for banks was also narrowed by
50 basis points on either side. (IHS Markit Economist Venla Sipilä)
The board of the NBK identified inflation risks due to high and
weakly anchored inflation expectations, increased volatility in
financial markets caused by a rising risk of international
sanctions against Russia, an increased likelihood of a slower
recovery in oil demand than previously expected, and a greater risk
of additional economic stimulus in the form of fiscal and
quasi-fiscal stimulus. On the other hand, weakening economic
activity, in particular lackluster consumer demand, and an expected
fall in global food prices will have a disinflationary impact.
According to the board, stable rates balance these opposing
inflation risks, paving the way for a gradual deceleration of
inflation in the medium term. The latest inflation data from the
State Statistics Agency show consumer price inflation in July
edging down marginally to 7.0% year on year (y/y), from 7.1% y/y in
June. Food-price growth made the greatest contribution to price
growth, while the reintroduction of quarantine measures in response
to the COVID-19 virus pandemic suppressed non-food inflation.
The NBK has lowered its GDP forecast for this year, now
expecting a contraction of 2.0-2.3% in 2020 instead of 1.8%. It
expects a recovery to growth of 3.5-3.8% in 2021. The
reintroduction of COVID-19 virus-related lockdown measures in
July-August suppresses the outlook for consumer activity, while the
contraction in fixed capital investment appears to be steeper than
previously envisaged.
The Dubai Electricity and Water Authority (DEWA) has announced
the facilitation of electric-vehicle (EV) charging via smart app in
Dubai, reports Gulf News. Users can now charge their electric
vehicles by scanning a QR code, which will be placed at 240
charging stations across Dubai. According to the source, EV Green
Charger customers will still be able to use the conventional Green
Charger cards at DEWA charging stations. DEWA had launched the EV
Green Charger initiative in 2015 in order to encourage electric
vehicle adoption within Dubai and support sustainable
transportation. DEWA has currently installed over 240 EV Green
Charging stations all over Dubai. (IHS Markit AutoIntelligence's
Tarun Thakur)
South Africa's real GDP contracted by 16.1% quarter on quarter
(q/q) on a seasonally adjusted annualized basis or 51% q/q on an
annualized basis during the second quarter, latest official
statistics compiled by Statistics South Africa (StatsSA) show. (IHS
Markit Economist Thea Fourie)
The steep decline lowered the year-on-year (y/y) growth rate to
a contraction of 17.1%, on a seasonally adjusted annualized basis,
during the second quarter.
This left headline real, seasonally adjusted annualized GDP
down by 8.7% y/y during the first half of 2020.
South Africa's y/y percentage fall in GDP during the second
quarter ranked among the highest recorded in the world, but was
still less severe than the GDP falls of 21.7% y/y in the United
Kingdom, 22.1% y/y in Spain, and 23.9% y/y in India.
The agriculture, forestry, and fishing sector was the only
sector making a positive contribution, of 0.3 percentage point, to
the q/q (annualized) growth during the second quarter. All other
sectors of the economy showed a sharp fall in output, with the
steepest declines recorded in manufacturing (minus
10.8-percentage-point contribution); trade, catering, and
accommodation (minus 10.5-percentage-point contribution); and
transport, storage, and communication (minus 6.6-percentage-point
contribution).
Demand-side GDP shows that household consumer spending took a
severe hit during the second quarter, falling by 49.8% q/q
(annualized).
Fixed invested slowed by 59.9% q/q (annualized) and exports of
goods and services were down 72.9% q/q (annualized).
Imports of goods and services slowed by 54.2% q/q (annualized),
while government consumption expenditure dropped by 0.9% q/q
(annualized) over the period.
The 51% q/q (annualized) fall in South Africa's real seasonally
adjusted GDP is well below the expectations of IHS Markit (38.8%
q/q annualized) and overall market expectations (45% q/q
annualized). The lower growth figure for the second quarter is
likely to mean an overall contraction in GDP of 10.2% in 2020, down
from IHS Markit's initial forecast of a 9.8% contraction this
year.
Angola is currently engaged in confidential sovereign debt
negotiations with China, in an attempt to reduce debt service
obligations amid a deepening economic crisis caused by the
COVID-19-virus pandemic and the related impacts on energy demand
and prices. Angola's public debt is expected to stand at the
equivalent of 123% of GDP at end-2020, and without new agreements
with lenders, Angola's 2020 external debt service would be around
USD5-7 billion. Roughly USD22 billion of Angola's total USD49
billion in external debt is owed to China. Of this, Angola owes
USD14.6 billion to the China Development Bank (CDB), mostly in the
form of oil-backed loans, along with USD4.7 billion owed directly
to the Chinese government and USD2.4 billion to the Bank of China.
Along with China potentially agreeing a pause on Angola's loan
repayments, some sources have suggested that debt-for-equity swaps
could also be employed. Although this approach could in theory give
Chinese entities partial ownership of national oil company (NOC)
Sonangol and other state-owned firms, it is more likely that
Sonangol would instead cede some equity in upstream oil projects to
Chinese NOCs. For Angola, reaching a debt restructuring agreement
with China is vital to both easing liquidity pressures and
unlocking a potentially increased Extended Fund Facility (EFF) from
the International Monetary Fund (IMF). Angola has requested an
increase in the EFF from USD3.7 billion to USD4.5 billion, and the
IMF now appears likely to assent after Angola agreed a debt
repayment standstill under the G20's Debt Service Suspension
Initiative (DSSI) in early September. Some Chinese loans are
covered by that agreement, and IHS Markit sources suggest that
Angola has tentatively reached an additional bilateral agreement
with China for a standstill on other loans, probably those issued
by the CDB. (IHS Markit E&P Terms and Above-Ground Risk's
Roderick Bruce)
Asia-Pacific
APAC equity markets closed lower across the region; Australia
-2.2%, Mainland China -1.9%, South Korea -1.1%, Japan -1.0%, Hong
Kong -0.6%, and India -0.5%.
Mainland China's consumer price index (CPI) registered at 2.4%
year on year in August, down by 0.3 percentage points from July,
according to the data released by the National Bureau of
Statistics. Month-on-month CPI came out at 0.4%, staying in the
positive territory though slightly lower compared with July's
reading of 0.6%. (IHS Markit Economist Lei Yi)
By component, slowing food price inflation was the main driver
for headline CPI to edge down in August, as supply shortages ease
with receding summer floods, and the high-base effect driving down
pork price growth. Price inflation of non-food components remains
weak, with only transportation and communication slightly narrowing
its price deflation. Notably, services price weakened into
deflation territory in August, recording year-on-year decline of
0.1%. Core CPI excluding food and crude oil stayed unchanged from
July, reporting growth of 0.5% year on year.
Producer price index (PPI) deflation stood at 2.0% year on year
in August, improving further from 2.4% year on year in July thanks
to the sustained demand recovery. Month-on-month PPI inflation fell
by 0.1 percentage points to 0.3%; and 17 out of 40 surveyed
industrial sectors reported month-on-month price gain, compared
with 21 in July.
The recovery in global commodity prices continued to support
domestic industrial output price. Prices in oil-related sectors as
well as ferrous metals and non-ferrous metals smelting and pressing
continued to pick up month on month, though at a slower pace in
industries including petroleum and natural gas exploration and fuel
processing. The output price inflation of consumer goods
manufacturing slowed down slightly year on year due to the decline
in food manufacturing PPI inflation; while year on year price
deflation for daily use and durable consumer goods both narrowed in
August.
Cumulatively, CPI rose by 3.5% year on year through August,
down from the 3.7% year on year growth in the first seven months;
PPI deflated by 2.0% through August, same as in the first seven
months.
While sustained economy recovery could underpin CPI inflation,
falling food price thanks to supply restoration, together with weak
services demand weighed by infection fears, could prevail towards
the year end and put downward pressure on CPI
inflation—especially as monetary policy would mostly likely
stay measured. IHS Markit now forecasts 2020 CPI inflation to reach
3.0% year on year.
The South China Morning Post reported on 9 September that the
China Banking and Insurance Regulatory Commission (CBIRC) is
organizing a three-day training program for about 500 banking
officials from Chinese banks, including the largest four banks,
with an aim to raise awareness regarding credit risk detection and
management. The officials will also learn about data management to
drive the digital transformation of banks. Banking regulators CBIRC
and People's Bank of China have made it clear that asset quality
will deteriorate because of the COVID-19-virus outbreak and the
associated economic headwinds. They are also aware that smaller
banks will have to face worsening asset quality with more lending
to micro, small, and medium-sized enterprises (MSMEs). (IHS Markit
Banking Risk's Angus Lam)
Electric vehicle (EV) manufacturer Tesla delivered 11,811 units
of the Model 3 in China during August, up 7% month on month (m/m),
according to data from the China Passenger Car Association (CPCA).
In the sales rankings, the SAIC-General Motors (GM)-Wuling (SGMW)
joint venture claimed the top position in China's new energy
vehicle (NEV) market with 18,300 vehicles sold during August. SGMW
was followed in the rankings by BYD with NEV sales of 14,300 units
and then Tesla. Tesla delivered more Model 3 vehicles in China in
August than in July. Since production of the Model 3 began in China
at the beginning of 2020, orders for the standard-range Model 3
have been growing steadily, especially in first-tier cities, such
as Shanghai and Beijing. However, SGMW's Hongguang MINI, a mini EV,
outsold the Model 3 in August. The Hongguang MINI EV had a retail
sales volume of 15,000 units last month, the model's second month
on the market. The two models, however, are targeting different
groups of EV buyers. (IHS Markit AutoIntelligence's Abby Chun
Tu)
Changan Auto has reported total sales volumes of 169,415 units
in August, up 35.6% year on year (y/y). (IHS Markit
AutoIntelligence's Abby Chun Tu)
Of the total, the Chinese automaker's Changan Ford joint
venture (JV) posted an increase in sales of 37.0% y/y to 20,229
units in August, while the Changan Mazda JV's sales rose 11.5% y/y
to 11,475 units.
Sales of Chongqing Changan and Hefei Changan, Changan's
passenger car subsidiaries, stood at 65,749 units and 7,547 units
in August, up 45.1% y/y and 29.6% y/y, respectively.
In the year to date (January to August), Changan's sales have
increased 9.5% y/y to 1,165 million units.
Changan Auto's two JVs are making increasing contributions to
the group's sales as both JVs are beginning to gain volumes thanks
to the arrival of new models.
The recovery of Changan Ford's sales continued during August.
The rebound was in part due to a low sales base from August last
year, while Ford's new models, including the Ford Escape and
Lincoln Corsair, are helping to strengthen the automaker's sales in
the sport utility vehicle (SUV) market.
The Beijing-based dairy company Sanyuan achieved a revenue of
CNY3.404 billion (USD486 million), down 34% compared with the same
period of last year, net profits declined by 155%. The company
stated that Covid-19 severely impacted its subsidiary Islay Faxi,
Milk Delivery Division, milk for students, catering and other
businesses. The implementation of the new revenue calculation
standard this year has brought a decline of 7.3% in its overall
operating income. In H1, Chinese national liquid milk sales
decreased. Sanyuan reported that its liquid milk sales also
declined, but it still performed better than the industry average.
Its core Beijing region enjoyed growth and managed market share
gains. Sanyuan's liquid milk sales reached CNY2.0 billion in H1,
solid milk (dairy products such as cheese) CNY314 million, ice
cream CNY631 million. Geographically, Beijing contributed CNY1.8
billion; outside Beijing CNY1.6 billion. The company launched a new
product, 72℃ Pasteurized Milk. It became the China National
Mountaineering Team's 'Nutritional Dairy Supplier'. Sanyuan is
planning to boost its stake in its subsidiary Islay Faxi. It would
own 95% of the company if the deal proceeds. Unlike Yili and
Mengniu, Sanyuan lacks nationally strong brands. Although it has
acquired some regional companies, its lack of national scale still
makes it incomparable to Yili and Mengniu. Sanyuan owns 50% stakes
of Beijing McDonald Co Ltd and 25% in Guangdong, which made a loss
of CNY1.08 million in H1 as an investment income. In 2019, McDonald
contributed CNY234 million. The company carries massive long-term
debt, reaching CNY3.088 billion for some acquisitions such as the
French Brassica Holdings in 2018. Its debt ratio is 57.27% compared
to 33.84% in 2017. (IHS Markit Food and Agricultural Commodities'
Hope Lee)
Mahindra Electric, the electric vehicle (EV) division of
Mahindra & Mahindra (M&M), has announced in a press release
that the MESMA 48 light electric vehicle (EV) platform is available
for global players. The Mahindra Electric Scalable Modular
Architecture (MESMA) 48 is highly scalable in terms of performance
and range, offering voltage systems ranging from 44V to 96V, and it
has been used on more than 11,000 EVs on Indian roads, including
three-wheelers, quadricycles, and compact cars. Mahesh Babu,
managing director and CEO of Mahindra Electric Mobility, India,
said, "Our goal with EVs is to revolutionize first and last mile
transportation globally and take e-mobility to the masses. World EV
Day is a great forum for us to discuss the next big ideas for the
global markets and we take this opportunity to launch our MESMA 48
platform globally." Mahindra Electric has detailed the key features
of MESMA 48, which include better acceleration than internal
combustion engine (ICE) counterparts; a top speed of up to 80 km/h,
making it suitable for passenger as well as load-carrying segments;
and compatibility with both rigid and flexible axle systems, making
it suitable for L5, L6, and L7 categories. As per requirements,
components are available in both liquid and air-cooled
configurations, while the drivetrain, with power ranging from 6 to
40 kW and subsequent torque ranging from 40 to 120 Nm, can be made
available with three varying transmission ratios to suit the
performance requirements. Cost effectiveness is achieved by use of
an integrated drivetrain solution for higher power density, and by
use of robust, temperature-tolerant lithium iron phosphate (LFP)
cells and high-energy-density nickel manganese cobalt oxide (NMC)
cells that can match the performance, range, price, and environment
requirements of a wide set of customers. (IHS Markit
AutoIntelligence's Isha Sharma)
Ride-hailing firm Grab is in advanced talks with potential
investors to secure USD300-500 million in funding for its financial
services unit. Grab is likely to reach agreements with insurance
companies Prudential PLC, AIA Group, and others as early as
October, reports Reuters. According to the report, the insurance
companies are expected to provide half of the target over several
fundraising rounds. This year, Grab laid off 360 employees,
representing 5% of its total workforce, owing to the pandemic (see
Singapore: 16 June 2020: Ride-hailing company Grab to lay off 5% of
employees). Since the start of the pandemic, Grab added food
delivery and insurance services to its platform. This investment
will allow Prudential and AIA to market their products by exploring
Grab's technology and data. Grab is focusing on expanding its range
of services, from transport to food delivery and payments, and
making aggressive efforts to expand. Recently, the company raised
USD200 million in funding from South Korean private equity firm
STIC Investments. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Posted 09 September 2020 by Chris Fenske, Head of Fixed Income Research, Americas, IHS Markit
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