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Equity markets closed higher across most of the globe today,
with European markets having a particularly strong performance
after last week's significant sell-off. iTraxx and CDX closed
tighter across IG and high yield, with Europe outperforming North
America. US and most benchmark European government bonds closed
higher on the day. The US dollar closed flat, while gold, silver,
and oil closed higher on the day. Tomorrow's US election will be
one of the main focuses of the market alongside the growing number
of COVID-19 cases and restrictions, with potentially more pressure
weighing on the markets and an uptick in volatility if some of the
closer election contests take days or even weeks to determine the
winner.
Americas
US equity markets closed higher, with the Nasdaq closing +0.4%
despite being in negative territory for most of the afternoon;
Russell 2000 +2.0%, DJIA +1.6%, and S&P 500 +1.2%.
The CBOE VIX US equity volatility index closed -2.3%/37.17 and
remains at its highest level since mid-June.
According to FactSet, energy minerals was one of the top
performing major sectors in the S&P 500 today at +4.2%,
followed by industrial services at +3.9% (note: companies with
their sector being 'undefined' were +4.4% on the day).
10yr US govt bonds closed -2bps/0.86% yield and 30yr bonds
-4bps/1.62% yield.
CDX-NAIG closed -2bps/63bps and CDX-NAHY -3bps/418bps.
DXY US dollar index closed flat/94.02.
Gold closed +0.7%/$1,893 per ounce and silver +1.6%/$24.03 per
ounce.
Crude oil closed +2.8%/$36.81 per barrel.
A group of business leaders and public policy experts is
launching a new organization called the Commission on the Future of
Mobility. The commission aims to strengthen current transportation
policies, and it will propose a new regulatory framework to address
questions surrounding the future of transportation. The commission
will be co-chaired by Jared Cohon, president emeritus of Carnegie
Mellon University; Jim Hackett, former CEO of Ford; Thierry Mallet,
CEO of Transdev Group; Richard Kramer, Goodyear CEO; Fred Smith,
FedEx CEO; José Muñoz, Hyundai Motor CEO; and Steven Mollenkopf,
Qualcomm CEO. Significance: The global transportation sector is
transforming as it is driven by shared, connected, autonomous, and
electric technologies. The commission aims to "leverage the synergy
created by an interconnected transportation system to reshape
transportation policy". The commission is housed within SAFE, a
nonpartisan organization focusing on energy security issues, and
this is its first global initiative. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
The Securities and Exchange Commission adopted a rule Monday to
help companies raise capital without going public, the latest in a
series of measures likely to further bolster private markets.
Commissioners voted 3-2 on Monday to expand several exemptions to
federal securities laws that require issuers to register with the
SEC and publish financial statements and other key information
before accepting investors' money. Companies also will be allowed
to make such exempt offerings, as they are known, within as little
as 30 days of one another, rather than six months currently. The
vote marks the regulator's latest move to help small and
medium-size companies raise money in private markets, following an
August rule that expanded the pool of so-called accredited
investors deemed able to "fend for themselves" without the SEC's
protections. (WSJ)
Corporate insiders, whose buying correctly signaled the bottom
in March, have refrained from bargain hunting this time. Fewer than
380 corporate executives and officers snapped up shares of their
own firms last month, the second-lowest showing in at least two
years, according to data compiled by the Washington Service. While
sellers also retreated, they did so at a slower rate than buyers.
As a result, insider purchases trailed sales by the most since
January. (Bloomberg)
The seasonally adjusted IHS Markit final U.S. Manufacturing
Purchasing Managers' Index (PMI) posted 53.4 at the start of the
fourth quarter, up slightly from 53.2 in September and broadly in
line with the earlier released 'flash' estimate of 53.3. The latest
improvement in operating conditions was solid overall and the
fastest since January 2019, marking a further move away from
April's nadir. (IHS Markit Economist Chris Williamson)
Contributing to the rise in the headline figure was a quicker
upturn in production in October. The rate of output growth
accelerated to the sharpest since November 2019. Companies often
stated that greater output was driven by stronger client demand and
higher new order inflows.
The rate of new order growth picked up once again in October,
following a slight slowdown in September. The increase in total
sales was attributed to more robust client demand, with some firms
noting larger orders being placed.
Meanwhile, average cost burdens increased at an accelerated
pace that was the steepest since January 2019 in October. Higher
input prices were often linked to greater raw material costs and
supplier shortages.
Goods producers were able to partially pass on higher costs to
clients through a rise in selling prices, though the rate of charge
inflation eased at the start of the fourth quarter.
The mild increase in output charges was the slowest for three
months as some companies used discounting and offers to entice
clients.
Business expectations remained positive in October, improving
on September's four-month low, as firms foresee a rise in output
over the coming year. The degree of confidence was historically
muted, however, as fears regarding the pandemic weighed on
optimism.
Finally, manufacturers registered further delays to suppliers'
delivery times in October, with lead times lengthening
markedly.
Total US construction spending rose 0.3% in September,
considerably below both our assumption and the consensus
expectation. This followed materially faster growth over the prior
three months. (IHS Markit Economists Ben Herzon and Lawrence
Nelson)
Core construction spending, which directly enters our GDP
tracking, rose 0.5% in September, well below our assumption and a
step down from increases averaging 1.0% per month over the prior
two months.
A bright spot in the report was solid growth of private
residential construction spending through September, which, after
reaching a low in May, has risen at an average monthly rate of 3.2%
per month. The level of private residential construction spending
has surged past the pre-pandemic high, as low mortgage rates and
some pent-up demand have driven housing activity higher.
Private nonresidential construction is not faring as well, and
the recent trend toward working from home will present a challenge
to this sector in the coming year or so.
Since February, private nonresidential construction spending
has trended lower, declining at an average monthly rate of 0.9% per
month.
State-and-local construction spending declined 1.2% in
September and has been trending lower since reaching a peak in
March. Over this period, the decline in state-and-local
construction spending has been nearly fully accounted for by
highway and street construction.
The level of highway and street construction is now back in
line with averages seen from 2016 to 2018, prior to surges in the
level of activity over the winters and springs of 2019 and
2020.
Soybean futures weakened Monday with the November contract down
5 3/4 cents at $10.50 3/4. Soybean futures declined along with
crush products. Much of the pressure stemmed from weakness in
global vegetable oil markets as long positions were liquidated amid
concern over new coronavirus mitigation efforts. Losses came
despite USDA soybean export inspections coming in at 2,082,741 tons
for the week ended October 29. That was in line with expectations
that inspections would be from 1.5 million to 2.5 million tons.
USDA reported in its Fats and Oils report that 171 million bushels
(5.13 million tons) of soybeans were crushed in September, down
from 5.24 million tons in August and 4.87 million tons in September
2019. Traders also looked for USDA to report soybean harvest
reached 91% as of November 1, up from 83% the prior week. Funds
were reportedly net sellers of 4,500 soybean contracts, 3,000
soybean meal contacts, and 2,500 soybean oil contracts. (IHS Markit
Food and Agricultural Commodities' Wes Petkau)
Waymo reveals an in-depth report that details its autonomous
car testing operations in Phoenix, Arizona (United States). The
report mentioned that Waymo's autonomous cars have driven 6.1
million miles in the city, including 65,000 miles without a human
behind the wheel, between January 2019 and September 2020. During
this time, Waymo vehicles were involved in 18 minor accidents and
29 situations wherein the human driver was forced to take control
to avoid potential collisions. Separately, the company released
another document that describes its multilayered approach to
safety. Through the release of these reports, Waymo aims to foster
transparency and openness; it hopes this will increase public
confidence in autonomous vehicle (AV) technology and will help
regulators to devise industry-wide safety standards for AVs. This
would also support Waymo's plan of opening its fully autonomous
ride-hailing service to the public in Phoenix (see United States: 9
October 2020: Waymo begins offering fully autonomous rides to
public in Phoenix). Waymo has conducted 20 million miles of AV
testing on public roads in 25 cities and more than 10 billion miles
of simulation. The company recently announced that a new funding
round raised USD750 million, bringing its total external funding to
USD3 billion. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Notogen is developing a regenerative therapy for what it
considers to be a huge unmet need in animal health - spinal issues
in dogs. The Canadian-headquartered start-up's NTG-101 is a single
injection intradiscal molecular therapy comprised of two growth
factors within an excipient solution. It targets degenerative disc
disease (DDD) in both dogs and humans. DDD is the leading cause of
chronic back and neck pain and disability in humans - a condition
that is paralleled in companion animals and is a particularly
prevalent issue in purebred dogs such as Dachshunds, Shih Tzus,
beagles, cocker spaniels and German Shepherds. According to
Notogen, in certain susceptible breeds, approximately one in three
can suffer from DDD. The company claims the prevalence of this
issue is only increasing, as the life expectancy of dogs increases.
Gary Margolis - the company's chief executive - told IHS Markit
Animal Health: "There's a lot of prevalence for DDD in dogs but
there's no treatment out there at all. Veterinarians are not so
attuned to looking for it in advance. Dogs will arrive at the
veterinary practice and it might be too late for them because the
vets are not proactively looking for this issue." Currently, the
main option for dogs with DDD is highly invasive and costly fusion
surgery, typically followed by eight or more weeks of emotionally
challenging cage/crate rest. Notogen believes its therapeutic could
fundamentally change the treatment paradigm for DDD. The start-up's
pre-clinical published study demonstrated a single injection of
NTG-101 can suppress inflammation in the disc, block the
biochemical causes of pain in dogs, stop disc degeneration,
preserve the biomechanical properties of the disc and induce a
restorative effect in the disc. Mr Margolis said this can be
achieved without any safety issues. NTG-101 is a protein-based
biologic developed by Notogen's co-founder and chief scientific
officer Mark Erwin. Notogen is based on Dr Erwin's work as
assistant professor at the University of Toronto looking at why
certain mixed breed dogs do not suffer from degenerative diseases
whereas pure breed dogs frequently do. (IHS Markit Animal Health's
Joseph Harvey)
The Colombian government approved a USD81.7-billion budget for
2021 - the country's largest budget ever and an approximate 15.4%
increase from the budget approved in 2020. (IHS Markit Economists
Carlos Caicedo and Lindsay Jagla)
The 2021 budget increases spending on government operations,
investments, and debt service; debt service will increase by 31.5%
to USD18.2 billion in 2021, and investment spending will be boosted
by 22.1% to USD15.0 billion, the largest amount set aside for
investment in Colombia's history. The revenues in the budget
include a combination of tax income and new debt.
The approved budget includes various economic assumptions from
the government, notably that the economy will contract by 5.5% in
2020, followed by 6.6% growth in 2021. Additionally, the government
expects an 8.2% deficit in 2020, followed by a 5.1% deficit in 2021
and has postponed fiscal adjustments to 2022, acknowledging an
increase in the debt burden next year.
The Colombian government's 2021 budget will come into effect
amid a vulnerable economic situation because of the coronavirus
disease 2019 (COVID-19)-virus pandemic. Despite growing fiscal
weakness, the budget clearly prioritizes economic reactivation
through additional public expenditure and, although debt service
funds will increase from the 2020 budget, Congress still chose to
redirect approximately USD1.4 billion from debt-service payments to
the investment budget during the debates.
Strong congressional support for the budget, which it passed by
134 votes to 15 in the Lower House and 66 votes to 11 in the
Senate, gives President Iván Duque's government scope for maneuver
and for increased borrowing if needed. It is most likely to tap the
country's Flexible Credit Line granted by the International
Monetary Fund, which was increased from USD6.2 billion to USD17.2
billion in late September.
Republic of Colombia 5yr CDX closed +1bp/127bps today (Price
Viewer screenshot below shows historical CDS spreads since November
2015)
The Central Bank of Costa Rica (Banco Central de Costa Rica:
BCCR) on October 28 voted to maintain the 0.75% policy rate because
of the continued need for countercyclical policies amid the
COVID-19-virus pandemic and subsequent economic downturn. (IHS
Markit Economist Lindsay Jagla)
The BCCR has cut the policy rate twice during the
COVID-19-virus crisis for a total of 150 basis points. The policy
rate has been set at 0.75 since mid-June and is the lowest rate on
record.
The decision to maintain an expansive monetary policy stems
largely from the disappointing recovery of Costa Rica's economy in
recent months. Unemployment has remained high at 23.2% (a minimal
drop from the record-high 24.4% at the height of the pandemic)
compared with the 12.5% unemployment rate before the pandemic,
while the monthly economic activity index has faced an uneven
recovery and remains well-below 2019 levels.
Notably, the central bank pointed out that much of Costa Rica's
recovery thus far has stemmed from improvements in external demand
as major trade partners, such as the United States exhibit faster
growth. Thus, with internal demand still significantly constrained,
inflation expectations remain well below the central bank's 2-4%
target: in September, annual inflation was a mere 0.3%.
Costa Rica is struggling to boost its economy following the
significant downturn caused by the pandemic. In the context of slow
economic recovery and very low inflation, IHS Markit expects that
the BCCR will maintain its posture of expansive monetary policy,
keeping rates low until mid-2021.
Inflation will stay low amid dampened domestic demand, which
will reduce pressure on prices. Furthermore, we expect oil prices
to remain low with more significant recovery beginning in mid-2021;
this will have a trickle-down effect on Costa Rican prices, as
cheaper oil imports also reduce the cost of transportation and the
cost of manufacturing certain goods.
Europe/Middle East/Africa
European equity markets closed sharply higher; Italy +2.6%,
France/Spain +2.1%, Germany +2.0%, and UK +1.4%.
Most 10yr European govt bonds closed higher except for Italy
flat; UK -4bps and German y/Spain/Italy -1bp.
iTraxx-Europe closed -3bps/62bps and iTraxx-Xover
-12bps/355bps.
Brent crude closed +2.7%/$38.97 per barrel.
The UK government has introduced fresh national lockdown
measures in England from 5 November to 2 December to tackle rising
COVID-19 cases. (IHS Markit Economist Raj Badiani)
Prime Minister Boris Johnson said that the new lockdown
measures are driven by the risk that deaths from the virus could be
twice as high over the next month or two than it was during the
first wave of the pandemic. Furthermore, scientists and health
experts have warned that the National Health Service could be
overwhelmed in the next few weeks, placing incredible stress on
doctors and nurses treating both COVID-19 and non-COVID-19
patients.
Chancellor of the Exchequer Rishi Sunak has brought back the
furlough scheme after its expiry on 31 October. The scheme will
subsidize 80% of wages for any hours that employees do not work and
will expire on 2 December 2020. This will probably cost around
GBP7.0 billion during November.
Sunak also announced new grants for businesses that are
required to shut, namely a further GBP1.1 billion for local
authorities to offer one-off support to businesses. In addition,
mortgage holidays will also be extended after expiring on 31
October.
The government has yet to announce new support for the
self-employed, particularly those vulnerable to the closing of the
hospitality sector.
The new national lockdown in England is adding to the fiscal
nightmare facing Sunak, with general government debt now at a
record high of GBP2.06 trillion, equivalent to 103.5% of GDP.
The new lockdown measures in England could spell the end to the
recovery after the UK economy shrunk by 21.8% in the first half of
this year compared with the final quarter of 2019.
Despite growth disappointing in August, the economy is
estimated to have grown by a record 14.8% quarter on quarter (q/q)
in the third quarter.
The new national lockdown in England further supports our view
that the Bank of England (BoE) will announce a further round of
quantitative easing during its meeting on 5 November.
Britvic has announced that it will hit plastics target three
years earlier than scheduled. Notwithstanding the schedule, the
original plan also called for a 50% rPET target. Britvic recently
converted its Ballygowan 500ml bottles and Fruit Shoot Hydro to
100% rPET in Ireland. It signed an agreement with UK rPET converter
Esterform Packaging in 2019. As a founding signatory of the UK
Plastics Pact, Britivc claims to have removed more than 1,500 tons
of primary plastics from its supply chain since 2017. All of its
primary packaging is now fully recyclable. Sarah Webster, director
of sustainable business at Britvic, commented: "We want to be a net
positive contributor to the people and the world around us, and
we're committed to minimizing waste and using resources in a
sustainable way across our business. "Accelerating this move to
100% rPET is the right next step for Britvic to help reduce our
impact on the planet. "It requires a suite of solutions, which is
why we support the swift introduction of a well-designed GB-wide
deposit return scheme, and reform of the current producer
responsibility system, to create the required investment in UK
recycling infrastructure." (IHS Markit Food and Agricultural
Commodities' Neil Murray)
Daimler and Tesla are taking contrasting approaches to the
development of self-driving technology. Mercedes-Benz is looking at
taking a more-staged approach to autonomous vehicle (AV)
development than some rivals, notably, electric vehicle (EV) maker
Tesla, as it prepares to debut new technology on the new S-Class,
reports Reuters. According to the report, the Mercedes-Benz system
on the S-Class technically will allow Level 3 autonomous operation
but stops short of allowing the driver to use the system fully on
urban roads. Daimler has always been at the forefront of developing
advanced driver-assistance systems (ADAS), but it is taking a
cautious approach in which the company's engineering team is in
charge of validation. Meanwhile, Tesla launched the latest
iteration of its Full-Self Driving (FSD) technology last week and
has already extensively demonstrated it in publicity films. This
system is designed to be used in inner-city environments, although
Tesla has launched the system with the warning that its cars "May
Do the Wrong Thing at the Worst Time". Tesla's launch of the FSD
software is a typically attention-grabbing act and is in direct
contract with Daimler's more-conservative approach, which is more
aligned to its core brand values. However, the regulatory
environment has still to catch up with the technology and, in most
major markets, it would, in theory, be illegal to use fully
autonomous driving technology in urban environments. (IHS Markit
AutoIntelligence's Tim Urquhart)
Daimler Trucks and Volvo Group have signed a binding agreement
on their proposed fuel-cell joint venture (JV), according to a
company press release. The two firms had already inked a memorandum
of understanding (MoU) on the co-operative venture. The JV will be
focused on developing, producing, and commercializing fuel-cell
systems for use in heavy-duty trucks primarily, as well as other
applications, such as industrial powerplants. Volvo Group will
acquire 50% of the partnership interests in Daimler Truck Fuel Cell
GmbH & Co KG for approximately EUR600 million (USD700 million)
on a cash and debt-free basis. The closing of the transaction is
expected during the first half of 2021 and will be subject to all
usual regulatory approvals. Commenting on the establishment of the
JV, Martin Daum, chairman of the board of management of Daimler
Truck AG and member of the board of management of Daimler AG, said,
"For us at Daimler Truck AG and our intended partner, the Volvo
Group, the hydrogen-based fuel-cell is a key technology for
enabling CO2-neutral transportation in the future. We are both
fully committed to the Paris Climate Agreement for decarbonizing
road transport and other areas, and to building a prosperous
jointly held company that will deliver large volumes of fuel-cell
systems." Commercializing fuel-cell technology is something of a
holy grail for the automotive industry. Toyota is arguably the
world leader in the field in terms of light-vehicle fuel-cell
technology, with the company in the process of introducing its
second-generation Mirai fuel-cell passenger car. However, the model
is very expensive for what is effectively a normal family sedan and
it is sold and leased in very limited numbers. However, the
technology has more potential in the medium and heavy commercial
vehicle (MHCV) space, if only because electric technology for the
long-haul duty cycles of medium and heavy trucks will be difficult
to make work. The joining forces of Daimler Truck and Volvo Group
should decrease development costs for both companies and accelerate
the market introduction of fuel-cell systems in products used for
heavy-duty transport, and makes sense as a strategy for both
businesses. (IHS Markit AutoIntelligence's Tim Urquhart)
Daimler's trucks division has invested an undisclosed amount in
LiDAR manufacturer Luminar Technologies to enable safe deployment
of highly automated trucks. LiDAR sensors are necessary for
autonomous vehicle (AV) operation as they measure distance via
pulses of laser light and generate 3D maps of the world around
them. The companies will jointly work towards enhancing LiDAR
sensing, perception, and system-level performance for Daimler
trucks, starting on highways. As part of this partnership, Daimler
will integrate its subsidiary Torc Robotics' AV system along with
Luminar's sensors into its trucks. Dr Peter Vaughan Schmidt, head
of the Autonomous Technology Group at Daimler Trucks, said,
"Luminar has pioneered a critical enabling technology for bringing
automated vehicles to the road, and we're excited to work closely
with them to drive this technology forward. Their company has
proven visionary in its focus and unique ability to enable
long-range sensing and high-speed driving on the highway." (IHS
Markit Automotive Mobility's Surabhi Rajpal)
According to the national statistical office (INE), Spain's
economy rebounded strongly during the third quarter of 2020,
pulling it out of its first recession since the third quarter of
2013. The economy therefore expanded by 16.7% quarter on quarter
(q/q) after falls of 17.8% q/q in the second quarter and 5.2% q/q
in the first. (IHS Markit Economist Raj Badiani)
With the national lockdown measures lifted gradually from May,
growth returned in the third quarter of 2020 with key parts of the
economy reopening for business, namely restaurants, bars, and
non-essential commercial establishments. This allowed some lost
activity during the first two quarters of 2020 to occur, but it
still represented a partial rebound with some cancelled spending on
services lost permanently.
IHS Markit had a less optimistic assessment for the third
quarter, with growth estimated at 12.0% q/q
Our conservative GDP estimate for the third quarter was due to
the fact that service-sector activity appeared to return to
contraction territory in August, with the downturn intensifying in
September. Specifically, the headline index from the IHS Markit
Purchasing Managers' Index (PMI) survey for services shows that the
business activity index retreated to 47.7 in August and 42.4 in
September, with a sub-50 score signifying contraction. This was
down from 51.9 in July (see first chart below).
Service providers reported that new business shrank for a third
successive month in September, with a fresh outbreak of COVID-19
infections depressing tourist activity alongside still depressed
demand from foreign clients. Job losses occurred in September as
firms sought to minimise costs and activity remained well below the
levels seen prior to the onset of the COVID-19 virus pandemic.
Indeed, the tourist indicators revealed continued hardship in
July and August. The number of overnight hotel stays and foreign
visitors in July fell by 75% y/y and 86% y/y respectively.
Meanwhile, other indicators suggest that tourism business continued
to struggle in August, signaled by a high level of booking
cancellations, even sharper y/y declines in the number of
international passenger arrivals at Spanish airports, and weaker
spending using bank or credit cards issued by non-residents.
Our current forecast assumes that the economy will contract by
12.7% in 2020, indicating that Spain is one of the worst-affected
countries by the COVID-19 shock. However, this appears too
pessimistic after the stronger-than-expected GDP rebound in the
third quarter, and the 2020 projection is likely be raised to about
-11.5% in the November update.
Kiadis (the Netherlands) announced on 2 November that it had
received a takeover offer from Sanofi (France) valued at EUR308
million (USD359 million). This equity valuation is based on a
definitive conditional agreement whereby Sanofi would agree to pay
EUR5.45 per share. The takeover bid, subject to shareholder and
regulatory approval, is expected to be completed in the first half
of 2021. If approved, Sanofi would acquire rights to Kiadis's
pipeline of next-generation allogeneic natural killer (K-NK)
cell-based immune-therapeutics. The K-NK pipeline has potential
applications in a broad range of tumor types - including for liquid
and solid tumors and the treatment of patients undergoing
hematopoietic stem cell transplant - and would potentially be a
good fit in combination with Sanofi's existing and emerging
immuno-oncology pipeline. The K-NK platform will also be developed
as a potential first-in-class monotherapy immune-therapeutic.
Kiadis's leading development program is currently a Phase II
clinical trial of K-NK002 to prevent post-transplant relapse in
patients with acute myeloid leukemia (AML) and myelodysplastic
syndromes. In addition, once the takeover is completed, Sanofi
would gain full licensing rights to Kiadis's pre-clinical K-NK004
program, which the French firm licensed as recently as July 2020 as
a potential combination multiple myeloma treatment. Beyond the area
of immune-therapeutics, the K-NK platform has potential secondary
applications in infectious disease therapeutic area. As such, the
Dutch biotech company is currently preparing a Phase I/IIa stage
KNK-ID-101 to evaluate the technology in developing a
post-exposure, pre-emptive treatment for COVID-19 in high-risk
patient populations. (IHS Markit Life Sciences' Eóin Ryan)
According to the Austrian Public Employment Service (AMS),
there were 358,396 unemployed people in Austria at the end of
October, up by 11,000 from September and by 70,000 (24.4%) versus
October 2019. (IHS Markit Economist Timo Klein)
The annual gap is still narrowing, as it has been doing since
May, but the unadjusted unemployment rate of 8.7% means that the
gap with the rate a year ago (7.0%) was at 1.7 percentage points in
October, only slightly below September's 1.8 points. This gap had
peaked at 5.4 points in April.
The impact of the opening up of the service sector and the
recovering demand in the manufacturing sector had largely run its
course by October, with some restrictions that limit capacity
having had to be maintained for public health reasons all
along.
The unemployment rate on a harmonized, seasonally adjusted
basis as calculated according to European Union and thus
International Labour Organization (ILO) criteria, which is only
available until September, rebounded slightly from 5.4% in August
(revised up sharply from 5.0%) to 5.5% in October. This compares
with an interim peak of 5.9% in June, caused by ramifications of
the March-April lockdown, and a cyclical low-point of 4.2% in
November-December 2019. The annual gap in September was 1.1
percentage points, smaller than the gap of its national counterpart
in September (1.8 points) but is no longer that dramatically
different. The ILO data are survey-based and therefore are much
less volatile in reaction to changes in economic activity than the
national numbers that reflect registrations for unemployment
benefits.
Vacancies, which had still exceeded their year-ago level until
February, were down by 15.1 year on year (y/y) in October (absolute
level: 64,666). Vacancies are still recovering, leading to a
diminishing y/y decline. Momentum appears to be slowing, however,
not least as firms want to restore full working hours for their
existing workforce first.
Finally, dependent employment declined by 43,000 y/y (or 1.1%)
in October, representing a small setback following -35,000 y/y (or
-0.9%) in September and a peak drop by 200,000 y/y in April. The
dip by 43,000 in combination with the unemployment increase of
70,000 means that the labour force increased by 27,000 y/y (or
roughly 0.7%), down again from 1.0% y/y in September and 2.0% y/y
in April.
In October, Switzerland's PMI for the manufacturing sector
(seasonally adjusted) - compiled by the Trade Association for
Purchasing and Supply Management procure.ch and published by Credit
Suisse - suffered a modest setback following its May-September
recovery. It slipped from a 19-month high of 53.1 to 52.3, thus
remaining below its long-term average of 53.7. (IHS Markit
Economist Timo Klein)
In contrast, the PMI for the service sector more than unwound
September's increase, falling from 55.1 to 50.4 in October. This
was driven in roughly equal measure by the components for new
orders, the current business, and the stock of orders, whereas a
small increase of the employment index provided a partial
offset.
The worsening short-term outlook for consumer demand is
underlined by a major downward correction for retail sales in
September (-3.6% month on month [m/m] in both real and nominal
terms). Notwithstanding the huge surge by 31% in May, which had
temporarily lifted the year-on-year (y/) rate to 6.1%, the annual
rate declined sharply again to 0.3% in price-adjusted terms and
even -0.3% nominally. The latter is now a percentage point below
Switzerland's long-term trend of 0.7% y/y.
A closer look at the manufacturing sector reveals that
October's headline PMI's decline contrasts with the further
increase of its German counterpart, with Germany being
Switzerland's main trading partner. This is particularly noteworthy
in view of Switzerland's manufacturing PMI breakdown revealing that
sharply lengthening supplier delivery times actually cushioned the
fall that would have been seen owing to the four other components
(see table). Longer delivery times may have been caused partly by
renewed supply-chain disruptions, thus not indicative of higher
demand. Finally, October's Swiss PMI level of 52.3 also
underperformed the eurozone's 54.8 (up by 1.1 points), which may
have to do with the recent reversion towards Swiss franc
appreciation against the euro.
The KOF Barometer slipped in October from September's 10-year
high, but only from 110.1 to 106.6. This remained above its
long-term (2009-18) average of 100.0 and compares with an all-time
low of 52.3 in May (see chart). This is a level associated with
annual GDP growth of about 3.3%, which roughly matches our very
latest forecast for 2021.
Switzerland's October leading indicators and September's retail
sales data show that the short-term outlook has deteriorated again
after a preceding phase of improvements lasting several months. The
renewed rise in COVID-19 cases since late September has now caught
up with the economy, as tightened restrictions are being
implemented by authorities. Manufacturing is holding up better than
services, but the former is still doing less well than the eurozone
average, let alone Germany's manufacturing sector.
Rival factions in Libya have reached a political compromise
that could serve as a starting point for normalization after nine
years of civil war. Key rivals including the Tripoli government,
the Eastern government and its ally, the Libyan National Army, have
signed up to what the United Nations has called a 'permanent
ceasefire' deal that envisages a restart in political talks (with
the aim of holding elections next year) and calls for the
withdrawal of foreign forces from the country over the next three
months. The deal also stipulates the need to demobilize Libya's
myriad militias, some of which would be reintegrated into a
national army. The ceasefire has paved the way for a restart in oil
production from fields shut in by violence and the threat of theft,
enabling the Libyan National Oil Corp (LNOC) to lift forces
majeures at central terminals and southwest and central fields in
recent days. Production has reached some 800,000 b/d from under
100,000 b/d at the lowest point this year, with significant upside
ahead if Libya can regain the 1.25 million b/d achieved in 2019, a
scenario that will depend heavily on the condition of
infrastructure, field performance, and local political dynamics.
Whether this breakthrough is decisive will take time to prove. A
restart in oil and associated gas production is moving forward at
pace - focused on fields the Sirte basin and the southwest Murzuq
regions and supported by the reopening of oil-export terminals
including es-Sider, Ras Lanuf, and Zawiya, as the LNOC lifts force
majeures in response to the political settlement. (IHS Markit
E&P Terms and Above-Ground Risk's Catherine Hunter)
Asia-Pacific
APAC equity markets closed higher across the region; Hong Kong
+1.5%, South Korea +1.5%, Japan +1.4%, Australia/India +0.4%, and
Mainland China flat.
Toyota Motor will invest JPY52.2 billion (USD500 million) in
mobile carrier KDDI to deepen their partnership in developing
telecommunications technologies to connect vehicles, reports Nikkei
Asian Review. Toyota will purchase 18.3 million treasury shares
from KDDI, representing a 13.74% stake in the latter. Under this
partnership, the companies will jointly conduct research and
development focused on telecommunication platforms that connect
cars, homes, towns, and users. Communications technology is
essential to enhance vehicle connectivity and Toyota has been
increasing efforts in this space. KDDI and Toyota have been
partnering since 2016 to create a global communications platform
for vehicles and rolling out the technology by collaborating with
local telecommunications companies. For instance, in the United
States, KDDI has teamed up with AT&T to deploy LTE connectivity
to Toyota and Lexus vehicles. In Australia, KDDI has teamed up with
Telstra to offer connected car services to Toyota customers. This
year, Toyota Connected and NTT Data have teamed up to form a new
mobility service business that aims to increase the functions of
the Mobility Service Platform (MSPF), Toyota's information
infrastructure for connected vehicles. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
Nissan Motor plans to switch all its models sold in China to
either electric or hybrid vehicles, reports Nikkei News. According
to the report, the automaker said nine models it plans to sell in
China by 2025 will either be fully electric or hybrid vehicles. The
first Nissan model powered by its e-Power hybrid technology system
will arrive in the Chinese market in 2021, with up to six e-Power
models planned in the next three years, including the Sylphy sedan.
In addition, Nissan is expanding its production capacity in China
under a partnership with Dongfeng Motor. The facility expansion
will boost Nissan's production capacity in China by 30% to 1.8
million units per annum. (IHS Markit AutoIntelligence's Abby Chun
Tu)
Chongqing Changan Automobile (Changan) has reported revenue
growth of 23.8% year on year (y/y) to CNY55.8 billion (USD8.3
billion) in the first three quarters of 2020. The company's net
profit totalled CNY3.5 billion, up 231.0% y/y, in
January-September. In the third quarter, the automaker's revenue
increased by 51.3% y/y to CNY23.1 billion and its net profit surged
309.7% y/y to CNY883 million. Changan posted strong profit growth
in the third quarter thanks to improved sales and proceeds from
stock investment. The automaker sold nearly 540,000 vehicles from
July to September, up 34% y/y. During the third quarter, Changan's
two joint ventures, Changan Ford and Changan Mazda, both saw a
rebound in vehicle sales. In January-September, sales of Changan
Ford increased 30% y/y to 167,133 units, while sales of Changan
Mazda fell 2% y/y to 94,332 units. Surging demand for commercial
vehicles (CVs) in the Chinese market also enabled Changan to offset
sales declines in the first quarter amid the COVID-19 virus
outbreak. The automaker has a range of entry-level minivans and
light trucks across the Changan, Kaicheng, and Ossan brands. Sales
of Changan's CVs are forecast to contract by 6.3% to around 360,000
units in 2020. (IHS Markit AutoIntelligence's Abby Chun Tu)
Zhejiang Geely Holding Group Co (Geely) announced on 22 October
that Lynk & Co, the company's premium brand, has sold more than
360,000 vehicles since the brand's launch in October 2016. Geely's
expansion plans include launching deliveries of Lynk & Co
vehicles in Europe next year. In our current forecast, IHS Markit
expects Lynk & Co to reach the sales volume levels of the Ford
brand in China by 2024 thanks to its expanding line-up, especially
SUVs. The annual sales of Lynk & Co are forecast to hit over
300,000 units in 2024 in China, up from 128,000 units in 2019. (IHS
Markit AutoIntelligence's Abby Chun Tu)
Coca-Cola and Mengniu's fresh dairy joint venture has been
incorporated in Anhui's Bengbu City, is capitalized at USD68.86
million and its operations cover manufacturing and selling low
temperature dairy (fresh dairy) products. The new venture is called
Keniule, taking one character from each partner's Chinese name; the
name means "bullish or competent". The legal representative is
Venkata Vamsi Mohan Thati. President of Coca-Cola South Pacific,
"he has extensive experience within the Coca-Cola system, with a
strong track record of delivering results and building capabilities
around customer management, market execution, digital technologies
and people development," according to a Coca-Cola statement.
China's low temperature milk/fresh milk sales were CNY83.3 billion
(USD11.9 billion) in 2019, up by 15% over the previous year.
Pasteurized milk was worth CNY34.3 billion, up by 7.2%. Fresh milk
accounts for just over one-third of the Chinese milk market,
compared with western Europe's 90%. Chilled yogurt still offers
growth opportunities. Chinese consumers are expected to trade up to
fresh dairy in response to the cold chain development. In Q3,
Coca-Cola reported global net revenues of USD8.7 billion, down by
9%; organic sales fell by 6%, but demand is improving. Carbonated
drinks volumes fell marginally, juice, dairy and plant-based drinks
shrank, and tea and coffee were the hardest hit. The youth segment
is the main consumers for Coca-Cola in China. Keniule should look
to introduce products catering for this group, some analysts
suggested. Additionally, development of both online and offline
sales channels is crucial for a new brand building. (IHS Markit
Food and Agricultural Commodities' Hope Lee)
Daimler Mobility is strengthening its car rental business in
South Korea. Mercedes-Benz Mobility Korea (MBMK), an affiliate of
Daimler Mobility, has completed its acquisition of long-term car
rental business provider Star-Rent-A-Car Korea. Through this
acquisition, MBMK plans to offer mobility offerings across the
entire country through its network of 59 dealerships. Guillaume
Fritz, MBMK CEO, said, "I am pleased that this milestone will help
us to respond to the demands of our customers in Korea. Over the
past five years, the Korean car rental market has shown strong
growth with high customer demand in car rental for premium vehicles
and Mercedes-Benz enjoys a top position in this sector. This
transaction will serve as a cornerstone in providing tailor-made
mobility solutions that can meet the diverse needs of Korean
customers with fast, easy, and digital experiences to access
Mercedes-Benz vehicle." Last year, Daimler Mobility established
MBMK, its mobility business unit in South Korea. The mobility
business unit will focus on providing digitized customer services,
as well as premium mobility products. On a global scale, Daimler
Mobility division provides services such as financing, leasing,
insurance, and fleet management; it is also an investor in mobility
services such as FREE NOW, SHARE NOW, and Blacklane. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Larsen & Toubro reported a 12% year on year (y/y) decrease
in revenue but an increase in net profit for the second quarter of
financial year 2020/21 (FY 2020/21) in Indian rupee terms. (IHS
Markit Upstream Costs and Technology's Amey Khanzode)
The rise in reported net profit was mainly due to the
conclusion of the sale of the Electrical & Automation business
to Schneider Electric for USD1.9 billion (INR140 billion).
For the second quarter period (July-September 2020), the
company's revenue decreased to USD4.2 billion (INR310 billion), as
compared with the revenue of USD5 billion (INR353 billion) in the
second quarter of FY2019/20. Revenue growth was mainly driven by
the Infrastructure, Services and Hydrocarbon segments.
The net profit for the second quarter of FY2020/21 came in at
USD743 million (INR55 billion), 107 % higher than the net profit of
USD359 million (INR25 billion) for the same quarter last year.
The second quarter included exceptional items worth USD527
million (INR39 billion) comprising of impairment of funded exposure
in the heavy forgings facility joint venture and impairment of
assets in the power development business. Excluding these, the net
profit came in at USD190 million (INR14 billion).
As a result of the exceptional items, the company reported an
operating loss of USD239 million (INR17 billion) in the second
quarter of FY 2020/21, compared with an operating profit of USD469
million (INR33 billion) a year ago.
The Hydrocarbon segment recorded a revenue of USD545 million
(INR40 billion) during the second quarter of FY 2020/21, down by 6%
y/y. The contraction reflected the relatively subdued tendering
activity caused by the decline in demand and low oil prices. The
segment secured order inflows worth USD76 million (INR5.6 billion)
during the reported quarter. The backlog for the segment stood at
USD5.1 billion (INR377 billion) at the end of 30 September
2020.
For the second quarter of FY2020/21, the infrastructure segment
was the major contributor (42% contribution) to the overall company
revenue. This segment's revenue decreased by 22% y/y to USD1.8
billion (INR131 billion). The Services segment reported a revenue
of USD1.3 billion (INR94 billion) for the reported quarter.
The total backlog for the company as of 30 September 2020 stood
at USD40.6 billion (INR3,000 billion), down from USD43 billion
(INR3,032 billion) on 30 September 2019. The new orders won by the
company during the second quarter of FY2020/21 were worth USD3.8
billion (INR281 billion). The Infrastructure and Services segments
were the major contributors to the order inflow during the
quarter.
Larsen & Toubro has noted that the economic conditions its
domestic market India are showing early signs of revival from the
sharp slowdown seen in the first quarter of FY 2020/21. Strong
emphasis by the government on infrastructure spending would augur
well for the company and the National Infrastructure Pipeline (NIP)
which laid out a detailed capex roadmap till 2025 would provide
visibility on the domestic infrastructure outlook.
Thailand's industrial production rose by 3.7% from the previous
month in September, and the year-on-year (y/y) contraction
continued to narrow, reaching -4.0%. The sustained improvement
largely reflected an increase in production of computer and
electronic products and softer declines in production of motor
vehicles and food products. (IHS Markit Economist Harumi Taguchi)
The improvement in industrial production was due to external
and internal demand. The contraction of exports continued, easing
to a 4.2% y/y drop in September from an 11.2% y/y fall in the
previous month, largely because of rises in exports of food and
machinery. In addition to exports to the US (up 21.7% y/y), exports
to China (up 8.7% y/y), Malaysia (up 17.2% y/y), the European Union
(up 1.2% y/y), and Australia (up 5.9% y/y) turned positive while
the decline in exports to Japan (down 0.2% y/y) softened.
The Bank of Thailand's private consumption index also continued
to rise, moving up 2.3% from the previous month, and the y/y figure
rose by 3.6% on a seasonally adjusted basis. While all spending
indices for non-durable, semi-durable, and durable goods and
services improved from the previous month, the y/y increases in the
private consumption index reflected rises of non-durables (up 2.0%
y/y) and durables (up 1.5% y/y). These increases were partially
offset by continued weaknesses in other indices, particularly for
services, because of sluggish recoveries in accommodations and food
services and transportation despite the easing of containment
measures. The Private Investment index (up 1.0% month on month
[m/m] and down 3.7% y/y) signaled weak improvement in capital
investment.
The September results suggest that recoveries in private
consumption and exports are likely to help narrow the contraction
of real GDP for the third quarter of 2020. The resumption of
economic activity will probably support industrial production and
employment and underpin personal consumption. However, the upward
momentum could ease because of lockdowns in Thailand's trade
partners as well as persistent protests.
A recovery in Thailand's economy is likely to remain a modest
and patchy without a recovery of tourism. Although the Thai
government has started to ease border controls, it is still
difficult to project when the number of tourists could return to
the pre-pandemic level, which could continue to weigh on a recovery
of tourism-related industries.
According to Vietnam's General Statistics Office, exports in
October are estimated to have risen by 9.9% y/y to USD26.7 billion,
while imports likely increased 10.1% y/y to USD24.5 billion,
resulting in a trade surplus of USD2.2 billion for the month of
October. (IHS Markit Economist Rajiv Biswas)
Exports are estimated to have risen by 4.7% y/y over the first
10 months of 2020, while imports rose by 0.4%, resulting in a
strong trade surplus for the first 10 months of the year amounting
to USD18.7 billion.
The United States has been Vietnam's largest export market
during 2020 year-to-date, with Vietnam's exports to the United
States up 24% y/y. Vietnam's trade surplus with the United States
during the first 10 months of 2020 reached USD50.7 billion,
compared with a trade surplus of USD55.8 billion for the full 2019
calendar year.
Exports to China also showed strong growth of 14% y/y during
the same period. However, exports to the European Union were down
3% y/y during the first 10 months of 2020.
Industrial output rose by 5.4% y/y in October 2020, compared
with a growth rate of 2.7% y/y for the first 10 months of
2020.
The latest Consumer Price Index (CPI) inflation data show that
the CPI in October grew by 0.09% month on month and was up 2.47%
y/y. For the first 10 months of 2020, the CPI rose by 3.71%
y/y.
The Vietnamese economy has been one of the most resilient
economies in the Asian region to the COVID-19 pandemic, having
continued to record positive GDP growth on a y/y basis for each of
the first three quarters of 2020.
Posted 02 November 2020 by Chris Fenske, Head of Fixed Income Research, Americas
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