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All major global equity indices closed higher today, with CDX
and iTraxx credit indices tighter across IG and high yield. US
government bonds closed sharply lower and the curve steepened
further, while benchmark European government bonds closed mixed.
The US dollar was lower on the day and oil, gold, and silver all
closed higher. The early US election results appear to already be
spurring some volatility in US equity futures and government bonds,
as both presidential candidates appear to be in a tight race in
several key states.
Americas
The NY Times has US Presidential Candidate Joe Biden ahead of
President Trump with 131 vs 92 electoral votes as of 9:49pm ET
(need 270 electoral votes to win), with key contests in Florida,
Georgia, and North Carolina still too close to call (NY
Times).
US equity markets closed higher, with all major indices trading
higher the entire day; Russell 2000 +2.9%, DJIA +2.1%, Nasdaq
+1.9%, and S&P 500 1.8%. S&P futures began to fall at
approximately 7:30pm ET and were -0.4% as of 9:32pm ET, as
preliminary US election results are continuing to trickle in.
10yr US govt bonds closed +4bps/0.90% yield and 30yr bonds
+7bps/1.69% yield. 10yr US govt bond yields were as high as 0.93%
at 7:16pm ET and are 0.82% as of 9:44pm ET.
CDX-NAIG closed -3bps/60bps and CDX-NAHY -17bps/401bps.
DXY US dollar index -0.7%/93.48 as of 8:04pm ET.
Gold closed +0.9%/$1,910 per ounce and silver +1.2%/$24.33 per
ounce.
Crude oil closed +2.3%/$37.66 per barrel.
In a press release, WPX Energy reported a third-quarter 2020
net loss of $148 million, compared with a net income of $122
million in the year-ago period, primarily due to a $110 million net
loss on derivatives resulting from non-cash forward mark-to-market
changes in the company's hedge book and a loss on the
extinguishment of debt, the company said. The adjusted net income
was $60 million, compared with an adjusted net income of $38
million a year ago. Adjusted EBITDAX was $389 million, compared
with $361 million a year ago. Total product revenues were $491
million, including oil sales of $436 million, compared with $581
million, including oil sales of $539 million, a year ago.
Production totaled 207,700 boe/d (78% liquids), up 20% from 173,400
boe/d a year ago. Oil volumes were 122,300 b/d, up 13% from 108,600
b/d a year ago, led by a 51% increase in the Delaware Basin. The
realized oil price was $38.72/bbl, compared with $53.92/bbl a year
ago; the realized gas price was $0.57/Mcf, versus $0.77/Mcf a year
ago; the realized NGL price was $11.22/bbl, versus $10.73/bbl. In
September 2020, Devon Energy signed an agreement to acquire WPX
Energy Inc. in an all-stock transaction valued at $6.34 billion.
The transaction is expected to close in the first quarter of 2021.
(IHS Markit Upstream Companies and Transactions' Karan
Bhagani)
US manufacturers' orders rose 1.1% in September, while
shipments rose 0.3%. After sharp increases over May, June, and
July, the pace of recovery in orders and shipments has slowed
considerably. (IHS Markit Economists Ben Herzon and Lawrence
Nelson)
In response to these and other details in the report that bear
on our GDP tracking, we lowered our estimate of third-quarter
annualized GDP growth by 0.2 percentage point to 32.8% and raised
our forecast of fourth-quarter growth by 0.1 percentage point to
5.2%.
While recovery in manufacturing has come a long way, orders
remain 4.3% below the February level and shipments remain 3.0%
below the February level.
These data are consistent with severalother indicators pointing
to a material slowing in the pace of recovery, including slowing
profiles in employment, industrial production, and monthly
GDP.
Orders and shipments of core capital goods, by contrast, have
been robust in recent months. Both have surged past their
pre-pandemic levels, and both were revised somewhat higher through
September in today's (3 November) report.
Manufacturers' inventories were flat in September. We had
assumed a 0.3% increase (the reading implicit in the advance
estimate of the National Income and Product Accounts [NIPA]).
The unexpected weakness in inventories lowered our estimate of
third-quarter inventory investment by roughly $9 billion and raised
our forecast of the change in inventory investment in the fourth
quarter by about $5 billion.
With a seasonally adjusted selling rate (SAAR) estimated to be
in the range of 16.2-16.5 million units at time of publishing, the
pace of light-vehicle sales continues to improve from the April
2020 low reading of 8.7 million units. And if it manages to improve
from the 16.34 million unit reading of September, would mark the
sixth consecutive month that the pace of sales has advanced from
the month-prior result. (IHS Markit Economist Chris Hopson)
On an unadjusted volume level, the sales tally for the month is
expected to be up 1-3% year-on-year (y/y). While we do not expect
the monthly SAAR to diverge meaningfully from the average pace of
the past three months (an average of approximately 16.0 million
units), even before any possible election outcome is factored in,
we anticipate that the upcoming monthly volume results in November
and December will reflect some y/y volatility.
Compared with their respective year-ago periods, there will be
three fewer selling days in November, while December will have
three more selling days. The sequential rise in auto demand levels
from April reflects that consumers who are willing, ready, and able
to enter a new car purchase are doing so.
There were 28 selling days this October, one more than the
year-earlier period. On a unit volume level, October sales are
estimated to have climbed to approximately 1.35-1.37 million units,
which would be above the year-earlier level, and bring the
year-to-date light-vehicle sales volume figure through October to
approximately 17% below the year-earlier level. We do not expect
the pace of sales to advance much further than the results of the
past two months, but the ongoing recovery in auto sales lends
upside bias in expectations for the remainder of the year.
Stock management will continue to be an important variable
moving through the immediate forecast horizon, but the all-out
vehicle production schedules now should help improve the situation
as we progress into the new year. Month-end October inventory
levels as reported by AutoData at time of publishing were estimated
to be up from the previous month. Compared with month-end
September, October 2020 industry inventory was up approximately
85,000 units. The days' supply reading at the end of October rose
to a reading of 56 days' supply, up from a 48 days' supply level at
the end of September and but still down meaningfully from the 72
days' supply a year earlier.
Please note: All industry-level numbers in this report are
estimates, owing to the absence of official monthly reports from
General Motors (GM), Ford, Fiat Chrysler Automobiles (FCA), and
others.
Ford plans to offer a hands-free driving feature, Active Drive
Assist, first on the redesigned F-150 pick-up and the new Mustang
Mach-E electric crossover. The hands-free feature will be included
as standard on certain car models or as a relatively affordable
option on others, with both the redesigned F-150 and the Mustang
Mach-E expected to go on sale later this year. Ford expects to sell
100,000 units of these vehicles equipped with the hands-free
technology hardware in their first year. Initially, the vehicles
will be equipped with the hardware system only and the software
technology will become available in the third quarter of 2021. Ford
says that, once the software is launched, the system will activate
the hands-free feature through a wireless over-the-air (OTA)
update. Hau Thai-Tang, chief product platform and operations
officer at Ford Motor Company, said, "Active Drive Assist can help
improve the driving experience while ensuring people remain aware
and fully in control, all for a price unmatched by our competitors
- a commitment to affordable innovations that has driven us since
Henry Ford put the world on wheels." Ford's new Active Driving
Assist is not designed to be a semi-autonomous driving system,
although it advances Ford's technology significantly. Ford is also
the first mainstream brand to launch a hands-free system, as other
examples have been introduced by luxury vehicle brands. Ford is
also replicating a strategy used by Tesla: the system's hardware
will be available to order ahead of the software being deployed via
OTA. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Autonomous vehicle (AV) startup Pony.ai has reportedly
completed a new round of financing, raising over USD300 million.
This will bring the company's market value to USD6 billion, reports
Pandaily. The latest funding round was led by Ontario Teachers'
Pension Plan (OTTP), contributing nearly USD200 million, and
involved the participation of Chinese automaker FAW Group. Pony.ai
was founded in 2016 and develops Level 4 AV technology. The company
has launched the PonyPilot, a test project for driverless cars
within a geo-fenced area in Guangzhou's Nansha district (China),
which is available to Pony.ai employees and selected affiliates. In
California (United States), the company has launched an autonomous
delivery service in Irvine and a last-mile robotaxi service in the
city of Fremont. Recently, the Beijing government allowed the
company to test its AVs by carrying passengers in the city's
Haidian district and Yizhuang town. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
Autonomous vehicle (AV) sensor manufacturer Aeva Inc is
planning to go public through a merger agreement with InterPrivate
Acquisition Corp, a special-purpose acquisition company (SPAC).
This will bring the market value of LiDAR startup company Aeva to
USD2.1 billion, reports Reuters. The deal with InterPrivate, which
is led by private equity investor Ahmed Fattouh, will give Aeva a
cash injection of more than USD300 million to expand its sensor
development to consumer electronics. Soroush Salehian, co-founder
and CEO at Aeva, said, "We want Aeva [to be] not just highly
assisted on autonomous vehicles, but across a number of
applications." The deal is due to be closed in the first quarter of
2021, after which Aeva will trade on the New York Stock Exchange
under the ticker 'AEVA'. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Neogen has launched a new DNA sorting tool that aids producers
in ranking and managing feeder cattle according to their genetic
potential for carcass traits. The Igenity Feeder is designed to
assist cattle producers in the stocker and backgrounder phase of
beef cattle rearing. The tool is a next-generation version of the
Igenity Terminal Index, which is a tool specialized for identifying
animals for terminal crossbreeding that measures the genetic
potential for economically relevant carcass traits. Neogen said:
"Igenity Feeder leverages the ITI and growth profiling information
from thousands of commercial fed cattle into an accurate genomic
tool to help producers' sort lots of cattle and enhance
profitability. Using Igenity Feeder, combined with an animal's
enrollment weight and sex, provides a new opportunity for grouping
of animals into outcome groups." Neogen claims Igenity Feeder
enables producers to ship or sell load lots of cattle with
increased uniformity, distinguish their cattle on sale day, and
accurately and rapidly sort calves based on their ability to excel
to end point. President and chief executive of the firm John Adent
said: "With Igenity Feeder we are reaching a critical audience in
the beef supply chain by offering a DNA tool they can utilize to
make better decisions in the care, nutrition and marketing of their
feeder calves. By extension, producers will use the genomic
information to tell the story of their calves to the feedlot
level." With a tissue sampling unit taken at enrollment, Igenity
Feeder will also work in unison with Igenity Branded, which is the
company's free feeder calf marketing program. Dr Jamie Courter,
Neogen beef product manager, commented: "Igenity Feeder provides
producers the ability to sort and rank feeder cattle according to
their genetic predisposition to perform within the feedlot. Driven
by many economically relevant traits such as hot carcass weight,
rib eye area and marbling, the ITI is proven to help differentiate
profitability in a feedlot setting. Earlier this year, Neogen
launched updated content to Angus GS - the first genomic profiler
designed specifically for Angus cattle - alongside Angus Genetics.
The two companies introduced the Angus GS DNA diagnostic on the US
beef market in 2017. More recently, Neogen closed a deal for
Elanco's StandGuard Pour-on insecticide, which saw it gain US
rights to the horn fly and lice control product for beef cattle.
(IHS Markit Animal Health's Daniel Willis)
Seasonally adjusted data from the flash GDP release show the
Mexican economy jumped by 12.0% quarter on quarter (q/q) after
plunging by 17.12% in the previous quarter. Although third-quarter
real GDP growth was very strong due to forcible "carryover"
effects, high-frequency indicators including the monthly index of
economic activity (MIEA) show that the recovery is ebbing. (IHS
Markit Economist Rafael Amiel)
After plummeting in April and May because of the lockdowns, the
MIEA increased by 8.9% month on month (m/m) and 5.7% m/m in June
and July, respectively; it expanded by only 1.1% in August and
slowed down further to 0.7% in September.
Mexico's industry posted the strongest rebound in the third
quarter compared with the second quarter of 2020, followed by
services and the always-volatile agricultural sector (see table
below). Most manufacturing plants were fully closed in April and
May because of the coronavirus disease 2019 (COVID-19) virus and
reopened to almost full capacity in June; the largest positive
impact of the reopening is captured by quarter-three figures.
On the annual comparison, GDP fell by 8.6% - this is using
unadjusted data and comparing with July-September 2019. This gives
a better perspective on how far the Mexican economy is in terms of
recovery.
The labor market, which is usually a lagging indicator, shows that
there is still a long way to full recovery; 12 million people left
the labour force in April, but by September, 8.4 million had
returned, but not all have found a job, with 6.2 million jobs still
missing.
The recovery in Mexico has lost its momentum, with the initial
"mechanical" rebound caused by the lifting of social-distancing
measures and the reopening of economic activity throughout the
country.
Growth in the third quarter was somewhat better than
anticipated by IHS Markit (we called for a 10.2% q/q expansion) and
this may lead us to revise upwards our 2020 forecast by two-three
tenths of a percentage point.
According to the National Institute of Statistics and
Information (Instituto Nacional de Estadística e Informática),
Peru's consumer price index increased by 0.02% month on month (m/m)
in October and by 1.72% year on year (y/y). (IHS Markit Economist
Jeremy Smith)
The largest contributor to inflation in October was an increase
in prices across the recreation, leisure, and cultural and
educational services category (0.12% m/m), principally owing to
fast-growing demand for online educational services. Rising prices
in the housing rental, petrol, and electricity category (0.16% m/m)
as well as in the furniture, equipment, and home maintenance
category (0.17% m/m) also added to the marginal increase in
inflation.
Meanwhile, the food and beverages category dropped by 0.08% m/m
as a large increase in seafood supply drove down prices, more than
compensating for rising fruit prices. In addition, prices in the
transportation and communications category fell by 0.08% m/m.
Core inflation, which excludes more volatile food and energy
products, registered a similarly modest annual rate of 1.68%
y/y.
Neither pent-up demand nor a 200-basis-point reduction in the
policy interest rate since March seems to have produced significant
inflationary pressure to this point. Flat price growth in October
is in line with the substantial slowing in employment and
production recovery observed in recent months.
October marked the 14th consecutive month in which annual
inflation registered below the Central Reserve Bank of Peru (Banco
Central de Reserva del Perú: BCRP)'s target of 2%. While
expectations remain anchored to the target in the medium term, IHS
Markit currently does not anticipate annual inflation to reach 2%
until 2022.
Europe/Middle East/Africa
European equity markets closed sharply higher across the
region; Italy +3.2%, Germany +2.6%, Spain +2.5%, and France
+2.4%.
10yr European govt bonds closed mixed; UK +6bps, Germany +2bps,
and Italy/Spain -2bps.
iTraxx-Europe closed -2bps/61bps and iTraxx-Xover
-9bps/349bps.
Italy's total employment was broadly stable at 22.953 million
in September. Therefore, cumulative job losses in March to
September stood at 329,000, or 1.4% lower when compared with
February 2020, the pre-COVID-19-virus level. (IHS Markit Economist
Raj Badiani)
The unemployment rate retreated for the third straight month to
9.6% in September (from 9.7% in August). Meanwhile, the number of
unemployed shrunk for a second successive month to 2.43 million in
September, in line with 2.4 million in February.
Meanwhile, the labor force fell by 0.1% month on month to 25.4
million in September, with the activity rate stable at 64.5%.
The inactivity rate fell from 31.4% in August to 29.7% in
September. It appears that more laid-off workers are now looking
for jobs after failing to do so during the height of the
COVID-19-virus lockdown.
The employment losses have been less severe than expected
during the COVID-19-virus shock, with the country's short-time work
or temporary layoff schemes helping to shore up employment levels.
In addition, the demand for labor probably enjoyed some support
from a stronger-than-expected economic rebound during the third
quarter, with the national statistical office reporting that GDP
increased by 16.1% quarter on quarter.
A major support to employment has been the expansion to the
Cassa Integrazione Ordinaria, or the Support of Salary Payment by
the state. An employer can suspend or reduce work activity for
events related to the COVID-19 virus and enjoy social contribution
exemption. Importantly, firms have to maintain their workforces to
qualify for state aid.
The European Central Bank estimates that some 8.5 million
workers, or 44% of Italian employees, were on these schemes during
the lockdown in Italy. In August, the government agreed to extend
the short-term work scheme until the end of 2020.
Italy's passenger car registrations in October were almost
level with those recorded during the same month in 2019. According
to the latest data published by the National Association of Foreign
Vehicle Makers' Representatives (Unione Nazionale Rappresentanti
Autoveicoli Esteri: UNRAE), demand slid by just 0.2% year on year
(y/y) during the month to 156,978 units. However, the significant
impact of the COVID-19 virus in the earlier months of 2020 remains
in evidence in the year to date (YTD), with demand dropping by
30.9% y/y to 1,123,194 units. The Italian passenger car market has
performed solidly again in October, partly because of the Decreto
Agosto measures that came into force at the beginning of September.
The funding for this was split into three tranches and the size of
the benefit is dependent on the carbon dioxide (CO2) emissions of
the vehicle in question. (IHS Markit AutoIntelligence's Ian
Fletcher)
According to the Swiss Federal Statistical Office (FSO),
Switzerland's consumer prices again remained flat month on month
(m/m) in October, as in May, June, August, and September. The
unchanged outcome in October is in line with the long-term average
for the month, but the annual rate of the consumer price index
(CPI) increased from -0.8% to -0.6% because of a base effect. This
compares with a cyclical low of -1.3% year on year (y/y) in May and
June. (IHS Markit Economist Timo Klein)
The EU-harmonized measure with its somewhat different
composition was also flat m/m, with its y/y rate thus rising from
-1.1% to -0.9%.
Eight of the twelve main Classification of Individual
Consumption According to Purpose (COICOP) categories of goods and
services of the national data posted a higher annual rate than in
September and only two categories posted a lower one, with the two
remaining groups - clothing and footwear and education - keeping
steady (see table below). The main upward influences, in this order
and taking relative weights into account, came from recreation and
culture, hotels and restaurants, food, and healthcare. The only two
categories that had another dampening effect were communication and
"miscellaneous goods and services". Energy prices slipped only
slightly (-0.3% m/m), leaving their annual rate almost unchanged
compared with September at -9.7% y/y.
The split between goods (0.0% m/m and -1.2% y/y, the latter up
from -1.4% y/y in September) and services (0.0% m/m and -0.2% y/y,
the latter up from -0.4% in September) reveals that there was a
little difference with regards to data-edge developments between
the two categories.
The prices of domestic goods were also flat m/m, while those of
imported goods increased by 0.1% m/m, leading to modest increases
of their respective annual rates in both cases - from -0.1% to 0.2%
for domestic inflation and from -3.0% to -2.8% for imported
inflation. The latter's trend in particular should continue in
early 2021 as boosting base effects come into play.
Core consumer prices, a measure that excludes the impact from
volatile components such as food and energy, increased by 0.1% m/m
- firmer than the (national) headline measure - and its annual rate
rose further from -0.3% to -0.1%. This extends the recovery from
June's interim (four-year) low at -0.8% y/y and compares with a
10-year high of 0.7% in June 2019.
Finally, the gap between headline inflation and core inflation,
which had been positive between late 2016 and May 2019 before
turning negative during the remainder of 2019, stayed at
-0.5%.
Switzerland's deflation pressure is letting up, although it
probably will take until April 2021 before the y/y rate shifts from
negative to positive territory again. It is noteworthy that the
recent stabilization occurred despite the halt and partial reversal
to the Swiss franc's temporary (June-September) weakening tendency
during October.
Bioplastics made from plant-based and other 'natural' materials
are touted as the eco-friendly alternative to conventional
plastics, but a German study has found that they are at least
equally toxic as conventional plastics, and some may be more so.
"Bioplastics and plant-based materials are marketed as sustainable
alternatives to conventional plastics. However, little is known
with regard to the chemicals they contain and the safety of these
compounds," noted the abstract to the Zimmerman et al study "Are
bioplastics and plant-based materials safer than conventional
plastics? In vitro toxicity and chemical composition" in explaining
the reason for launching the study. For their work on the study the
researchers extracted 43 everyday bio-based or biodegradable
products as well as their precursors, covering mostly food contact
materials made of nine material types. Then the team characterized
these extracts using in vitro bioassays and non-target
high-resolution mass spectrometry. Overall, the study found that
compared to conventional plastics "bioplastics and plant-based
materials are similarly toxic." The study concluded that "the
majority (67%) of bioplastics and plant-based products contain
toxic chemicals." More specifically, the researchers found:
"Two-third (67%) of the samples induced baseline toxicity, 42%
oxidative stress, 23% antiandrogenicity and one sample
estrogenicity." They also saw: "Extracts from cellulose- and
starch-based materials generally triggered a strong in vitro
toxicity and contained most chemical features." noted. However, the
study observed that the toxicological and chemical signatures of
polyethylene (Bio-PE), polyethylene terephthalate (Bio-PET),
polybutylene adipate terephthalate (PBAT), polybutylene succinate
(PBS), polylactic acid (PLA), polyhydroxyalkanoates (PHA) and
bamboo-based materials "varied with the respective product rather
than the material. Toxicity was less prevalent and potent in raw
materials than in final products." Based on the findings, the study
recommends that migration studies with food simulants are needed to
identify the toxicity of any bioplastic and measure the level of
chemicals migrating under real-world conditions as well as estimate
human exposure to them. (IHS Markit Food and Agricultural Policy's
Sara Lewis)
Bayer swung to a third-quarter net loss of €2.74 billion ($3.21
billion) from a net profit of €1.04 billion a year earlier on sales
of €8.51 billion, down 5.1% on a currency- and portfolio-adjusted
basis. The net loss includes non-cash impairment charges on
intangible assets, and provisions, totaling €10.18 billion. They
are mainly in Bayer's agricultural division, crop science, in
connection with potential future litigation in the US related to
the company's glyphosate-based herbicide Roundup™. Other special
charges are from an ongoing restructuring program and litigation at
Bayer's pharmaceuticals business.
Bayer's EBITDA before special items decreased by 21.4% year on
year (YOY) in the third quarter to €1.79 billion, including a
negative currency effect of €205 million, missing analysts'
consensus estimate by 12.7%. Crop science was the main driver of
the miss with a big decline in third-quarter sales and earnings due
partly to seasonal factors. Bayer has nevertheless confirmed its
outlook for full year 2020.
Sales at the crop science business dropped 11.6% YOY, foreign
exchange and portfolio adjusted, in the third quarter, to €3.03
billion. Business was down in North America in particular, and
sales increased in APAC. EBITDA before special items swung to a
negative €34 million from a positive €500 million in the
year-earlier period, mainly due to the decrease in sales in North
America. There was also a negative currency effect of €123 million,
Bayer says.
Worldwide sales at the corn seed and traits segment fell by
39.9%, adjusted, with substantial declines in North America in
particular due to higher product returns and lower license revenue
arising from lower-than-anticipated planted acreages for corn this
year. At the herbicides segment, sales declined by 12.7%, adjusted,
against a strong prior-year quarter. Business was primarily down in
North America, where sales in 2019 had shifted into the third
quarter due to extreme weather conditions in the first half of that
year.
Sales of Bayer's pharmaceuticals business declined 1.8%, on a
foreign-exchange and portfolio adjusted basis in the third quarter,
to €4.23 billion with EBITDA before special items edging up 0.9% to
€1.51 billion. "Thanks to stringent cost management, the division
was able to grow its earnings and margin despite the decline in
sales due to the negative overall impact of COVID-19 as well as
negative currency effects of €48 million that additionally weighed
on earnings," Bayer says.
Sales of Bayer's consumer health business increased 6.2%,
adjusted, to €1.20 billion putting the division's growth well ahead
of industry market growth, the company says. The growth trend was
driven by the nutritionals segment, with sales rising 21.4% due to
the greater focus on health and prevention in connection with the
COVID-19 pandemic as well as the launch of new products, Bayer
says. EBITDA before special items at consumer health increased by
12.3% to €301 million, primarily due to the substantial increase in
sales and positive contributions from an efficiency program
launched in late 2018.
Passenger car registrations in Spain dropped even further
during October. According to the latest data published by the
Spanish Association of Passenger Car and Truck Manufacturers
(Asociación Española de Fabricantes de Automóviles y Camiones:
ANFAC), demand fell by 21% y/y to 74,228 units. The YTD figures now
stand at 669,662 units, a decline of 36.8% y/y. The decline in the
Spanish passenger car market was despite support, introduced in
mid-June, for parc replacement and those looking to purchase
alternative powertrain vehicles. Although there was some initial
uplift in July, interest has since waned. Underlining the thinking
that these measures are not generous enough to lure uncertain
consumers to the market is the 22.7% y/y fall in private customers
during October. (IHS Markit AutoIntelligence's Ian Fletcher)
Norwegian passenger car registrations have jumped by 23.6% year
on year (y/y) in October, according to the latest data published by
the country's Road Traffic Information Council (Opplysningsrådet
for Veitrafikken: OFV). Demand in this market grew from 10,479
units to 12,948 units. The leading brand during the month was
Volkswagen (VW), with 2,889 units, as its registrations leapt by
87.2% y/y. Toyota also had a strong month, recording a gain of
19.9% y/y to 1,576 units. However, BMW in third contracted by 19.3%
y/y to 734 units. The performance this month has meant that the
year-to-date (YTD) passenger car market is now down by 10.6% y/y at
108,298 units, owing in part to the impact of the coronavirus
disease 2019 (COVID-19) virus earlier in the year. Elsewhere in the
market, registrations of light commercial vehicles (LCVs) of up to
3.5 tons gained by 5.1% y/y to 2,866 units during October, meaning
that their YTD total is now down by 20.4% y/y at 25,713 units. At
the same time, medium and heavy commercial vehicle (MHCV)
registrations retreated by 26.7% y/y to 553 units in October,
resulting in their YTD registrations falling by 19.7% y/y to 5,234
units. The Norwegian passenger car market has experienced some
significant swings so far this year caused by the COVID-19 virus
pandemic. However, the jump in October was partly driven by ongoing
demand for battery electric vehicles (BEVs) thanks to generous
incentives. BEV registrations leapt by 110.4% y/y to 7,873 units in
October, meaning that they made up a 60.8% share of the entire
passenger car market in that month. (IHS Markit AutoIntelligence's
Ian Fletcher)
In a press release, Saudi Aramco reported third-quarter 2020
net income of $11.8 billion (44.2 billion Saudi riyals), down 45%
from $21.3 billion in the third quarter of 2019. The decrease in
the earnings was primarily due to the impact of lower crude oil
prices and volumes sold, and weaker refining and chemicals margins,
partly offset by a decrease in crude oil production royalties
resulting from lower prices and volumes sold as well as a decrease
in the royalty rate from 20% to 15%, and higher other income
related to sales for gas products, the company said. Net cash
provided operating activities was $18.8 billion, down about 35%
from $28.7 billion in the third quarter of 2019. Third-quarter 2020
capital expenditure was $6.4 billion, down about 21% from $8.1
billion a year ago. Averaged realized crude oil price was
$43.6/bbl, down about 30% from $62.4/bbl a year-ago period.
Upstream segment's EBIT (earnings before interest, income taxes and
zakat) for the third quarter of 2020 was $27.6 billion, down 38%
from $44.7 billion a year ago. The decrease in earnings was
primarily due to lower realized crude oil prices and lower crude
oil volumes sold, partly offset by lower crude oil production
royalties following lower prices and volumes sold, along with a
decrease in the royalty rate, and higher other income related to
sales for gas products, the company said. Downstream EBIT for the
third quarter of 2020 was a loss of $795 million, down from an EBIT
of $801 million a year ago. The decline reflects a challenging
market environment that continues to weaken refining and chemicals
margins. Total hydrocarbon production for the first nine months of
2020 was 12.4 MMboe/d (74% oil). Gross refining capacity was
maintained at 6.4 MMb/d as at 30 September 2020. The company
maintained a dividend of $18.75 billion for the third quarter of
2020. (IHS Markit Upstream Companies and Transactions' Karan
Bhagani)
South Africa's October Medium Term Budget Policy Statement
shows the budget deficit for fiscal year (FY) 2020/21 increasing
slightly to 15.7% of GDP and the public-sector debt trajectory
worsening significantly, compared with the supplementary emergency
budget's projections presented on 24 June. (IHS Markit Economist
Thea Fourie)
The South African government's medium-term fiscal trajectory,
released in the 2020 Medium Term Budget Policy Statement (MTBPS) on
28 October, involves a combination of public-sector spending cuts
and revenue-raising measures to stabilize public-sector debt
levels. However, the low-growth environment, large primary budget
deficits, and high yields on South African government bonds
continue to complicate the authorities' debt stabilization
efforts.
In the MTBPS, the main budget deficit for FY 2020/21 increases
to 15.7% of GDP, coming down slowly to 10.1% of GDP in FY 2021/22,
8.6% of GDP in FY 2022/23, and 7.3% of GDP in FY 2023/24. Gross
public-sector debt continues to edge up, reaching 92.9% of GDP in
FY 2023/24, from 81.8% of GDP in FY 2020/21.
The MTBPS's estimates rest on the introduction of ZAR300
billion (USD18.5 billion) of spending cuts over the medium term,
stretching from FY 2021/22 to FY 2023/24, primarily through a
reduction of the public-sector wage bill. "The Budget Guidelines
propose a wage freeze for the next three years to support fiscal
consolidation. Additional options to be explored include
harmonizing the allowances and benefits available to public
servants, reconsidering pay progression rules and reviewing
occupation-specific dispensations. The next round of wage
negotiations is due to start soon and work is under way to
formulate government's position," the MTBPS reports. The fiscal
plan also allows for a cumulative ZAR25 billion upward revision in
government income, although no details about the tax adjustments to
be implemented were released. The details are due to be presented
during the February 2021 national budget.
The MTBPS allows for an additional ZAR10.5 billion allocation
to embattled state airline South African Airways (SAA), which will
permit the implementation of the business rescue program. No
additional transfers to other embattled state-owned entities
(SOEs), such as Eskom, Denel, and Land Bank, beyond the original
budget allocations have been penciled in, at this stage. In the
MTBPS, the extension of the COVID-19 pandemic-related special
social-relief-of-distress grant will cost the government an
additional ZAR6.7 billion. The SAA allocation and additional social
grants are budget neutral and are to be financed through
reallocations from other government spending programs.
Debt servicing costs continue to edge up, reaching 5.9% of GDP
or 23.7% of government revenue by FY 2023/24, in the MTBPS.
The budget estimates rest on an expected GDP contraction of
7.8% in 2020, rebounding to 3.3% growth in 2021, before slowing to
1.7% and 1.5% in 2022 and 2023, respectively. In the MTBPS,
headline inflation remains close to the mid-point of the South
African Reserve Bank's inflation target range of 3-6% over the
forecast horizon.
Reaching debt sustainability over the five-year horizon, which
is beyond the MTBPS timeframe, hinges primarily on the ability of
the South African government to contain the public-sector wage bill
through the introduction of public-sector wage freezes.
Furthermore, any GDP growth surprises on the upside could improve
the South African government's public debt trajectory over the
medium term.
The Democratic Republic of the Congo (DRC)'s international
reserves accumulation was particularly strong in September,
following a slump in March, according to latest data published by
the DRC's central bank, the Banque Centrale du Congo (BCC). (IHS
Markit Economist Alisa Strobel)
The BCC released its latest data on the DRC's economic
performance on 2 October, showing that international reserves,
including foreign bank deposits, amounted to 4.89 months of import
cover (equivalent to 21 weeks) during the last week of September,
after peaking at 4.97 months of import cover during the last week
of August. The DRC's import cover fell to 3.67 months during the
week ending 27 March, the lowest registered number so far in
2020.
Further data analysis of the DRC's key exports shows that
copper production continued to accelerate through the first eight
months of 2020. Although volatile in nature, production levels
during April to August 2020 were generally higher than seen during
July 2019 to March 2020. Cobalt production remained at similar
levels in 2020 to those seen in 2019, while zinc production
continued gaining pace in 2020 following a slump in 2018.
IHS Markit forecasts a contraction of 2.4% in the DRC's real
GDP in 2020. However, improved activity in the extractive sector in
the third quarter of 2020 could smooth our prediction to around the
government's estimate of a contraction of around 1.7-2%. A slow
recovery in growth is expected during the second half of 2021.
Downside risks are increasing as we expect to see depressed
business sentiment at the start of 2021 amid the global uncertainty
over the commodity price recovery and return of foreign direct
investment.
Congolese exports to China represent around 30% of exports,
mainly mineral products. Exports of mineral products, mainly ores
and metals, represent more than 80% of the DRC's total exports,
dictating the growth of foreign-exchange reserves. With mainland
China being the largest importer of Congolese minerals, any shock
affecting its economy would impact on the Congolese economy.
Therefore, a strong rebound in mainland China's demand is essential
for the Congolese economy to pick up in 2021.
Asia-Pacific
APAC equity markets closed higher across the region; Hong Kong
+2.0%, Australia/South Korea +1.9%, Japan/Mainland China +1.4%, and
India +1.3%.
Mainland China's provincial government of Hainan issued a batch
of supportive policies on 28 October, aiming to promote the
development of high-tech enterprises. These policies will be valid
through the end of 2022. (IHS Markit Economist Lei Yi)
To encourage R&D investment, high-tech firms will receive
subsidies worth 30% of their annual incremental R&D expenses,
with an upper limit set at CNY2 million for large enterprises and
CNY1 million for others.
Enterprises first recognized as high-tech firms could be
granted awards no less than CNY200,000. For high-tech firms newly
moved to Hainan, incentives will be offered at 5% of first-year
fixed-asset investment or 10% of R&D expenses, with an upper
limit of CNY5 million.
Additionally, the government will ensure enough land allocation
for high-tech development, offer property and land-use tax
alleviation for enterprises making large losses, and stepping up
financial support for the high-tech sector.
Newly unveiled supportive measures could bring an extra boost
for the local high-tech sector, on top of the preferential tax
arrangements introduced by the central government.
China's State Council has signed off on the 2021-35 development
plan for the country's new energy vehicle (NEV) industry. The
development plan, proposed by Ministry of Industry and Information
Technology (MIIT), outlines key targets for China to become a
leader in the global NEV market. By 2025, the Chinese central
government expects NEVs to account for 20% of new vehicle sales
and, by 2035, regulators expect battery electric vehicles (BEVs) to
become a main type of NEVs. China also aims to gain technology
know-how in key areas of NEV development, including electric
motors, batteries, and vehicle operating systems. By 2035, China
aims to replace all the ICE models in the public sector with BEVs.
The country also aims to speed up EV charging infrastructure
development. Battery-swapping stations, for instance, have been
included in the development plan as a supplementary charging
infrastructure to fast chargers. (IHS Markit AutoIntelligence's
Abby Chun Tu)
Chinese electric vehicle (EV) startups NIO and Xpeng Motor have
announced their deliveries in October. NIO's deliveries increased
100.1% year on year (y/y) to 5,055 vehicles last month, comprising
2,695 ES6, 1,477 ES8, and 883 EC6 vehicles. From January to
October, NIO delivered 31,430 vehicles, up 111.4% y/y. As of 30
October, NIO had delivered a total of 63,343 vehicles. In a
separate statement, Xpeng Motor said it delivered 3,040 vehicles in
October, of which 2,104 units were P7 vehicles. Thanks to the
improved sales results in October, Xpeng's combined deliveries of
its two models, the G3 electric sport utility vehicle (SUV) and the
P7 electric sedan, totaled 17,117 units from January to October, up
64% y/y. (IHS Markit AutoIntelligence's Abby Chun Tu)
AutoX plans to expand its robotaxi testing operations in
Beijing, western Chongqing, and two other unnamed cities in China.
Xiao Jianxiong, chief executive of Pony.ai, said, "Chongqing brings
new challenges as a hilly city." The company also revealed that it
is in talks with potential investors to fund fleet expansion and
development. In addition, AutoX will soon test its full-stack
autonomous vehicle (AV) technology fitted in Fiat Chrysler
Automobiles' Chrysler Pacifica minivans and will begin driverless
testing in China, reports Reuters. AutoX has recently opened a
robotaxi service for the public in Shanghai, after conducting
trials with signed-up users. In addition to Shanghai, AutoX has
received permits to test its AVs from Shenzen and Guangzhou in
China and California in the United States. The company has set up
an 80,000-square-foot facility for AV operations in Shanghai. The
company has partnered with electric vehicle manufacturer NEVS to
conduct a large-scale trial of robotaxis in Europe by the end of
2020. (IHS Markit Automotive Mobility's Surabhi Rajpal)
Advance estimates show that Hong Kong SAR's economy bottomed
out in the third quarter of 2020, with quarter-on-quarter (q/q)
growth turning positive for the first time since early 2019, along
with narrower year-on-year (y/y) contraction. The stabilization in
local COVID-19 situations and the rebound in exports have provided
main support to the economy, although the fallout in the pandemic
locally and globally, coupled with travel restrictions and mainland
China-US tensions, will remain the downside risks to the near-term
outlook. (IHS Markit Economist Ling-Wei Chung)
Preliminary data show that real GDP contracted 3.4% y/y in the
third quarter of 2020, narrowing substantially from the above-9.0%
y/y plunge in the first and second quarters, which came in the
largest on record. Despite the deceleration, it still marked the
fifth straight quarter of y/y contraction.
In seasonally adjusted q/q terms, the economy showed signs of
recovery as real GDP jumped 3% from the previous quarter, reversing
a 0.1% fall in the second quarter. It also represented the first
q/q expansion since the first quarter of 2019.
The third-quarter 2020 improvement was mainly driven by a
rebound in merchandise exports because of the recovery in mainland
China's economy and signs of revivals in other regional economies.
That said, domestic demand continued to lag behind as local
sentiment and spending were restrained by the local resurgence of
the pandemic and tighter social distancing measures in July and
August.
Exports of goods expanded 3.8% y/y in the third quarter,
marking a reversal of a 2.2% y/y fall in the second quarter. It
also represented the first increase since the third quarter of
2018. In September 2020, merchandise exports jumped 9.1% y/y,
boosted by a 17.0% y/y surge in shipments to mainland China as the
recovery there gained traction.
Coupled with the continued expansions in exports to Taiwan and
resumed growth in shipments to South Korea and Vietnam, they helped
offset the double-digit declines in shipments to India, Japan,
Singapore, and Thailand. Concurrently, exports to the US returned
to a modest gain in September 2020, marking the first increase
since November 2018, while shipments to Europe recorded a narrower
decline during the month.
On the other hand, exports of services continued to plunge in
the third quarter of 2020, marking the fourth consecutive quarter
of slumping by more than 20% y/y. With the tourism sector remaining
at a standstill, the contraction in exports of travel services
worsened further amid severe disruptions on inbound tourism.
Tourist arrivals plunged 99.7% y/y in September, driven by the
same rate of contraction in visitors from mainland China. Due to
the outbreak and tightening social distancing measures and travel
restrictions, tourist arrivals started to plunge by more than 96.0%
y/y since February and over 99.6% y/y since April. Along with the
interruptions on transport and business services, exports of
services slumped 34.8% y/y, although narrowing from a record plunge
of 45.6% y/y in the second quarter.
Private consumption continued to shrink in the third quarter
but at a slower pace as consumer sentiment was restrained by the
resurgence of infections in July and August before improving in
September when the pandemic situation began to stabilize and
business activities gradually reopened. Private consumption dropped
7.7% y/y in the third quarter, decelerating from a 14.2% y/y slump
in the second quarter, which marked the largest decline in
history.
This reflected a 12.9% y/y drop in retail sales in September,
which came in similar to a 13.1% y/y decline in August but narrowed
substantially from a 23.1% y/y slump in July.
Tourist-related spending remained the hardest hit in September,
led by a 25.7% y/y slump in sales of jewelry and other luxury
items, although the rate of contraction decelerated from about 55%
in June-July and around 75% in February-May. Other tourist-related
spending, such as sales of medicines and cosmetics, followed a
similar trend, down 45.5% y/y in September, after plunging 50-60%
y/y during February-July.
Concurrently, the slump in fixed investment, although remaining
at double digits, narrowed to 11.2% y/y in the third quarter from
21.4% y/y in the second quarter.
The economy has finally shown signs of bottoming out in the
third quarter of 2020, after suffering the longest recession since
the 1998 Asian financial crisis. As the economy has not yet
recovered from last year's misfortunes caused by heightened
political turmoil and mainland China-US trade tensions, the
pandemic has added another severe blow to the already-battered
economy.
Mitsubishi Motors Corporation (MMC) has unveiled plans to raise
the proportion of electric vehicles (EVs), including plug-in hybrid
EVs (PHEVs) and hybrid EVs, in its total sales to 50% by 2030 as
part of its revised Environmental Plan. According to a company
release, the automaker also aims for a 40% reduction in the
carbon-dioxide (CO2) emissions from its new cars as compared to
2010 and a 40% reduction in CO2 emissions from business activities
as compared to 2014. "MMC will be fulfilling its responsibility as
a manufacturer and seller of automobiles to make ongoing
contributions toward a future dynamic, sustainable society," the
automaker stated. The latest move by Mitsubishi is in line with
changing environmental regulations in Europe, the United States,
and other countries. In July, the automaker released its mid-term
plan and revealed an intention to strengthen its line-up of
eco-friendly models, such as PHEVs and EVs, by launching new models
by fiscal year (FY) 2022. The plan also included introducing models
including sport utility vehicles (SUVs), pick-up trucks, and
multi-purpose vehicles (MPVs) in the Association of Southeast Asian
Nations (ASEAN) region from FY 2022. (IHS Markit AutoIntelligence's
Isha Sharma)
South Korea's Ministry of Trade, Industry and Energy will
launch a new division under its wing, which will be in charge of
spearheading the development of future vehicles, in line with the
country's blueprint on the automobile segment, reports Yonhap News
Agency. According to the ministry, the new division, which will be
launched on 11 November, will also center around developing
technologies related to electric vehicles (EVs) and fuel-cell
electric vehicles (FCEVs). The latest development is in line with
the South Korean government's commitment to improve air quality in
the country by bringing down particulate levels, fostering
alternative-powertrain vehicles as the country's new growth engine
and reducing its heavy reliance on imported oil. Hydrogen fuel has
a strong potential to revive sluggish manufacturing businesses,
including small and medium-sized enterprises, which in turn will
create new jobs (see South Korea: 21 January 2019: South Korean
government reveals FCEVs roadmap). Last week, the government
unveiled its plan to boost the adoption of EVs and FCEVs in the
country by expanding the number of charging stations and making
such vehicles more affordable. Under the plan, the government aims
to increase the number of EVs and FCEVs on the country's roads to
1.13 million units and 200,000 units, respectively, by 2025. (IHS
Markit AutoIntelligence's Jamal Amir)
Recent data show an essentially stagnant Malaysian economy,
largely in line with expectations. (IHS Markit Economist Dan Ryan)
When the COVID-19 virus pandemic first struck, the ringgit
weakened because of panic selling, as happened in many Asian
countries. However, the currency has since recovered, and now
appears to have found stability near 4.16 per USD.
Bank Negara Malaysia has kept interest rates low and constant.
This is likely to continue, even if the heightened Movement Control
Order causes short-term economic damage.
Consumer prices have lately been flat, a situation that should
continue well into 2021. Wholesale prices have been more volatile
and could fall further before stabilising along with the economy in
mid-2021.
Exports staged a strong rebound in June, as part of the
post-lockdown recovery, but have been essentially flat (although
volatile) since then. Imports have also been flat, leaving the
trade balance in the USD3-6-billion range.
The leading indicator has been bullish for months versus a year
earlier, but appears to be overly optimistic. The industrial
production index, however, has been essentially flat compared with
a year earlier.
Wholesale sales grew quickly in recent months, but remain depressed
compared with last year. This probably reflects the consumer-facing
part of the wholesale sector.
The unemployment rate has reflected the overall economy, with
many people becoming jobless in early second quarter and then being
rehired as growth resumed. From this point, the unemployment rate
should remain relatively stable until improvement resumes in
mid-2021.
Consumer spending on normal retail goods remains down from the
levels of a year earlier. Auto registrations are up, however,
suggesting that households are still willing to spend on big-ticket
items.
Data for spending and output, as of August, had been relatively
steady since the recovery from the low point in mid-second quarter.
Similarly, price data for September are not showing strong trend
changes, although wholesale prices will need to be watched
closely.
Posted 03 November 2020 by Chris Fenske, Head of Fixed Income Research, Americas
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