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Jun 04, 2021
Daily Global Market Summary - 04 June 2021
This morning's slightly weaker than expected US nonfarm employment report tempered some inflationary concerns and triggered a sharp rally across equities, credit, government bonds, and commodities. All major US and most European equity indices closed higher, while APAC markets were mixed. US and benchmark European government bonds closed sharply higher. European iTraxx and CDX-NA closed modestly tighter across IG and high yield. The US dollar closed lower, while gold, silver, copper, natural gas, and oil were higher on the day.
Please note that we are now including a link to the profiles of contributing authors who are available for one-on-one discussions through our newly launched Experts by IHS Markit platform.
Americas
1. Nonfarm payroll employment rose 559,000 in May, less of an
increase than both the Bloomberg consensus and IHS Markit had
anticipated. Meanwhile, the unemployment rate declined 0.3
percentage point to 5.8%, generally in line with expectations. (IHS
Markit Economists Ben
Herzon and Michael
Konidaris)
a. The decline in the unemployment rate reflected an increase in
civilian employment as well as a small decline in labor-force
participation. We anticipate steady increases in labor-force
participation in the months ahead, reflecting firming optimism on
the part of households and a rising comfort level associated with
re-engaging in the workforce, as vaccination becomes widely
available.
b. Average hourly earnings (AHE) rose 0.5%, well above
expectations, following a 0.7% increase in April. As lower-wage
jobs that were lost to the pandemic come back, their rising
prevalence puts downward pressure on average wages. The unexpected
strength in AHE against this backdrop is all the more
impressive.
c. The average workweek was flat in May, consistent with our
estimate and following a flat reading in April that was revised
down from a previously reported increase. As shorter-workweek jobs
come back, this puts downward pressure on the average workweek.
d. With respect to aggregate private wages and salaries, the
unexpected weakness in job gains was essentially offset by the
unexpected strength in AHE, implying no material revision to our
estimate for May private wages and salaries.
2. All major US equity indices closed higher; Nasdaq +1.5%, S&P
500 +0.9%, DJIA +0.5%, and Russell 2000 +0.3%.
3. 10yr US govt bonds closed -8bps/1.55% yield and 30yr bonds
-6bps/2.24% yield.
4. CDX-NAIG closed -1bp/50bps and CDX-NAHY -5bps/283bps, which is
-1bp and -4bps week-over-week, respectively.
5. IHS Markit's AAA Tax-Exempt Municipal Analytics Curve (MAC)
rallied 1bps across 1-10 year maturities and 2bps for 15yr and
greater maturities.
6. DXY US dollar index closed -0.4%/90.14. The US dollar declined
0.5% after the release of the US nonfarm payroll report.
7. Gold closed +1.0%/$1,892 per troy oz, silver +1.5%/$27.90 per
troy oz, and copper +1.5%/$4.53 per pound.
8. Crude oil closed +1.2%/$69.62 per barrel and natural gas closed
+1.8%/$3.10 per mmbtu.
9. Job postings rose last week to 18.9% above the January 2020
level, according to the Opportunity Insights Economic Tracker.
These data are volatile and prone to large weekly moves; the
firming trend that has been in place since early January remains
intact, suggesting a fundamental improvement in labor demand.
Meanwhile, revenue per available room at US hotels last week
(adjusted for seasonal variation) jumped to 90.0% of the
mid-January 2020 level, according to our estimate based on data
from STR. The abrupt rise in the latest weekly data reflected a
boost from the Friday and Saturday of Memorial Day weekend, so it
is too soon to tell if this indicates significant and sustained
progress toward pre-COVID-19 norms in the hotel industry. Over the
week ending yesterday, an average of about 482,000 people per day
received a first (or only) dose of a COVID-19 vaccination, well
below the prior week's pace of 792,000 per day, bringing the total
number of US residents either partially or fully vaccinated to
169.1 million (about 51.2% of the population). At the current rate,
the US would achieve widespread vaccination (70-80% of the
population) in the fourth quarter of this year. (IHS Markit
Economists Ben
Herzon and Joel
Prakken)
10. US manufacturers' orders declined 0.6% in April, while
shipments rose 0.4% and inventories rose 0.3%. Orders and shipments
of core capital goods (nondefense, ex. aircraft) were little
revised through April. (IHS Markit Economists Ben
Herzon and Lawrence Nelson)
a. Despite the decline in April, orders remain above their
pre-pandemic trend. Meanwhile, the increase in April shipments puts
this series well above its pre-pandemic trend.
b. The performance in the manufacturing sector has been robust
though supply-chain issues pose a downside risk in the coming
months.
c. The goods sector of the US economy has been boosted by surging
demand for consumer goods as a stand-in for services forgone due to
the pandemic. Supply-chain issues likely reflect the possibility
that manufacturers simply did not plan for this type of demand.
d. Another source of strength in the goods sector is capital
equipment, as businesses get back on track with capital expansion
plans that were put on hold (or otherwise disrupted) during the
pandemic.
e. We look for equipment spending to rise at a 7.8% annual rate in
the second quarter on the heels of robust growth in the prior
quarter that has left the level of equipment spending well above
the pre-pandemic trend.
11. General Motors (GM) has updated its outlook on the impact of
the semiconductor shortage in the United States, according to a
company announcement yesterday (3 June). The automaker's revised
outlook incorporates improved efficiencies at a pick-up plant to
increase output, as well as plans to test and deliver units of
certain vehicles it has held back. GM now expects the company's
performance in the first half of 2021 to be better than the company
predicted when it reported its first-quarter results. However, the
automaker did not provide details of how much better it expects its
performance to be. (IHS Markit AutoIntelligence's Stephanie
Brinley)
12. Waymo has partnered with Google Maps to allow users to book its
fully autonomous ride-hailing service through an app in Phoenix
(Arizona, US). The service, called Waymo One, will be added in the
"ride-sharing and transit" tabs of the Waymo app, reports Reuters.
Waymo is at the forefront of automated transportation development
and has conducted 20 million miles of autonomous vehicle (AV)
testing on public roads in 25 cities and more than 10 billion miles
of simulation. The company launched its fully autonomous
ride-hailing service to the public in Phoenix and has begun a
driverless ride-hailing service with limited rider testing with its
employees in San Francisco. Last year, it announced that a new
funding round raised USD750 million, bringing its total external
funding to USD3 billion. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
13. The Financial Stability Board of global regulators issued a 2
June statement on a "smooth and timely transition away from LIBOR".
The report acknowledges that key US dollar LIBOR rates will
continue to be provided until mid-2023, but reiterated past
statements by US domestic regulators that the creation of new
contracts using dollar LIBOR as a reference rate after end-2021
would "create safety and soundness risks". It warned more widely
that continued reliance on LIBOR in financial markets "poses clear
risks to global financial stability". Given the widespread global
use of US Dollar LIBOR, it sought to reiterate the prior message of
US domestic supervisors on a broader global basis , stressing the
need to avoid creation of new LIBOR-based contracts rapidly and no
later than end-2021. The statement was accompanied by a roadmap
summarizing the migration plans to new safe rates in major global
jurisdictions, warning companies of their responsibilities and the
pending deadlines ahead. (IHS Markit Country Risk's Brian
Lawson)
14. After the plunge in the previous month, the Canadian Ivey
Purchasing Managers' Index (PMI) increased 4.1 points to 64.7 in
May. (IHS Markit Economist Chul-Woo
Hong)
a. The employment index was the biggest mover, up 9.0 points,
followed by the inventories index (up 5.9 points).
b. The supplier deliveries index and the prices index fell 3.0
points and 1.4 points, respectively.
c. Given the modest business spending activities, real GDP output
growth will modestly advance in the coming months after the
expected decline in April.
15. Disappointingly, Canada's net employment declined by 68,000
positions in May, as Alberta, Manitoba, and Nova Scotia
reintroduced lockdown measures. (IHS Markit Economist Arlene
Kish)
a. Job losses in the private sector were greater than the losses in
the public sector. Self-employment gained marginally. Based on the
businesses impacted by the lockdowns, jobs losses in part-time
employment easily exceeded those in full-time employment. However,
the net job reduction in goods-producing industries was more than
double that in services.
b. Additional losses in the labor force pulled the participation
rate down 0.3 percentage point to 64.6% and the unemployment rate
jumped 0.1 percentage point to 8.2%, with the only upward
adjustment to the adult men's unemployment rate.
c. Total average hourly wages were down from the previous month and
extended the loss from a year earlier, but at a slower -1.6%
pace.
d. Total hours worked managed to remain relatively steady with a
small 0.1% upward bump throughout the month.
e. May's labor market slump further exacerbates Canada's economic
and employment slack problem. The Bank of Canada's monetary policy
response will be to sit and wait until there is marked improvement
in the reduction in excess capacity, inflation hits 2% sustainably,
and there is an upturn in labor force measures.
16. Brazilian beef giant Marfrig has added to its stake in rival
meat processor BRF - taking its overall share of the company's
share capital to 31.66%. In an announcement on Thursday (3 June),
Marfrig said it has now purchased more than 257 million common
shares in BRF. The group announced in mid-May that it had acquired
a 24% stake in BRF. The latest share purchases take its stake
closer to the 33.33% threshold which, under BRF bylaws, would
require it to make a tender offer for all remaining shares. Marfrig
said it does not plan to elect members to BRF's board of directors
nor exert influence over the company's activities. The company also
insisted it has not entered into any contracts or agreements to
regulate voting rights, adding that its intention is to diversify
Marfrig investments in a segment that complements its own sector of
activity. (IHS Markit Food and Agricultural Commodities' Ana
Andrade)
17. Argentina's light-vehicle sales grew modestly year on year
(y/y) in May, increasing 4.7%, but declined 32% month on month. In
the year to date (YTD), Argentina's light-vehicle market has
improved 46.7% compared with the pandemic-struck corresponding
period last year. Latin America continues to struggle with the
COVID-19 pandemic, although restrictions in 2021 have not been as
severe as they were in 2020. However, light-vehicle sales in May
were hampered by fewer selling days because of restrictions over
increasing COVID-19 infection rates, and y/y growth was modest
despite comparison with results in a month of 2020 when there were
more restrictions. Light-vehicle sales in May were lower than in
April, and sales in April were lower than in March, so volumes are
trending in the wrong direction. However, there is an expectation
of better sales in the second half. IHS Markit forecasts a
light-vehicle sales increase of 15.8% to just less than 375,000
units in full-year 2021, after Argentina's light-vehicle sales
dropped by 27.2% in 2020. Argentina had been in recession prior to
the pandemic, and the improvement in 2021 barely begins to bring
the market to a healthy state. (IHS Markit AutoIntelligence's Stephanie
Brinley)
Europe/Middle East/Africa
1. Most major European equity indices closed higher except for
Spain -0.6%; Italy +0.5%, Germany +0.4%, France +0.1%, and UK
+0.1%.
2. 10yr European govt bonds closed higher on the weaker than
expected US employment report; UK -5bps, Germany -3bps,
France/Italy -2bps, and Spain -1bp.
3. iTraxx-Europe closed -1bp/49bps and iTraxx-Xover -3bps/244bps,
which is -1bp and -2bps week-over-week, respectively.
4. Brent crude closed +0.8%/$71.89 per barrel.
5. BP's Lightsource bp joint venture continued to pick up
acquisitions in the decarbonizing US and European markets over the
last week or so. The venture with UK-based Lightsource is active in
at least 13 countries, compared with five in 2017 when the two
first teamed up. (IHS Markit Climate and Sustainability News'
Cristina Brooks)
a. In Portugal, Lightsource bp will acquire five solar projects to
add over 1.35 GW of renewable power capacity to its portfolio,
according to a 28 May statement. The Portuguese solar farms will
not only serve corporate buyers but will count towards the
government's aim of reaching a 47% renewable share of national
energy consumption by 2030. The target was outlined to EU
authorities in the country's 2019 National Energy and Climate
Plan.
b. The major has 2 GW under development in Spain, and its Madrid
affiliate participated in a Spanish government PV auction in March,
gaining a 5-MW project. Elsewhere in Europe, a partnership of
Lightsource bp and Greek construction company Kiefer TEK succeeded
with bids into a government PV auction on 24 May. The partners won
over 40% of the 350 MW awarded at the auction.
c. BP's biggest transaction came with the acquisition of 9 GW of
solar projects across 12 US states announced on 1 June. Under the
agreement with independent US solar developer 7X Energy, around 2.2
GW of the projects will reach final investment decision in 2025,
and the rest will reach that stage by 2030. Texas-based 7X Energy
develops utility-scale solar for large corporations, utilities,
municipalities, and electric cooperatives.
6. Insurance company Aviva plc has entered a five-year partnership
with research and development company Darwin Innovation Group to
trial autonomous vehicles (AVs) in the UK. Darwin will trial an
autonomous shuttle at the Harwell Science and Innovation Campus in
Oxfordshire and has mapped the area, giving the vehicle all the
information, it needs to navigate. The shuttle, which is
manufactured by Navya, is controlled by 5G and satellite
connectivity and has Level 4 autonomy. These features allow the
shuttle to pick passengers up, transport them around the campus and
drop them off at their destination, without a human operator. A
second shuttle is expected to be added in the second year of
operation. These trials will allow Aviva to build its first
comprehensive insurance model for the autonomous shuttle, which
will evolve as the trial progresses. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
7. European pig prices have risen once again over the past week,
driven primarily by tight supplies of slaughter-ready pigs in a
number of regions. But prices may be set to plateau over the coming
weeks, with processors claiming that demand is not strong enough to
justify prices at their current elevated levels. For the first time
in over a year, the EU average pig price is now above the level of
the year before, having gained almost 30% since the start of 2021.
However, there is growing concern about marketing prospects for
pigmeat over the coming months. The continuing restrictions on
travel and tourism are making it highly unlikely that southern
Europe will see the demand boost which is usually evident during
the summer months, while demand is also continuing to be sluggish
in northern European countries. Market analysts are reporting that
Spain, which has been exporting record volumes of pigmeat to China
over the past year, is now facing a slowdown in its Asian export
trade, in the face of cheaper competition from countries such as
Brazil. If this materializes, Spain will inevitably divert growing
quantities of its own pigmeat to the EU internal market, which
would be certain to dampen prices. (IHS Markit Food and
Agricultural Commodities' Chris Horseman)
8. Renault Group has announced that it has reached an agreement
with US-based Plug Power on a new hydrogen commercial vehicle joint
venture (JV). According to a statement, HYVIA will be jointly owned
by the two partners and plans to offer "turnkey hydrogen mobility
solutions". This will include light commercial vehicles (LCVs) with
fuel cells, hydrogen charging stations, supply of carbon-free
hydrogen, maintenance, and fleet management. The JV will be based
out of four sites in France. Villiers-Saint-Frédéric will be its
headquarters and will also undertake research and development
(R&D) alongside Renault Group's traditional LCVs. (IHS Markit
AutoIntelligence's Ian Fletcher)
9. Saipem has signed an agreement with Naval Group's subsidiary
Naval Energies to acquire the latter's floating wind business. The
agreement will comprise the acquisition of Naval Energies'
engineering know-how on floating units, intellectual property
rights, and approximately 30 resources with expertise in modelling
and simulation. Naval Energies has more than 10 years of experience
in floating offshore wind and has developed a semi-submersible
floater concept. The transaction will be complete when
administrative authorizations have been received. Saipem has
further informed that, with this acquisition, it is positioned for
the award of the French Groix & Belle-Île offshore wind farm
project developed by EOLFI. (IHS Markit Upstream Costs and
Technology's Sophie Dear)
10. Vestas has entered into an agreement to sell its tower
manufacturing facility in Pueblo, Colorado to South Korean firm CS
Wind for USD150 million. The deal will see CS Wind acquire the full
100 percent stake in the Danish wind turbine manufacturer's
specialized tower manufacturing facility, along with a 5-year
contract to supply wind turbine towers manufactured at that
facility to Vestas from July 2021 to June 2026. This part of the
deal is reportedly worth USD1.35 billion. CS Wind intends to ramp
up sales to its other customers, including GE, and its biggest
customers, Siemens, and Nordex-Acciona. CS wind currently produces
towers for the US market at its Malaysian plant, with exports
amounting to USD155 million in 2020. (IHS Markit Upstream Costs and
Technology's Monish Thakkar)
11. Vestas will produce 99 out of the 114 units of V164 wind
turbine blade sets domestically for the 1,075MW Seagreen offshore
wind project in the United Kingdom. The 297 individuals
80-meter-long blades will be completed by the end of 2022.
Commercial operation is targeted for 2022/23. Seagreen offshore
wind farm is located 27 kilometers off the coast of Scotland in the
North sea's Firth of Forth. The project is developed by SSE
Renewables and Total Energies and will feature 114 Vestas V164-10MW
offshore wind turbines in the first phase. (IHS Markit Upstream
Costs and Technology's Monish Thakkar)
12. The Turkish Statistical Institute (TurkStat) reported annual
consumer price inflation of 16.6% as of May 2021, easing from its
peak the previous month of 17.1%. The rolling, 12-month average
annual inflation rate stood at 14.1%, two percentage points higher
than it had been a year earlier. (IHS Markit Economist Andrew
Birch)
a. Consumer prices rose by 0.9% over the course of May. High energy
prices contributed to a 2.6% month-on-month (m/m) increase in
transportation costs. Clothing and footwear prices also drove
inflation forward, rising by 1.8% m/m in May. On the other hand,
after surging forward in late 2020, food price grew more modestly
in May, up only 0.3% m/m.
b. While annual consumer price inflation relented in May, annual
producer price inflation continued to soar, reaching 38.3%, up by
more than three percentage points from just the previous month and
well above the 5.5% rate a year earlier. Energy prices surged in
May, fueling the further acceleration of producer price
inflation.
13. The monetary policy committee (MPC) of the Central Bank of
Mauritania's meeting on 28 May analyzed the development of economic
conditions highlighting that the economy continues to recover led
by strong growth in iron production as well as a recovery in the
service and telecommunications sector. Nevertheless, the MPC
pointed out that the recovery is still suffering from the lingering
aftermath of the COVID-19 virus pandemic. (IHS Markit Economist
Alisa Strobel)
a. The MPC decided to maintain the central bank's key interest rate
in May 2021. The last time the rate was cut was on 24 March 2020,
from 6.5% to 5%. However, monetary policy was tightened back in
December in response to high liquidity. On the money market, the
easing of rates continued through the first quarter of 2021. For
central bank liquidity recovery operations, the weighted average
rate stood at 0.4% in the first quarter of 2021 compared to 2.2% in
the fourth quarter of 2020.
b. The monthly weighted average rate of Treasury bills reached
2.46% in March 2021, down from 2.97% in December 2020. The
interbank rate remained mostly stable, standing at 5.6% in the
first quarter of 2021 compared to 5.5% in the fourth quarter of
2020.
Asia-Pacific
1. APAC equity markets closed mixed; Australia +0.5%, Mainland
China +0.2%, Hong Kong/South Korea -0.2%, India -0.3%, and Japan
-0.4%.
2. China's domestic prices for pork and other meats weakened in
May, running counter to the upward trend prevailing in many other
parts of the world. The UN Food and Agriculture Organization's
(FAO) meat price index registered its eighth consecutive monthly
increase to reach 105 points in May. This was 2.2% up on the
previous month and 10% higher than this time last year. In
contrast, prices of pork, beef, chicken and sheepmeat have all
decreased in China over the past four weeks. Demand for pork is
experiencing a seasonal dip, while supplies have been lifted by a
rise in the number of animals sent to slaughter and a steady
increase in import volumes. Wholesale pork prices fell for the 18th
straight week to stand at CNY24.71 per kg (USD3.86 per kg) in the
final week of May, according to data from the Chinese Commerce
Ministry. Wholesale prices are now 35% down on year-ago levels,
while retail prices have fallen by 26% y/y. Live pig prices also
fell again in the final week of May to average CNY19 per kg, down
36.3% y/y, according to Agriculture Ministry figures. (IHS Markit
Food and Agricultural Commodities' Max Green)
3. Japan's real household expenditures rose by 0.1% month on month
(m/m) in April for the third consecutive month of growth. Low base
effects lifted year-on-year (y/y) growth to a 13.0% rise from a
6.2% drop in March. (IHS Markit Economist Harumi
Taguchi)
a. Although retail sales declined sharply in April, the resilient
m/m figures largely reflected solid increases in spending for
transportation and communication, such as purchases of autos as
well as commuter rail passes in tandem with the beginning of new
fiscal/school year. Spending on clothing and footwear and furniture
and household utensils also increased, but this was largely offset
by declines in spending for other groupings, particularly for
culture and recreation and education.
b. Although the April figures are stronger than IHS Markit
expected, the extension of the state of emergency in many
prefectures to 20 June is likely to weigh on household
expenditures. We expect consumer spending to continue to decline in
the second quarter.
4. Daewoo E&C has been awarded a contract by Yeongwol Ecowind
to construct an onshore wind power complex to be built in
Sangdong-eup, Yeongwol-gun, Gangwon-do in South Korea. The 46.2MW
wind farm is scheduled to be carried out by 2023. The contract
awarded to Daewoo E&C is valued at around USD82 million (KRW92
billion). Daewoo E&C is targeting the onshore and offshore wind
market as a key part of its energy transition strategy. This
contract represents a crucial stepping stone in helping the Korean
contractor to increase its experience in wind power construction
with the goal of winning larger contracts in the future. (IHS
Markit Upstream Costs and Technology's William Cunningham)
5. Hyundai and Kia together sold 75,336 alternative-powertrain
vehicles, including electric vehicles (EVs), fuel-cell electric
vehicles (FCEVs), and hybrid vehicles, in South Korea during
January-May, up by 42.0% year on year (y/y), reports the Business
Korea Daily News. By type, they sold 54,560 hybrid vehicles (up
35.6% y/y) during the period; 17,111 EVs (up 62.2% y/y), and 3,665
FCEVs (up 59.7% y/y). The strong growth came on the back of
positive demand for new models, as well as favorable policies and
infrastructure initiatives by the South Korean government. (IHS
Markit AutoIntelligence's Jamal Amir)
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