BLOG — Jun 04, 2021
Daily Global Market Summary - 04 June 2021
By Chris Fenske
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.
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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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