All major European and most US and APAC equity indices closed
higher. US government bonds closed lower, while most benchmark
European bonds were close to flat on the day. European iTraxx and
CDX-NA closed slightly wider across IG and high yield. The US
dollar, gold, silver, copper, natural gas, and oil all closed
higher on the day. Markets will be focusing on tomorrow's 8:30am ET
US CPI release for any signs of a slowdown in inflationary
pressures.
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Americas
- Most major US equity indices closed higher, with the DJIA +0.5%
and S&P 500 +0.1% closing at all new all-time highs; Russell
2000 +0.2% and Nasdaq -0.5%.
- 10yr US govt bonds closed +4bps/1.36% yield and 30yr bonds
+3bps/2.00% yield. All eyes will be on tomorrow's US CPI report to
see how the US government bonds will react to the release, with the
market's reaction to last month's release mirroring the rally
during the June release until 1:00pm ET when it then mimicked the
sell-off that occurred in May.
- CDX-NAIG closed +1bp/50bps and CDX-NAHY +3bps/293bps.
- The IHS Markit iBoxx Liquid USD High Yield Index reached a
record low weighted average yield of 3.87% on 7 July. A key driver
of the strength in the US high yield market has been the
outperformance of US high yield oil & gas debt. The below graph
compares the daily price of WTI alongside the YTD returns (as of 6
Aug) of the IHS Markit iBoxx Liquid USD High Yield Index (blue),
the Oil & Gas subindex (green), and the subindex that excludes
Oil & Gas constituents (orange). The graph highlights the
correlation between the returns of the O&G index versus the
price of WTI, as well as how O&G constituents have been a major
driver of the exceptional performance of the broader high yield
index this year.

- IHS Markit's AAA Tax-Exempt Municipal Analytics Curve (MAC)
sold off 3bps for 6-year and longer paper, with that same part of
the curve 6-8bps weaker week-over-week.

- DXY US dollar index closed +0.1%/93.06.
- Gold closed +0.3%/$1,732 per troy oz, silver +0.5%/$23.39 per
troy oz, and copper +1.5%/$4.35 per pound.
- Crude oil closed +2.7%/$68.29 per barrel and natural gas closed
+0.7%/$4.09 per mmbtu.
- Louisiana's top health official said the state may need to
consider enacting new Covid-19 restrictions, warning of a
"catastrophic" scenario in hospitals if the current wave of
infections does not begin to subside soon. The state health
department said there were 2,859 Covid-19 patients in hospital,
compared with a high of 2,069 during the winter surge. It also
reported 6,088 new cases and 93 additional deaths attributed to
coronavirus. On a per-capita basis, Louisiana has recently ranked
first- or second-highest in the US in the average number of new
cases reported over the previous seven days. Louisiana has one of
the lowest vaccination rates in the country with 45 per cent of its
residents having received at least one COVID-19 shot. (FT)
- US productivity (output per hour) rose at a 2.3% annual rate in
the second quarter, matching our expectation, following an increase
of 4.3% in the first quarter that was revised down 1.1 percentage
points. (IHS Markit Economists Ken
Matheny and Lawrence Nelson)
- Compensation per hour rose at a 3.3% annual rate in the second
quarter and at a 1.4% rate in the first quarter. The latter figure
was revised down substantially from the previously reported 7.2%
increase. Despite the downward revision, compensation per hour has
risen at a 6.4% annual rate from the fourth quarter of 2019, far
higher than the 2.8% annualized increase in productivity over that
span. The marked increase in compensation per hour reflects
pandemic-induced effects on employment: employment in lower-wage
sectors has declined relative to employment in higher-wage
sectors.
- Unit labor costs surged in the early stages of the pandemic, as
compensation per hour rose much more than productivity. However,
the rise in unit labor costs has slowed on average in more recent
quarters. During the first quarter, unit labor costs rose at a 1.0%
rate, but this followed a decline of 2.8% in the first quarter
(revised down from the previously reported increase of 1.7%). With
revisions, unit labor costs declined at a 0.9% rate over the first
half of 2021, down from a 1.1% increase over the second half of
2020 and from a 10.1% increase over the first half of 2020.
- Hours rose at a 5.5% rate in the second quarter, continuing a
strong recovery that began in the third quarter of 2020. Over the
last four quarters, hours have risen 13.6%, reversing more than
three-fourths of the 14.5% decline over the first two quarters of
2020.
- As pandemic-induced distortions on labor markets unwind, we
expect growth in compensation per hour and productivity to continue
to moderate, resulting in moderate growth of unit labor costs.
- A new bill introduced in Congress last week would ban
phthalates from food contact substances, including food packaging
materials, and require a review of other products to ensure
communities of color are not disproportionately exposed to these
chemicals. Introduced on August 6, the Preventing Harmful Exposure
to Phthalates Act was penned by California Reps. Ted Lieu (D.) and
Katie Porter (D.), while Sens. Dianne Feinstein (D-Calif.) and
Kirsten Gillibrand (D-N.Y.) introduced companion legislation in the
Senate. It comes just days after Rep. Jan Schakowsky (D-Ill.)
introduced a bill seeking to change the way FDA evaluates chemicals
in foods and create a new FDA office charged with reviewing the
safety of at least 10 food chemicals every three years. Top
chemical priorities in that bill include PFAS, perchlorate and
phthalates. Chemicals in food are gaining the attention of
lawmakers, especially after a House committee report shined a light
on heavy metals in baby foods and prompted FDA to lay out its new
Closer to Zero plan for regulating arsenic, cadmium, lead and
mercury in baby and toddler food. Feinstein pointed to the
potential for mounting exposure from phthalates from multiple
sources on a daily basis, and that regulators have already banned
these chemicals from toys and other children's products. (IHS
Markit Food and Agricultural Policy's Joan Murphy)
- Autonomous vehicle (AV) startup Embark Trucks has selected the
NVIDIA Drive computing platform to accelerate the development of
commercial autonomous software as a service (SaaS) for the trucking
industry. The NVIDIA Drive platform will power Embark Universal
Interface, a universal autonomous hardware and software stack, as
well as Embark Driver software. Ajith Dasari, head of hardware
platform at Embark, said, "In order to meet the high safety and
performance standards demanded by the Embark Driver software via
the EUI, we need an enormous amount of compute power in our trucks.
The NVIDIA Drive platform meets this need head-on, and allows us to
outfit our partners and customers with the best self-driving
hardware and software currently on the market." (IHS Markit
Automotive Mobility's Surabhi Rajpal)
- Peer-to-peer car-sharing firm Turo has confidentially filed for
an initial public offering (IPO) with the US Securities Exchange
Commission (SEC), reports TechCrunch. The number of shares and its
price to be offered in the IPO have not yet been determined. The
company ended 2020 in a healthy financial position despite the
COVID-19 virus pandemic; it laid off one-third of its 330-person
workforce and slashed marketing costs to shore up three years of
cash. Turo's platform is currently available in more than 5,500
cities in Canada, Germany, the UK, and the US. It has over 450,000
vehicles listed, with more than 850 unique makes and models on its
platform, and has a community of 14 million members globally. (IHS
Markit Automotive Mobility's Surabhi Rajpal)
- Air Products yesterday reported fiscal third-quarter net income
up 16% year on year (YOY), to $532.3 million, on net sales up 26%,
to $2.60 billion. Adjusted earnings totaled $2.31/share, up 15% YOY
but short of analysts' consensus estimate of $2.36/share, as
reported by Refinitiv (New York, New York). Volumes up were up 12%
YOY, and 6% higher energy-cost pass-through, and 2% higher pricing
also boosted sales. (IHS Markit Chemical Advisory)
- Industrial gases America segment sales increased 25% YOY, to
$1.06 billion, while segment operating income was up 15%, to $286
million. Volumes were up 9% YOY, due to recovery in merchant gases
volumes, and prices were up 4%. However, EBITDA margins declined
due to higher energy and maintenance costs.
- Industrial gases Asia segment sales rose 15% YOY, to $752
million, while segment operating income was down 1%, to $219
million. Volumes grew 6% YOY, on higher merchant volumes and new
plant openings, but this was partly offset by reduced contributions
from the Lu'an coal gasification joint venture and higher
costs.
- Industrial gases EMEA segment sales increased 45% YOY, to $623
million, while segment operating income was up 33%, to $140
million. Volumes were up 24% YOY, owing to COVID-19 recovery and
acquisitions, but margins fell due to higher energy cost
pass-through and other cost inflation.
Europe/Middle East/Africa
- All major European equity indices closed higher; UK +0.4%,
Spain +0.4%, Italy +0.2%, Germany +0.2%, and France +0.1%.
- Most major 10yr European govt bonds closed almost flat, except
for Spain -1bp; Italy/Germany/France/UK flat.
- iTraxx-Europe closed +1bp/47bps and iTraxx-Xover
+2bps/235bps.
- Brent crude closed +2.3%/$70.63 per barrel.
- The EC's proposals for biofuels in its "Fit For 55" package of
policies attempt to correct past mistakes, but they call for tough
reforms in sectors with a low appetite for change. The EU must
rapidly grow the share of renewable fuels and electricity used by
cars, trains, ships, and planes to reach its newly legislated
carbon neutrality aim. Today's renewable transportation fuel
frontrunner is biofuels—of which around 80% is biodiesel made
from food crops like rapeseed—but its carbon-cutting benefits
are hamstrung by the use of crops imported from overseas, which
results in deforestation that devastates carbon sinks. This may be
why the EU has decided to ease off supporting those crops and
reshape markets for biofuels in the proposed revision of the
Renewable Energy Directive (RED II) published on 14 July. While IHS
Markit analysts see crop-based biofuels as the current leaders in
the decarbonization of transportation under RED II, under the
proposed revision as it is currently worded, states may need to
reduce their crop-based biofuels consumption in favor of fuels that
use alternate feedstocks. The EC would also like to see, for
example, ships and cars use electricity, and new advanced biofuels
that come from feedstocks like waste or "energy crops," specific
types of trees that grow on land that is not devoted to arable use,
or algae, recycled carbon fuels, and electricity-based fuels such
as green hydrogen. The EC's proposal seeks to make its fuel
wishlist a reality even though these fuels are high in cost and low
in availability. (IHS Markit Net-Zero Business Daily's Cristina
Brooks)
- Irish energy company ESB is taking legal action against four
truck-makers that were fined by the European Commission in 2016 for
the price fixing of their vehicles in Europe. The Irish Times
reports that ESB, which owns a fleet of trucks supplied by the
companies affected, has filed High Court proceedings against Volvo
Trucks, DAF, Iveco and Daimler, alongside five international
entities associated with the vehicle manufacturers. However, it is
said to have chosen not to take legal action against their local
entities. The ESB declined to comment on the legal cases. The legal
action relates to a ruling by the European Commission that fined
the four truck-makers EUR2.9 billion for colluding on truck pricing
in the European Union (EU) over a 14-year period between 1997 and
2011. (IHS Markit AutoIntelligence's Ian Fletcher)
- Austrian industrial production (including construction)
declined by 1.8% month on month (m/m) in seasonally adjusted,
European Union (EU)-harmonized terms in June, extending the
previous month's identical -1.8% m/m. The latter was revised down
quite heavily from 0.1% m/m initially. (IHS Markit Economist Timo
Klein)
- June's -1.8% partly owed to an above-average decline of
construction output (-3.3% m/m), as production ex-construction
posted a somewhat smaller drop of -1.3% m/m, equally matching its
decline in May
- In year-on-year (y/y) terms, seasonally and calendar-adjusted
production ex-construction has, unsurprisingly, fallen further from
May's 20.8% to 11.5% in June, linked to the base effect of the
initial recovery from the first pandemic wave a year ago.
- Looking at the monthly changes at the data edge in June, the
breakdown of industry ex-construction reveals that energy output
was the main depressing factor at -4.8% m/m, followed by durable
consumer goods (-1.6% m/m). The three other main categories -
intermediate, investment, and consumer non-durable goods - actually
increased. However, the near-stagnation of investment goods
production follows a major decline during April-May (cumulatively
by almost 7%), indicating increased uncertainty around mid-2021
about medium-term prospects that contrasts with the surge in
activity in February-March.

- Greek consumer prices, measured by the EU-harmonized index of
consumer prices, rose by 0.7% year on year (y/y) in July. This
followed an increase of 0.6% in June. (IHS Markit Economist Diego
Iscaro)
- Although Greece's inflation rate has remained well below the
eurozone's average, July's reading was the highest since January
2020.
- Inflation measured by the national index, which gives a higher
weight to items such as food and housing costs, stood at 1.4% in
July, following 1.0% in June.
- Food prices accelerated sharply in July, rising by 1.7% y/y, an
eight-month high. Housing costs also grew at a faster pace in July
(4.2% y/y versus 4.0% y/y in June), boosted by the higher prices of
fuels/lubricants and heating oil.
- Seven out of the 12 main categories still showed falling prices
in July. For example, communication costs decreased by 2.7% y/y,
while the prices of miscellaneous goods/services and
recreation/culture dropped by 1.2% y/y and 0.8% y/y,
respectively.
- New data released by the Banks Association of Turkey (Türkiye
Bankalar Birliği: TBB) show the pace of debt restructuring under
Temporary Article 32 of the Banking Law accelerated into the middle
of the year. The TBB reports that almost TRY25 billion (USD2.9
billion) of loans were restructured in May and June, a sharp spike
over the average TRY2.1 billion per month restructured under the
program over the previous four months of 2021. The tourism sector
was the biggest participant with four firms restructuring TRY7.8
billion in loans in May-June, followed by the energy sector with
two firms restructuring a total of TRY5.3 billion and four
construction firms restructuring TRY1.7 billion. Since the program
was launched in 2019, a total of TRY66.3 billion of loans have been
restructured, according to the release. (IHS Markit Banking Risk's
Alyssa
Grzelak)
- Last month, Turkey extended Temporary Article 32 for an
additional two years and it is now to run through 2023 (see Turkey:
22 July 2021: Turkey extends enhanced debt-restructuring framework
until 2023 to suppress non-performing loans). Hurryiet Daily News
reported that the upper limit on eligible loans to small firms was
also increased from TRY25 million to TRY100 million.
- The amount of loans restructured in May-June is equivalent to
less than 1% of outstanding loans, but nonetheless would have
contributed to lowering the sector's non-performing loan (NPL)
ratio, as banks are not required to include restructured loans in
their non-performing statistics under measures introduced at the
start of the coronavirus disease 2019 (COVID-19) pandemic.
- Notably, the statistics reported by the TBB only include loans
restructured under this specific article, with anecdotal evidence
suggesting that many more loans have been restructured voluntarily
by individual banks since 2018. As of March 2021, Turkey's official
NPL ratio stood at just 3.8%, but IHS Markit calculates a troubled
loan ratio closer to 15% when Stage II loans or loans under close
monitoring are included.
Asia-Pacific
- Most major APAC equity markets closed higher except for South
Korea -0.5%; Hong Kong +1.2%, Mainland China +1.0%, Australia
+0.3%, India +0.3%, and Japan +0.2%.
- The Chinese government is eyeing up the opportunities that may
be afforded to its new energy vehicles (NEVs) by Russia's move to
accelerate the take-up of electric vehicles (EVs), according to a
China Daily report. China's Ministry of Commerce is looking to
encourage Chinese OEMs making NEVs to look at new opportunities in
Russia and other potential export markets. Chinese OEMs and other
NEV stakeholders will also be encouraged to seek co-operation on
NEV infrastructure, including charging facilities, gas pipeline and
power grid optimization, smart services and supplies in rural areas
in partnership with Russian companies and government agencies. Zhou
Mi, a senior researcher at the Chinese Academy of International
Trade and Economic Cooperation, said, "Currently, China's
development of NEVs is on a fast track with products enjoying
increasing recognition in the global market, especially those for
agriculture logistics, mechanical equipment transportation, and
short-distance travel [such as electric bicycles]. There is market
potential for Chinese NEV manufacturers to export products to
Russia." (IHS Markit AutoIntelligence's Tim Urquhart)
- SAIC Motor has partnered with telecoms technology company ZTE
to build "software-defined" vehicles, reports Reuters. The
companies aim to achieve this by collaborating in various fields
such as basic software technologies, underlying hardware platforms,
cloud computing capability, and intelligent connectivity. ZTE will
provide SAIC Motor with its 4G/5G-V2X (vehicle-to-everything)
automotive modules and roadside units, as well as a V2X-enabled
cloud-controlled platform. (IHS Markit Automotive Mobility's
Surabhi Rajpal)
- Japan's current-account surplus for June rose by 510.3% year on
year (y/y) to JPY905.1 billion (USD8.2 billion) on a non-seasonally
adjusted basis but fell by 4.7% month on month (m/m) to JPY1.8
trillion on a seasonally adjusted basis. (IHS Markit Economist Harumi
Taguchi)
- The y/y increase was largely thanks to a trade surplus of
JPY648.5 billion, which rose from a deficit of JPY17.2 billion and
offset a wider services balance deficit and a decrease in secondary
income.
- The improvement in the trade balance reflected a solid rise in
exports (up by 47.7% y/y), which outpaced imports (up by 33.8%
y/y), thanks to continued solid external demand and also low base
effects. That said, the narrower seasonally adjusted trade surplus
was due largely to a faster rise in imports (driven by higher
production as well as import prices). Primary income continued to
rise, largely thanks to improved income from direct
investment.
- The Indian government has amended environmental protection
rules pertaining to emissions caused by bulk drug manufacturing.
The new rules, known as Environment (Protection) Second Amendment
Rules, 2021 - which are available here in the Ministry of
Environment, Forest and Climate Change Ministry notification of 6
August - add tighter parameters for effluent and emission standards
to be applied to the production of both bulk drugs, or active
pharmaceutical ingredients (APIs), and pharmaceutical formulations.
The new rules will come into force one year from the date of
publication of the notification. (IHS Markit Life Sciences' Sacha
Baggili)
- Vehicle production in the Philippines grew by 48.7% year on
year (y/y) to 41,527 units during the first half of 2021
(January-June), according to data released by the ASEAN Automotive
Federation (AAF). In June alone, vehicle production in the country
stood at 8,011 units, compared with 4,138 units in the same month
last year. New vehicle sales in the Philippines stood at 22,550
units in June (up by 44.8% y/y) and were up by 56.1% y/y to 132,767
units during the first half of this. The growth in Philippine
vehicle production during the first half of this year was mainly
due to an increase in new vehicle demand and a low base of
comparison. (IHS Markit AutoIntelligence's Jamal Amir)

Posted 10 August 2021 by Ana Moreno, Director, Product Development, IHS Markit
and
Chris Fenske, Head of Capital Markets Research, Global Markets Group, S&P Global Market Intelligence
S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.