US and APAC equity markets closed mixed, while Europe was lower.
US and European benchmark government bonds closed sharply lower.
European iTraxx and CDX-NA credit indices closed close to flat on
the day. Brent and gold closed unchanged, WTI was lower, and silver
and copper higher on the day.
Americas
- US equity markets closed mixed; Russell 2000 -0.9%,
DJIA/S&P 500 flat, and Nasdaq +0.6%.
- 10yr US govt bonds closed +3bps/1.11% yield and 30yr bonds
+4bps/1.87% yield.
- CDX-NAIG closed flat/51bps and CDX-NAHY +1bp/298bps. CDX-NAHY
began widening after the 8:30am EST release of the US initial
claims for unemployment insurance and was as wide as +5bps at
10:10am EST before gradually tightening throughout the remainder of
the day.

- DXY US dollar index closed -0.4%/90.13.
- Gold closed flat/$1,866 per ounce, silver +0.3%/$25.85 per
ounce, and copper +0.3%/$3.65 per pound.
- Crude oil closed -0.3%/$53.13 per barrel.
- Passenger throughput at US airports has flattened out in recent
days on a seven-day average basis, according to daily data from the
Transportation Security Administration (TSA), and is back in line
with readings prior to the holidays. This suggests that the
holidays provided a temporary boost to the travel sector. The
broader recovery has been slow. (IHS Markit Economists Ben Herzon
and Joel Prakken)

- Seasonally adjusted (SA) <span/>US initial claims for unemployment
insurance fell by 26,000 to 900,000 in the week ended 16 January.
The not seasonally adjusted (NSA) tally of initial claims fell by
151,303 to 960,668. Despite falling last week, initial claims are
above levels seen in the past few months, suggesting that the
recovery in labor markets is flagging as the pandemic rages on
across the country. (IHS Markit Economist Akshat Goel)
- Seasonally adjusted continuing claims (in regular state
programs), which lag initial claims by a week, fell by 127,000 to
5,054,000 in the week ended 9 January. Prior to seasonal
adjustment, continuing claims fell by 203,750 to 5,563,048. The
insured unemployment rate was unchanged at 3.6%.
- There were 423,734 unadjusted initial claims for Pandemic
Unemployment Assistance (PUA) in the week ended 16 January. In the
week ended 2 January, continuing claims for PUA fell by 1,735,491
to 5,707,397, the lowest since late May.
- In the week ended 2 January, continuing claims for Pandemic
Emergency Unemployment Compensation (PEUC) fell by 1,139,309 to
3,026,952. With the latest extension to 24 weeks for PEUC, eligible
recipients can receive up to 50 weeks of unemployment benefits
between the regular state programs and PEUC.
- The Department of Labor provides the total number of claims for
benefits under all its programs with a two-week lag. In the week
ended 2 January, the unadjusted total fell by 2,412,508 to
15,994,519.

- The December US housing starts report provides a first complete
look at new residential construction in the fourth quarter and full
year. Housing starts increased 11.2% in the fourth quarter, to a
1.592 million rate—the best reading since the third quarter of
2006. Builders started 1.380 million housing units in 2020—also
the most since 2006. Single-family starts totaled 991,200 in 2020,
the highest since 2007. Multifamily starts were 389,100 last year,
down from 402,200 in 2019. (IHS Markit Economist Patrick Newport)
- Housing starts increased 5.8% (plus or minus 11.0%, not
statistically significant) in December from November to a 1.669
million rate—the highest since September 2006. Single-family
starts jumped 12.0% (plus or minus 13.4%, not statistically
significant) to a 1.338 million rate, the highest also since
September 2006; multifamily starts dropped 13.6% to a 331,000 units
rate.
- The single-family category has surged since April, increasing
by an unprecedented 659,000 units to a 1.380 million unit rate. Its
share of total starts climbed above 80% in December for the first
time since November 2010. That share will likely go up, given a
December surge in single-family housing permits and authorized but
not started not-seasonally adjusted units ending the year at
103,200 units, the highest in almost 12 years.
- Single-family permits, arguably the most important number in
this report, jumped 7.8% (plus or minus 0.9%; statistically
significant)—the eighth straight increase—to a 1.226
million rate, which was the highest since August 2006.
Single-family permits are surging in all four regions.
- The South and West accounted for 80.4% of single-family housing
starts last year, the same as in 2019—but this is up from 69.3%
in 2000 and 72% in 2010.
- New US president Joe Biden has asked the Environmental
Protection Agency (EPA) to review the currently mandated vehicle
emissions rules that apply through the 2026 model year. This action
comes as no surprise; however, as the order states it is bound by
applicable law and is considering a change, the order to review the
rules is not the same as rescinding them. Although new president
Biden's intention is to have stricter emissions regulations
introduced, the process of revising the rules requires input from
the public as well as a thorough, fact-based review. The process
will take time and is unlikely to happen quickly. At the time of
writing, IHS Markit is monitoring developments but plans no
immediate change to our forecast relating to what any potential
changes might specifically mean for automakers. (IHS Markit
AutoIntelligence's Stephanie Brinley)
- Autonomous truck startup TuSimple has secured undisclosed
investment funding from logistics provider Werner Enterprises. The
terms of the deal were not disclosed. Werner Enterprises, through
this investment, aims to strengthen its commitment towards
enhancing the lives of its professional drivers, improve
over-the-road safety measures, and create sustainable shipment
efficiencies. Cheng Lu, CEO of TuSimple, said, "We are excited to
be working closely with Werner Enterprises in bringing our
transformational technology to market safely and reliably. Our
collaboration with Werner allows our teams to work hand-in-hand to
ensure we meet the needs of our customers." In a separate
statement, Mark Rourke, president and CEO of logistics firm
Schneider, has joined TuSimple's newly established executive
advisory board. Schneider will provide its test fleet to TuSimple
and in return will have a nominal investment stake in the latter.
TuSimple focuses on developing Level 4 autonomous solutions for the
logistics industry. The company currently has about 40 vehicles in
its test fleet and expects to achieve fully autonomous operations
in 2021. Two months ago, TuSimple raised USD350 million in a Series
E funding round. Last year, Traton and TuSimple announced a global
partnership on autonomous trucks, which will involve Scania testing
the technology. Werner's investment in TuSimple aligns with its
recent ventures in emerging trucking technologies including
electrification and hydrogen, telematics, and development of a new
transportation management system. In May 2020, Werner launched an
initiative, called Werner EDGE, that promotes technology-rich
driver solutions. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
- Panama's request for a precautionary and liquidity line (PLL)
has been granted by the IMF. The two-year PLL amounts to USD2.7
billion, with a disbursement of up to USD1.35 billion in the first
year if requested by Panama. The IMF noted that Panama meets the
conditions to have access to a PLL, such as robust institutions and
policy framework, strong economic fundamentals, years of good
economic performance, and the assurance of continuity of the policy
in the future. (IHS Markit Economist Paula Diosquez-Rice)
- The PLL is intended to serve as an insurance against the risk
of further external and pandemic-induced shortcomings. The IMF
highlighted Panama's current ability to raise funds and noted that
the PLL will serve as a confidence boost, which should also help to
reduce future financing costs. Panama has relaxed its fiscal
responsibility law deficit targets to cope with the pandemic's
effect on the economy.
- The IMF expects Panama to return to fiscal consolidation once
the pandemic retreats and economic activity becomes vigorous again.
Panama's pandemic containment measures have severely reduced
activity and the economic activity index declined by 18.2% year on
year (y/y) in the first 10 months of 2020; the deepest drops were
in the hospitality sector, the construction sector, the retail
sector, and the manufacturing sector.
- Central government revenues declined by nearly 30% y/y in the
first months of 2020 driven by the steep decrease in retail sales.
Meanwhile, activity in the construction sector - measured in square
meters built - dropped by more than 60% in 2020. However, activity
in the Panama Canal increased slightly in January to November 2020,
delivering a rise in toll revenues (0.9% y/y), while activity in
the national ports system increased by nearly 10% y/y.

- Colombia's monthly economic activity index contracted by 3.3%
year on year (y/y) in November. The rebound in economic activity
has been uneven since the severe contractions in March and April,
and once again tapered off in November, growing at a much slower
rate of 1.2% month on month (m/m) compared with the sharper
rebounds that have occurred in earlier months (the fastest monthly
rebound occurred in June at 5.9% m/m). (IHS Markit Economist
Lindsay Jagla)
- Colombia's industrial production index has followed a similar
recovery trend and the index remained 7.1% below 2019 levels in
November. This recovery has also tapered off, with industrial
production actually declining by 1.4% in monthly terms between
October and November, delaying a return to pre COVID-19-virus
levels.
- Mining and quarrying continues to put the most downward
pressure on the industrial production index, remaining 29.9% below
2019 levels in November. The three-month strike at the Cerrejón
mine, coupled with low demand amid the global COVID-19-virus crisis
and subsequent lockdowns, accounts for some of this contraction in
industrial production.
- Retail sales continue to present an upside for the economy,
settling 4.1% above 2019 levels in November.
- Colombia's economic recovery has slowed after sharper, though
partial, rebounds immediately following the strict economic
shutdown in the second quarter of 2020. Although the majority of
isolation measures were lifted between May and August, places with
growing case numbers, such as Bogotá and Medellín, have
reimplemented curfews and other lockdown procedures at various
points in recent months.
- Colombia currently has the fourth highest number of cases per
million people in the region. Furthermore, although some countries
have begun their vaccination programs, Colombia expects to receive
the first doses of the COVID-19 vaccine sometime in February.
- IHS Markit expects Colombia's economic recovery to continue at
a slow pace in the first half of 2021 because of the slow rollout
of the vaccination program. Based on the country's vaccination
program plan, the majority of Colombians will not be vaccinated
until 2022.

- A growing number of domestic wineries in Brazil have entered
the canned wine market after the first canned wines gained
popularity in Brazil, thanks to their practicality. Today, there
are at least four national brands producing canned wines. The first
Brazilian winery to enter the market was Vivant Wines that launched
its first cans with one white (chardonnay), one red (cabernet with
merlot) and one rosé (syrah with pinot noir). Company officials
said they moved into canned fine and dry wines after noticing a
sudden surge in consumption by younger consumers. The company now
markets its canned wines in 24 of Brazil's 26 states. "In 2020
alone, we produced around one million cans, and in 2021, we expect
to at least triple this production. Most cans are for the domestic
market, but we have already started exporting to neighboring
markets in the Americas," said Alex Homburger, one of the founders
of Vivant Wines. Vinícola Góes, which produces and sells
approximately 7 million bottles per year, revealed that its new
canning line has the capacity to produce 5,000 cans per hour. "The
initial focus is on the domestic market, but we are also eying
foreign markets," said Vinícola Góes commercial director Luciano
Lopreto. (IHS Markit Food and Agricultural Commodities Vladimir
Pekic)
Europe/Middle East/Africa
- European equity markets closed lower; Italy/Spain -1.0%, France
-0.7%, UK -0.4%, and Germany -0.1%.
- 10yr European govt bonds closed sharply lower; Italy +8bps,
Spain +5bps, and France/Germany/UK +3bps.
- iTraxx-Europe closed flat/49bps and iTraxx-Xover
+2bps/250bps.
- Brent crude closed flat/$56.10 per barrel.
- The European Central Bank's (ECB) December 2020 policy meeting
concluded with a "recalibration" of its policy stance focused on
the Pandemic Emergency Purchase Programme (PEPP) and Targeted
Long-Term Refinancing Operations (TLTROs); that is, long-term loans
to commercial banks. (IHS Markit Economist Ken Wattret)
- Following the subsequent policy meeting on 20-21 January, the
ECB opted to "reconfirm" this stance, in line with
expectations.
- The tone of January's policy statement and press conference did
not change significantly compared with December 2020's versions. In
short, the risks to the outlook remain tilted to the downside,
although they have become less pronounced.
- Economic developments since December 2020's meeting were
described in the latest press conference as "mixed". Positives
cited include the start of COVID-19 vaccination rollout programs,
the EU-UK trade agreement, the resilience of manufacturing activity
(including IHS Markit's PMIs), and US political developments.
- Less favorable developments cited include the worsening of the
pandemic, the new variants of the COVID-19 virus, and related
containment measures, while various data releases, including
mobility indices, retail sales figures, and IHS Markit's services
PMIs, suggest that GDP probably contracted in the fourth quarter of
2020 and will remain weak in the first quarter of 2021.
- The current level of inflation was described as very weak in
the press conference, with the rise expected in early 2021 also
attributed to "mechanical" factors.
- The next ECB meeting will conclude on 11 March. If the ECB's
economic assessment remains the same as now, its policy stance will
remain unchanged, with the focus remaining on implementation of the
already announced asset purchases and long-term loans to
banks.
- Something would need to differ significantly from the ECB's
current expectations for its policy stance to be eased again, and
we see various areas for potential policy-relevant surprises:
- First, more persistent weakness in the economy. We note that
December 2020's Eurosystem projections do not assume a
quarter-on-quarter contraction in eurozone GDP in the first quarter
of 2021 (which we consider very likely).
- Second, downward surprises on inflation. This does not
necessarily imply further declines, as inflation is expected to
rise in January 2021 due to German value-added tax (VAT) increases
and over the subsequent months as a result of energy price base
effects. If inflation rates stay broadly unchanged from now, this
would be a significant downward surprise.
- Third, a tightening of financial conditions, including via
further exchange-rate appreciation. The euro has softened somewhat
against the US dollar recently but is at record highs in
trade-weighted terms.
- In the event of surprises on the first two issues above, the
ECB would be likely to lean towards continuing to adjust the PEPP
and TLTROs. One option on the former would be to front-load asset
purchases within the existing PEPP envelope rather than increasing
the total volume of purchases.
- Should the third risk factor arise, a further increase in the
exchange rate, we believe that this would also bring a reduction in
the ECB's deposit facility rate (DFR) into play. We note President
Christine Lagarde's comment in the latest press conference that
when it comes to policy options, "nothing is off the table".
- France's business sentiment index improved by 1 point to 92 in
January, following a jump of 12 points in December 2020. The
sentiment index now matches its level in September 2020, which had
been the highest reading since March 2020, when the effects of the
pandemic were just starting to be evident. (IHS Markit Economist
Diego Iscaro)
- The modest increase in confidence in December is the result of
divergent developments among the different sectors included on the
survey. Sentiment in the manufacturing and wholesale trade sectors
has risen by 4 points each (with the former reaching its highest
level since March 2020). Manufacturing firms have expressed
improved past activity and demand levels, while the index measuring
their personal production expectations has risen to a four-month
high in January.
- Confidence in the service sector has edged upwards by just 1
point in January, as improving expected demand and activity levels
were partially offset by a worsening assessment of past activity
and, particularly, employment.
- Meanwhile, confidence in retail trade sector, which had
improved substantially in November as non-essential retail shops
reopened in late October, declined by 1 point.
- As with the wider economic developments, business sentiment has
been strongly linked with dynamics of the pandemic and it is likely
that this will continue to be the case during the first half of
2021.
- Given the increase in the number of COVID-19 cases and patients
in intensive care units (they increased from a post-November
minimum of 2,582 in early January to 2,852 on 20 January) we see a
high risk of containment measures having to be tightened further in
late January/early February, potentially involving the closure of
non-essential businesses. Based on this assumption, we currently
project real GDP to contract for the second consecutive quarter
during the first three months of 2021.

- A joint venture (JV) related to developing the market for
hydrogen vehicles is hoping to encourage taxi drivers in Paris
(France) to replace their existing vehicles with hydrogen-powered
ones, reports Bloomberg News. HysetCo, which is jointly owned by
Toyota, Air Liquide and Societe du Taxi Electrique Parisien (STEP),
has announced that it has raised EUR80 million and has used this to
acquire Slota Group, a taxi operator in the city. It plans to
replace the 600 diesel vehicles in its fleet with Toyota's Mirai
fuel cell electric vehicle (FCEV). STEP's CEO Mathieu Gardies told
the news service that HysetCo is hoping to encourage around 10,000
taxi drivers to change to FCEVs by the end of 2024 through
incentives, ready access to vehicles and hydrogen availability,
which will improve with the construction of two refueling stations
by the end of the year to add to the three already in operation. He
also notes that running costs will be similar to those of existing
gasoline (petrol) or diesel cars. The ambitious target for getting
taxi drivers to change to FCEVs would coincide with the city
holding that year's Olympic Games, and is likely to result in a big
uptick in tourism around the time of the event in August. The 600
Toyota Mirai FCEVs that are expected to become taxis by the end of
the year will join STEP's 100 FCEV powertrain taxis that are
already in service. However, getting 10,000 such taxis on the road
during the next four years - or around 20% of those in the Greater
Paris area - is likely to be an ambitious target given the lack of
familiarity with the technology. (IHS Markit AutoIntelligence's Ian
Fletcher)
- The Bank of Italy estimates that the economy shrunk again in
the last quarter of 2020 after a stronger-than-expected GDP rebound
in the previous quarter. (IHS Markit Economist Raj Badiani)
- The central bank believes that the latest available information
points to GDP falling by an estimated 3.5% quarter on quarter (q/q)
but it acknowledges "a significant estimate dispersion around this
central value." This was after GDP rose by 15.9% q/q in the third
quarter after falling by 17.8% in the first half of 2020 when
compared to the last quarter of 2019.
- The effects of the second wave of COVID-19 infections and the
subsequent containment measures have weighed more heavily on
services, while manufacturing has been more resilient.
- The resurgence of the pandemic made new measures necessary to
restrict economic activity and personal mobility from late October,
although they are far less severe than the measures implemented in
the first national lockdown during March and April. The main
difference is that factories, construction sites and schools remain
open, which remains a smaller share of overall value-added hit by
the restrictions.
- Indeed, the IHS Markit Italy service PMI reveals the sector
remained in a deep downturn in December 2020 as lockdown measures
were imposed again. The survey concludes that services remains a
substantial drag on Italian economic performance, outweighing a
further upturn in manufacturing output.
- Households appeared to more cautious in the fourth quarter of
last year. The latest survey of households conducted by the Bank of
Italy reveals spending on services remains limited by fears of
infection more than by the restrictive measures.
- The retail group Confcommercio shows a significant reduction in
spending on services, particularly for recreation and tourism and a
smaller decrease in purchases of goods during the fourth quarter.
Meanwhile payment flows, namely use of ATMs, continued to contract
in the latter stages of 2020 after the marked recovery that
followed the end of the first lockdown.
- The central bank estimates that industrial production
contracted by 1.0% q/q during the fourth quarter after a sharp
increase during the third. It also pinpoints modest declines in the
consumption of gas for industrial use and of electricity during the
same period.
- The Bank of Italy now expects the Italian economy to grow 3.5%
this year, revised from the previous forecast of 4.8%, and follows
an estimated 9.2% drop in 2020. The downward revision is because
"in the short term, GDP is expected to fall in the current quarter,
remain weak at the start of 2021, and then return to significantly
stronger growth around the middle of next year."
- The central bank expects the outlook to brighten from mid-2021,
underpinned by the rollout of the COVID-19 vaccinations, continued
government support and recovery measures financed through the
national budget and using funds from the EU Recovery and Resilience
Facility.
- Agroponiente Group has introduced a biodynamic agriculture line
certified by Demeter as part of the ongoing expansion of its
organic production, Fruitnet reports. The company now has 250
hectares of organic production and expects to produce 20,000 tons
of organic fruit and vegetables this season, up from 18,000 tons in
2019/20. Demeter International is a major certification
organization for biodynamic agriculture and is one of the three
predominant organic certifiers. Its certification is used in over
50 countries. Agroponiente currently has red and yellow Palermo
peppers, cucumbers, mini watermelons, cherry and pear tomatoes. Its
Demeter-certified range will cover cucumbers, eggplant and Palermo
and California peppers. Many developed markets have seen strong
growth for organic produce sales in 2020. In the UK, organic
players benefit from their established home delivery service
pre-pandemic. The boom in home delivery service during the
lockdowns have encouraged consumers to stick to their shopping
habits. (IHS Markit Food and Agricultural Commodities' Hope
Lee)
- Transport operator Keolis has launched public trials of its
autonomous shuttle service in Gothenburg, Sweden. The service will
integrate two autonomous shuttles with the public transport network
to serve industrial and residential sites. The trials will run for
4.5 months and will be operated by Keolis on behalf of local public
transport authority Västtrafik. The autonomous shuttles
manufactured by French company Navya, can carry up to eight
passengers and have a maximum speed of 20 km/h. The two shuttles
will travel along a fixed 1.8-km route serving the Lindholmen
Industrial and Science park, reports Intelligent Transport. The
service assists passengers to connect with existing bus lines and
each shuttle will have a safety operator present to take over in
case of emergencies. Bernard Tabary, CEO International Keolis
Group, said, "We are delighted to step up our decade-long
collaboration with Västtrafik and offer a new mobility solution to
Gothenburg residents and visitors with this innovative,
sustainable, flexible mode of transportation". Keolis is a public
transport operator and has conducted various autonomous shuttle
deployments. Since 2016, the company has deployed autonomous
shuttles in Australia, Belgium, Canada, France, Sweden, the UK, and
the US; transported a total of 200,000 passengers and travelled
100,000 km. (IHS Markit Automotive Mobility's Surabhi Rajpal)
- South Africa's headline inflation rate ended 2020 at 3.1%,
marginally down from the 3.2% recorded in November and 4.5% at the
beginning of the year. This leaves headline inflation at an average
of 3.2% in 2020, a 16-year low. (IHS Markit Economist Thea Fourie)
- The largest contributions to the overall annual increase in
headline inflation during December were from food and non-alcoholic
beverage prices, up by 6.0% year on year (y/y) and adding 1.0
percentage point to the overall annual inflation rate, and
miscellaneous goods and services prices, rising by 7.0% y/y,
contributing 1.1 percentage point to the overall annual inflation
rate. Housing and utilities prices increased 2.7% y/y in December,
contributing 0.7 percentage point to the annual inflation
rate.
- Transport costs eased during December, falling by 1.6% y/y.
Fuel prices fell by 11.7% y/y last month. Other costs that came
down on an annual basis during December included communications,
restaurants and hotels, and household goods and services.
- South Africa's headline inflation rate is expected to pick up
and average 4.0% in 2021 but remain within the South African
Reserve Bank's (SARB) medium-term inflation target range of
3-6%
- The decision by private medical aid funds not to raise their
premiums during the first half of 2021 could push headline
inflation as low as 2.5% by February 2021. However, annual price
increases are expected to pick up from the second quarter onwards.
The low base year of comparison, tightening of the output gap, and
higher fuel costs are likely to increase headline inflation over
the period.
- IHS Markit is of the view that global oil prices could average
USD46 per barrel in the first quarter of 2021, rising to
USD52.67/barrel by the fourth quarter. The impact of the higher oil
prices on overall inflation could be mitigated by a stronger
exchange rate of the rand envisioned during 2021. IHS Markit
expects the South African rand to average ZAR15.26 against the US
dollar in 2021, from an average of ZAR16.46:USD1.0 in 2020.

Asia-Pacific
- APAC equity markets closed mixed; South Korea +1.5%, Mainland
China +1.1%, Australia/Japan +0.8%, Hong Kong -0.1%, and India
-0.3%.
- The BOJ left its monetary policy unchanged at its 20-21 January
monetary policy meeting (MPM). The bank will continue quantitative
and qualitative monetary easing (QQE) with yield curve control and
maintained the pace of its asset purchasing and special lending
program to support financing in response to the COVID-19 virus
pandemic. (IHS Markit Economist Harumi Taguchi)
- The BOJ assessment is that the current economy has picked up in
trend, reflecting continued increases in exports and industrial
production despite the impact of the resurgence of the COVID-19
virus pandemic at home and abroad. That said, the BOJ expects
increased downward pressure stemming from the resurgence of
COVID-19 infections to persist for the time being, which led the
majority of policy board members to notch down their forecasts for
fiscal year (FY) 2020/21 (starting from April) relative to figures
in the October 2020 outlook report.
- Nevertheless, the bank's outlooks for GDP growth for FY 2021/22
and FY 2022/23 have been revised upwards, reflecting prospects of a
recovery in external demand in line with the development of
vaccinations, accommodative financial conditions and upside from
the government's economic measures. Its outlook for prices was
revised upwards marginally for FY 2020/21 and FY 2021/21, but
remained sluggish. The BOJ remarked that its outlooks could change
depending on the consequences of the COVID-19 virus pandemic and
the magnitude of their impact.
- The BOJ's decision to maintain its monetary policy and special
lending program is in line with IHS Markit's expectations,
reflecting moderate improvement of economic activity even though
the state of emergency for 11 prefectures due to the recent
resurgence of COVID-19 infections could weigh on a recovery. The
price outlook also suggests the BOJ believes recent deflation
largely reflects short-term factors, as price cuts aimed at
stimulating demand have not been observed widely to date, although
the risks remain skewed to the downside.
- Japan's trade balance remained in surplus in December, largely
because of an increase in exports to China. However, the momentum
in exports recovery could weaken over the short term. (IHS Markit
Economist Harumi Taguchi)
- Japan's trade balance was positive for the sixth consecutive
month in December, with a surplus of JPY751 billion (USD7.3 billon)
on a non-seasonally adjusted basis, but fell by 13.2% month on
month (m/m) to JPY477 billion on a seasonally adjusted basis. The
trade balance ended up with a surplus of JPY674 billion in 2020
following two consecutive years of deficits. The sustained surplus
reflected the first year-on-year (y/y) increase in exports since
November 2018 (up 2.0% y/y), while imports declined at a faster
pace (down 11.6% y/y).
- The increase in exports reflected rises in exports to major
Asian trade partners, particularly China, which rose by 10.2% y/y,
reaching a record high in value terms and the second-highest level
since December 2010 in volume terms. Exports to the European Union
and the US continued to decline, partially because of disruptions
caused by COVID-19-related lockdowns. Major factors contributing to
the improvement were higher exports of plastics, non-ferrous
metals, and semiconductor machinery, thanks largely to a recovery
in production in Asia and greater demand for semiconductors.
- The continued weakness in imports was largely due to lower
energy prices, while the contraction of import volumes continued to
narrow (to 2.1%). Mineral fuels contributed 8.4 percentage points
to the decrease in imports. Imports of aircraft were also a major
contributor to the decline.
- The December 2020 results suggest net exports are likely to
make a one-percentage-point contribution to quarter-on-quarter
(q/q) growth of real GDP in the fourth quarter of 2020 (data is
scheduled to be released on 15 February 2020). The sustained
recovery in demand in China and the relatively controlled number of
new confirmed COVID-19 cases are likely to lift Japan's
exports.
- Exports for November show new records for totals as well as
China and Hong Kong combined. The month ended at 632.7 million
pounds of pork leaving the borders, with 27% of that moving into
China. Last year is coming to a close with China likely to take
roughly 8% of all US pork for the year, marking a record trend that
is not expected to continue. A record volume moved outside US
borders for 2020, as well as a record percentage of product, with
numbers finalizing in another month. Packers pushed 2.667 million
animals through the estimated harvest, up over last year by more
than 6%, marking two weeks of exceptional throughput. Bellies were
volatile last week, with more than 10% moving in both directions as
supply and demand are in a tight battle currently. Futures continue
to reflect higher input prices for animal feed in 2021 and are
expected to continue raising breakevens and supporting higher hog
values as the year progresses. (IHS Markit Food and Agricultural
Commodities' Roger Bernard)
- Zhejiang Geely New Energy Commercial Vehicle Group (GCV) and
UTI Israel have agreed to form a strategic partnership to introduce
GCV's electric commercial vehicles (CVs) to Israel. The first model
to enter the Israeli market will be the E200 8T light truck from
GCV's Farizon Auto brand. GCV will take the lead on completing the
related certification of Farizon Auto CV products, while UTI will
handle sales in target markets. According to GCV, the E200 light
truck can deliver a maximum range of more than 200 kilometers and
takes less than an hour to charge to 80%. Geely sees the potential
to expand its sales in overseas markets by leveraging its
new-energy CV products. The partnership with UTI will help the
Chinese automaker to launch sales of its electric CVs in the Middle
East region, including Israel. Battery electric vehicles account
for only a fraction of new vehicle sales in the Israeli market, but
Chinese automakers have already become among the most active
players in the country's electric vehicle (EV) market. Chinese EV
startup AIWAYS, for instance, announced a partnership with Israeli
distributor Blilious Group last year to introduce its U5 electric
sport utility vehicle to the market, while SAIC Motor began sales
of the MG EZS in the market at the beginning of 2020. (IHS Markit
AutoIntelligence's Abby Chun Tu)
- Chinese electric vehicle (EV) startup Sitech signed a strategic
co-operation agreement with Chinese truck manufacturer Sinotruk on
20 January to speed up the launch of Sitech's DEV-series models.
Sitech will launch a new EV under its DEV series in the second
quarter of 2021. The model, to be produced by Sinotruk, is expected
to be a mini-size or sub-compact model. The companies said that the
partnership will lead to the introduction of EVs targeting the
ride-hailing market, although further details were not provided.
Sitech launched its first EV, the DEV1, in 2018 under a partnership
with Chinese automaker FAW Group. The model is a sub-compact
vehicle targeting the entry-level EV market. According to data from
the China Association of Automobile Manufacturers (CAAM), less than
200 units of the DEV1 were sold in the country during 2020, down
from around 1,900 units sold in 2019. The partnership with Sinotruk
will help Sitech adjust its product strategy, especially at a time
when the market of mini-size EVs begins to experience increasing
demand. (IHS Markit AutoIntelligence's Abby Chun Tu)
- Inflation eased for the second month in December 2020, but
industrial output fell again in November after a short-lived
recovery led by the festival boost to demand. Positive developments
in containing the COVID-19 virus pandemic and higher government
spending will support further recovery but the economy may still
surprise on the downside. (IHS Markit Economist Hanna
Luchnikava-Schorsch)
- Consumer price index (CPI) inflation eased to 4.6% year on year
(y/y) in December from 6.9% y/y in November and from a six-year
high of 7.6% y/y only two months ago, according to data released by
the Ministry of Statistics and Programme Implementation.
- The easing in headline inflation was led by a sharp drop in
food inflation, with the food and beverages category of CPI
accelerating 3.9% y/y, down from 8.9% y/y in November.
- Inflation eased for both rural and urban areas, but given the
higher share of food in the rural basket, the latter saw a bigger
drop in inflation. Since the onset of the COVID-19 virus pandemic,
rural consumption has fared significantly better than urban thanks
to fewer mobility restrictions and greater government assistance.
Even as urban demand is slowly catching up, higher prices for urban
consumers, combined with higher unemployment and social benefits in
cities will constrain the recovery for some time.
- Wholesale price index inflation also eased to 1.2% y/y in
December, down from 1.6% y/y in November. Prices for food and
primary articles actually fell in December, while manufactured
goods inflation inched up to 4.2% y/y from 3.0% y/y in November.
According to the IHS Markit purchasing managers index (PMI) survey,
stronger rises in input costs, such as raw materials and labor, are
driving inflation in manufactured goods.
- In a separate MOSPI release, the index of industrial production
contracted by 1.9% y/y in November, following two months of
expansion attributed to the boost in demand from the Indian
religious festival season.
- Manufacturing output shrunk by 1.7% y/y, interrupting the
tentative recovery in October. Mining sector dropped by a sharp
7.3% y/y, while growth in power generation also slowed to 3.5% y/y
from October's 11.2% y/y expansion.
- On a use-based approach, production of both consumer durable
and non-durable goods slipped by 0.7% y/y, pointing to cuts to even
essential spending after the festival ended.
- Capital goods production contracted by 7.1% y/y, while growth
in infrastructure and construction goods also slowed. Even as
public capital expenditure has started to improve, private
investment remains weak.
- November's drop in industrial production did not surprise,
given the post-festival slack and the underlying weakness in
demand. A broader look at the economy suggests that the recovery is
still under way but the momentum may be slowing. Thus, power
demand, rail freight traffic, and GST tax collections all expanded
in December, but merchandise exports contracted again, while the
expansion in services activity and employment generation
slowed.
- Inflation risks are also not yet over, even though we still
expect the headline inflation to gradually come down in 2021. Even
as food prices started to ease along with the rebuilt supply chains
after the lockdown, recent farmers' protest against government
agricultural reforms are likely to cause new disruptions,
potentially leading to another spike in food inflation in coming
months. Rising raw material costs will also keep inflation from
easing.

- Ride-hailing firm Ola has partnered with Siemens to build
advanced electric vehicle (EV) manufacturing facility in Tamil Nadu
(India). As part of the partnership, Ola will have "access to
Siemens' integrated 'Digital Twin' design and manufacturing
solutions to digitalize and validate product and production ahead
of actual operations". The facility will be built on Industry 4.0
principles, will deploy around 5,000 robots across various
functions, and will be powered by Ola's proprietary artificial
intelligence (AI) engine and tech stack, reports The Times Now.
Bhavish Aggarwal, chairman and CEO of Ola, said, "Ola is delighted
to partner with Siemens to build the most advanced manufacturing
facility in the country. This will be our global hub and will set a
benchmark in quality, scale and efficiency, demonstrating India's
capability to build world-class cutting edge products. We look
forward to bringing this factory online in the coming months and
putting our products in the hands of customers." Ola announced last
month its plans to invest INR24 billion (USD326 million) in
establishing EV facility in Tamil Nadu (see India: 15 December
2020: Ride-hailing firm Ola to invest INR24 bil. in EV
manufacturing plant). The facility will manufacture electric
scooters, with initial annual capacity to produce 2 million. It
will create almost 10,000 jobs as Ola prepares to launch the first
of its range of electric scooters in the coming months. The
facility will build EVs for India, as well as for sale in regions
such as Europe, Asia, and Latin America. To achieve its aim, last
year, Ola Electric acquired Dutch-based electric two-wheeler
manufacturer Etergo for an undisclosed amount. (IHS Markit
Automotive Mobility's Isha Sharma)
Posted 21 January 2021 by 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.