All major US equity indices and most APAC equity markets closed
higher, while Europe was lower. US government bonds closed sharply
lower and most benchmark European bonds were also lower on the day.
The US dollar continued to sell-off today, while gold, silver, and
copper were all higher. Oil prices rallied on an unexpected sizable
production cut by Saudi Arabia announced at the conclusion of this
week's OPEC+ meeting. The first wave of vote counts in the two US
Senate runoff elections in Georgia indicates that both Republican
candidates are in the lead, but it may take days to tally the
significant quantity of mail-in ballots to determine the
winners.
Americas
- US equity markets closed higher; Russell 2000 +1.7%, Nasdaq
+1.0%, S&P 500 +0.7%, and DJIA +0.6%.
- Georgia voters returned to the polls to vote in two Senate
runoff races after no candidate in either race broke the 50%
threshold in November. The outcome of these two contests will
determine the balance of the Senate for the next two years. Similar
to the vote count in November's general election, early returns in
the runoffs could skew Republican, as Georgia officials were only
allowed to begin counting mail-in ballots, which are likely to lean
Democratic, starting at 7 a.m. on Election Day. It could take
several days or more to know the winner if the races are
close—ABC and CNN took 10 days to call the state's competitive
presidential race in November. As of 9:36pm EST Republican David
Perdue has 50.7% of the votes vs Democrat challenger Jon Ossoff and
Republican Kelly Loeffler has 50.3% of the votes vs Democrat
challenger Raphael Warnock. (Bloomberg)
- 10yr US govt bonds closed +4bps/0.96% yield and 30yr bonds
+5bps/1.71% yield.
- CDX-NAIG -1bp/52bps and CDX-NAHY -1bp/303bps.
- DXY US dollar index -0.5%/89.44.
- Gold +0.4%/$1,954 per ounce, silver +1.0%/$27.64 per ounce, and
copper +2.5%/$3.64 per pound. Silver is +22% since 27
November.
- Crude oil +4.9%/$49.93 per barrel, which is its highest close
since 24 February and it was as high as $50.19 at 2:22pm EST.
- Barely a few days into an agreed 500,000 b/d increase in
production in January, the OPEC+ meeting on 4-5 January 2021
brought plenty of surprises to unsuspecting oil markets, chief
among them Saudi Arabia's unilateral decision to cut production by
1 MMb/d through March. The group appeared set on Monday to roll
over January output levels through February despite Russia's public
dissent, and for the majority of OPEC+ that is indeed what was
agreed, with production levels for all but three countries to
remain steady through March. But market attention will be
captivated by the three exceptions: Russia and Kazakhstan's
decision to continue easing cuts over February and March by 65,000
b/d and 10,000 b/d a month, respectively, which was de facto
endorsed by the OPEC+ group; and Saudi Arabia's 1 MMb/d voluntary
cut commitment. While the latter far outweighs the former in terms
of volumetric impact, Russia's divergence bears clear significance
as it puts the strategic misalignment of the two largest producers
in the OPEC+ group on full display. But where disagreement over
policy in March 2020 led to a full breakdown as consensus was
unable to be reached, Tuesday's announcement reflects a compromise
to allow for divergent paths within the cooperation agreement. This
evolution of the OPEC+ partnership could quickly go from convenient
to unsustainable, but for the next two months at least, markets
(and shale producers) will welcome Saudi Arabia's decision to buck
internal consensus-building in favor of supply cuts that were much
needed given demand headwinds. (IHS Markit Energy Advisory's Roger
Diwan, Karim Fawaz, Edward Moe, and Sean Karst)
- Hospitalizations in the US topped 130,000 for the first time as
several Sunbelt states experienced their highest levels of
coronavirus patients since the pandemic began. The number of people
currently in US hospitals with coronavirus rose to 131,195 from
128,210 on Monday, according to Covid Tracking Project data.
California and Texas, which rank first and second by population,
made the biggest contributions to that total as their own tallies
hit records of 22,485 and 13,308, respectively. Hospitalizations
also hit records in Alabama, Arkansas, Arizona, Georgia,
Mississippi, North Carolina, South Carolina and Tennessee.
(FT)
- For all of December, requests for driving directions on Apple
Maps were roughly 4% above 13 January 2020. Over the last five
years (2015-19), average vehicle miles traveled in December were
about 11% above that of January, so the Apple data could suggest
reduced internal mobility this December. Meanwhile, the Weekly
Economic Index (WEI), from researchers affiliated with the New York
Federal Reserve, stood at -1.2 last week. Averaged over the fourth
quarter, the WEI was -2.7, a reading consistent with our latest
forecast of a 2.7% decline in real GDP over the four quarters of
2020. Furthermore, last week's WEI, if maintained over the balance
of the first quarter, would be consistent with our forecast of a
0.9% decline in real GDP over the four quarters ending in the first
quarter of this year. (IHS Markit Economists Ben Herzon and Joel
Prakken)

- With an estimated sales pace of 16.2-16.4 million units
seasonally adjusted annual rate (SAAR) at time of publishing,
December auto demand improved from the previous month's result. The
December result will help push the fourth-quarter average pace of
sales above a level of 16.0 million units. While still below
pre-COVID-19 levels, it would be a vast improvement from the
11.3-million-unit reading in the second quarter. A deeper dig into
the demand details shows that retail sales volumes have matched or
exceeded year-earlier levels since September, reflecting that auto
demand by the public has returned to "normal" levels and that those
consumers who are willing, ready, and able to purchase a new
vehicle continue to do so. It is fleet sales, especially to the
daily rental channel, that remain hindered. While the pace of the
recovery for auto sales flattened out after September 2020, IHS
Markit expects continued growth in auto demand levels in 2021,
supported by sustained economic developments from vaccinations and
economic stimulus. IHS Markit projects US sales volume to reach 16
million units in 2021, up an estimated 10% from the projected 2020
level of approximately 14.5 million units. The pace of sales is
anticipated to be stronger in the second half of the year,
following the expected widespread availability of the vaccine by
summer. Stock management will continue to be an important variable
moving through the immediate forecast horizon, but the all-out
vehicle production schedules now should help improve the situation
as we progress through 2021. Month-end December inventory levels as
reported by AutoData at time of publishing were estimated to have
declined from the previous month. (IHS Markit Economist Chris
Hopson)
- Ascend Performance Materials (Houston, Texas) has acquired
Eurostar Engineering Plastics (Fosse, France), a compounder with a
broad portfolio of flame-retardant (FR) engineered plastics and
expertise in halogen-free formulations. Terms of the deal were not
disclosed. The company also says it is very close to obtaining FDA
and EPA approval to make COVID-19-related claims for its Acteev
Protect antimicrobial fabric technology. Ascend, a fully integrated
producer of nylon-6,6, acquired two other European businesses,
Poliblend and Esseti Plast GD, from D'Ottavio Group in February
2020. That deal brought a manufacturing facility in Mozzate, Italy;
Esseti Plast's masterbatch portfolio; and Poliblend's portfolio of
engineering plastics, which included virgin and recycled grades of
nylon-6 and nylon-6,6, polybutylene terephthalate (PBT), and
polyoxymethylene (POM or polyacetal). In June 2020, Ascend acquired
the assets of NCM (Changshu) Co. and Tehe Engineering Plastic
(Suzhou) Co. located in Changshu Yushan High-tech Industrial Park
near Shanghai. Ascend intends to expand the compounding assets at
the site and to establish a global research and development center.
Ascend launched the Acteev Protect antimicrobial technology, which
embeds zinc oxide within the polymer lattice of nylon-6,6, in June.
Ascend originally developed Acteev to control odor in fabrics by
inhibiting bacterial growth, but over 350 third-party studies have
shown it is also highly effective against SARS-CoV-2, the virus
that causes COVID-19. The company has been working with FDA and EPA
since the second quarter of 2020, and it expects the agencies to
approve the use of Acteev in masks and other applications to
protect against SARS-CoV-2 during the first quarter of 2021. Ascend
has already produced millions of pounds of Acteev nylon-6,6, a
portion of which the company used to make over 600,000 masks. (IHS
Markit Chemical Advisory)
- Magna and Fisker are adding the development of advanced driver
assist systems (ADAS) to their vehicle partnership, supporting the
planned launch of the Fisker Ocean in 2022. According to a
statement released by Magna, the two will "work together to develop
industry-unique ADAS features and a suite of software packages
powered by a scalable domain controller architecture." The system
will use cameras, ultrasonic sensors, and what Magna says is a
first-to-market digital imaging radar technology. That technology,
developed with a Texas startup called Uhnder and called ICON RADAR,
is the first digital imaging single-chip radar solution for autos.
The announcement follows an announcement in October 2020 that Magna
will build the Fisker Ocean at its facility in Europe in 2022,
using Magna's electric vehicle (EV) architecture and Fisker's
platform that was finalized in December 2020. For Magna, this is
about building opportunities for business with other new OEMs, and
Kotagiri said the Magna is in talks with other companies, although
he declined to name them. The evolution keeps Magna relevant and at
the leading edge of technology for its Power & Vision
(powertrain, electronics, mirrors, lighting, and mechactronics)
division as well as its Complete Vehicles business, which grew 11%
in 2019 to account for USD6.7 billion of the company's USD38.4
billion in net sales. Magna's Power & Vision division, which
includes powertrain and electronics, recorded revenue of USD11.3
billion in 2019. The Fisker project should enable Magna to
integrate work from both divisions. Fisker gets to market more
quickly and with less direct capital investment. (IHS Markit
AutoIntelligence's Stephanie Brinley)
- LiDAR sensor manufacturer Aeva Inc has raised USD200 million in
private investment from Hong Kong SAR hedge fund Sylebra Capital
ahead of its public listing through a reverse merger. In November
2020, Aeva announced that it will go public through a merger
agreement with InterPrivate Acquisition Corp, a special purpose
acquisition company (SPAC), with a post-deal market valuation of
USD2.1 billion. The new investment from Sylebra will bring Aeva's
total raised capital to more than USD560 million, reports
Automotive News. Dan Gibson, Sylebra's Hong Kong-based chief
investment officer, said, "The company is a leader in frequency
modulated continuous wave technology, which we believe is where the
market is headed, not just for auto, but also for consumer,
industrial and commercial applications. We are buying at price
points that are very attractive versus the long-term opportunity
and the firm is backed by strong and experienced management." Aeva
is a California-based startup founded in 2016 by former Apple
engineers Soroush Salehian and Mina Rezk. Aeva provides a unique
LiDAR solution that can measure distance as well as instant
velocity without losing range. The company has said that its newest
LiDAR product, called the Aeries, which has a 120-degree
field-of-view, will cost less than USD500 when manufactured in high
volume. Last year, Porsche, part of the Volkswagen (VW) Group,
invested in Aeva. Aeva has signed a sensor-system deal with Audi
subsidiary Autonomous Intelligent Driving (AID) and ZF
Friedrichshafen. Aeva is one of the five LiDAR manufacturers that
have announced to go public through SPAC mergers; the others being
Velodyne Lidar, Luminar, Innoviz, and Ouster. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
- Brazil is strengthening its position as the top exporter of
chicken meat to South Africa as key competitors in Europe face bans
following outbreaks of highly pathogenic avian flu (HPAI). Newly
released figures show that Brazil supplied more than 60% of the
chicken meat imported by South Africa in November 2020. Imports
from the South American country amounted to 24,358 tons in
November, up 3% on the same month last year. In contrast, no
chicken meat at all was imported from Poland due to a ban imposed
following avian flu outbreaks earlier this year. Poland was
previously the largest EU supplier to South Africa, providing the
country with about 4,000 tons a month in 2019. Until now, some
other European countries have been helping fill the gap in Polish
supplies, with Ireland, Denmark, Netherlands and Spain all shipping
significantly more chicken meat to South Africa in the first eleven
months of this year. The spread of avian flu to many of these
countries means they too will be banned by South Africa - a country
that normally reacts to outbreaks by banning imports on a national
rather than regional basis. A ban on imports of Danish poultry meat
has already been confirmed in a 25 November notification to the
World Trade Organization. Data from the EU's Disease Notification
System shows that ten EU countries have been hit by HPAI outbreaks
since November. These include Poland, UK, Denmark, Ireland, France,
Germany, Croatia, Sweden and the Netherlands. (IHS Markit Food and
Agricultural Commodities' Max Green)

- The Central Bank of Chile (Banco Central de Chile: BCC)
reported the first annual advance in the country's economic
activity indicator during November 2020. In seasonally adjusted
terms, the index recovered by 1.1% month on month (m/m) in November
2020 following the October 2020 contraction. (IHS Markit Economist
Claudia Wehbe)
- According to the BCC, the monthly economic activity indicator -
a proxy for GDP - advanced by 0.3% year on year (y/y) in November
2020, the first annual advance in Chile's economic activity
indicator following persistent contraction during March-October
2020 because of the coronavirus disease 2019 (COVID-19)-virus
pandemic.
- The result was driven by a 15.3% y/y gain in commerce, which
more than offset contractions in services (-2.3% y/y) and goods
production, mainly driven by a 3.6% y/y contraction in
construction. Mining activity contracted by 1.1% y/y. Non-mining
activity recovered by 0.4% y/y, while manufacturing advanced by
1.6% y/y.
- Seasonally adjusted mining activity lost 2.0% while non-mining
gained 1.4% compared with October's results. The overall 1.1%
monthly gain was driven by gains in services (1.9% m/m) and goods
production (1.0% m/m) that more than offset a 1.3% m/m decline in
commerce. Results are likely to be revised due to challenges in
collecting data during the pandemic.
- Chile's modest economic performance was still dampened by
mobility restrictions and partial closures because of the pandemic.
IHS Markit currently forecasts real GDP to advance by approximately
6.2% in 2021; we do not project the economy to be back to its
end-2019 levels until 2022.
Europe/Middle East/Africa
- Most European equity markets closed lower, except for UK +0.6%;
Germany -0.6%, Italy -0.5%, France -0.4%, and Spain -0.1%.
- 10yr European govt bonds closed mixed; UK +4bps, Germany +3bps,
France/Italy +2bps, and Spain -1bp.
- iTraxx-Europe closed flat/49bps and iTraxx-Europe closed
+5bps/255bps.
- Brent crude closed +4.9%/$53.60 per barrel.
- After several delays, Hornsea Project Three has finally
received its consent from the United Kingdom Secretary of State for
Business, Energy and Industrial Strategy (BEIS). Ørsted had
initially submitted the development consent order (DCO) application
in May 2018. However following the subsequent consultation and
examination period, the decision deadline was repeatedly delayed
from October 2019, up to 31 December 2020. It is understood that
the delays were the result of the potential adverse effects of the
project on the environment around the Flamborough and Filey Coast
Special Protection Area, including the nesting sites of kittiwakes.
Ørsted has stated that they have worked closely with key
stakeholders to develop a robust compensation plan to address this.
Hornsea Project is a 2.4 GW offshore wind farm to be located 120
kilometers off the north Norfolk Coast. The project will comprise
up to 300 turbines. Ørsted completed its 1.2 GW Hornsea One project
in January 2020, and recently started construction, in October
2020, the 1.4 GW Hornsea Two project, slated for completion in
2022. When completed, Hornsea Three will be the biggest global
offshore wind farm project. (IHS Markit Upstream Costs and
Technology's Melvin Leong)
- German retail sales did not show the expected correction in
November, instead adding another 1.7% m/m that has pushed the
annual comparison to almost 10% y/y in nominal terms. Although much
of this reflects one-off catch-up and substitution effects linked
to the pandemic, plus support from July's VAT cut that expired at
the end of 2020, consumers are not holding back on spending as long
as shops are open. (IHS Markit Economist Timo Klein)
- According to Federal Statistical Office (FSO) data, real retail
sales excluding cars increased by a solid 1.9% month on month (m/m,
seasonally and calendar adjusted) in November, adding to October's
2.6% m/m. Price-adjusted November retail sales thus exceeded their
June levels (just before the VAT cut) by 5.2% and November 2019
levels by 8.7%.
- Calendar-unadjusted year-on-year (y/y) rates were dampened by a
missing shopping day but still posted 5.6% in real terms and 6.5%
in nominal terms. This compares to average growth of 3.2% and 3.7%,
respectively, in 2019, and even lower long-term trend growth of
0.6% and 1.3%.
- Recent above-trend retail sales are attributable to three
factors: the temporary VAT cut (July-December 2020), catch-up
effects due to the enforced inability to make purchases during the
March-April lockdown, and substitution effects with respect to
income that cannot be used for services which - for public health
reasons - are either not available at all or only with restricted
capacity, e.g. restaurants. Furthermore, with a greater share than
usual spent indoors, people want to improve their living conditions
at home and turn to DIY and household equipment.
- Major categories of the price-adjusted y/y data for November
(total 5.6% y/y, details see table below) show a much stronger
increase for non-food sales (8.5%) than for food sales (0.8%).
Among the former, 'internet and mail orders' remain far ahead of
the rest at 31.8% y/y, followed by 'furniture/household goods/DIY'
(15.4%) and sales in 'specialty stores such as for toys, books,
bicycles' (3.7%). The other major groups of goods all posted
declines, specifically -0.8% y/y for pharmaceutical/cosmetic goods,
-6.1% y/y for sales at general department stores, and -20.0% y/y
for textiles/shoes.
- As before, a clear distinction needs to be made between retail
sales alone and consumer demand in general, given the
above-mentioned catching-up, substitution, and tax effects. Many
services in the recreation and entertainment sector will remain
underutilized until widespread vaccination has been completed,
which is unlikely before mid-2021. Until that time, consumers will
spend an above-average share of their income on retail goods,
compared to long-term trends.
- Meanwhile, the latest GfK consumer confidence survey conducted
during December (overall index slipping from -6.7 to -7.3, still
well up from April's lockdown low of -23.1 but clearly below
pre-pandemic levels around 9.5) reveals dampening influences from
households' assessment of their personal financial situation in the
next 12 months and a rising propensity to save. On the other hand,
consumers' willingness to make major purchases posted a significant
rebound, and consumers' assessment of the economic outlook - while
not linked directly to the GfK headline index - also recovered to
some extent following declines during October-November.
- Seasonally adjusted German unemployment declined by 37,000
month on month (m/m) in December 2020, similar to developments
during October-November 2020. This is the sixth successive monthly
drop following a cumulative surge by 671,000 during the second
quarter of 2020. By comparison, the cumulative decline during
July-December was 164,000, and the unemployment level at the end of
December 2020 was 2.776 million. The latter remains well above the
March 2020 cyclical low of 2.269 million but is also far from the
interim high of 2.940 in June 2020. (IHS Markit Economist Timo
Klein)
- Separately, the Federal Employment Agency has calculated that
unemployment as a result of the COVID-19 virus was -39,000 in
December 2020, which matches the average monthly dampening effect
during September-November 2020 and follows a neutral effect during
July-August 2020. In contrast, the COVID-19 virus impact in the
second quarter of 2020 contributed 638,000 cumulatively. The net
boost to unemployment since April 2020 that can be linked directly
to the pandemic is 481,000, down from the June 2020 peak of
638,000. The German unemployment rate, which had increased from
5.0% in March 2020 (close to 40-year lows) to 6.4% during June-July
2020, stayed at 6.1% in December 2020.
- Seasonally adjusted underemployment (as opposed to
unemployment), which had deviated in both directions during 2019
owing to fluctuations in the number of people receiving some form
of (non-insurance related) government support - which affects the
underemployment data but not official unemployment - declined by
modestly less than headline unemployment in December 2020, posting
-28,000 m/m. The employment agency points out that statistical
under coverage of the number of people benefitting from public
support measures - in turn related to COVID-19 virus contact
impediments and preoccupation with administering short-time work
applications - is at least partly responsible for recent declines.
The official number for these measures (-10.9% y/y in December
2020, following -10.6% in November 2020) indicates an ongoing
sideways tendency of late.
- The December 2020 additional decline in unemployment is
somewhat misleading because the strict lockdown imposed in
mid-December 2020, leading to the closure of non-essential shops
and most services, is not yet reflected in the data (the
measurement date was 10 December 2020). Improvements since mid-2020
have been driven by natural corrections from the
second-quarter-2020 slump owing to the March-April 2020 lockdown,
in line with the subsequent loosening of restrictions.
- Passenger car registrations in Ireland declined by 24.6% year
on year (y/y) during 2020 because of the COVID-19 virus outbreak.
According to the latest data released by the Society of the Irish
Motor Industry (SIMI) and published by beepbeep.ie, passenger car
demand dropped from 117,109 units in 2019 to just 88,324 units.
Leading the market this year was the Volkswagen (VW) brand which
fell by 20.9% y/y to 10,691 units, while Toyota in second slipped
by 17.3% y/y to 10,021 units and Hyundai contracted by 26% y/y to
8,180 units. However, registrations in December leapt from 224
units to 601 units. Registrations in Ireland's light commercial
vehicle (LCV) market retreated by 14.2% y/y to 21,732 units in
2020, but leapt by 72% y/y in December to 301 units. Ireland's
medium and heavy commercial vehicle (MHCV) category also recorded a
fall in registrations for 2020 of 22.3% y/y to 2,066 units, with
December bringing a drop of 40.8% y/y to 29 units. (IHS Markit
AutoIntelligence's Ian Fletcher)
- The Italian passenger car market has fallen by 27.9% year on
year (y/y) during 2020 as a result of the disruption caused by the
COVID-19 virus pandemic. According to the latest data published by
the National Association of Foreign Vehicle Makers' Representatives
(Unione Nazionale Rappresentanti Autoveicoli Esteri: UNRAE),
registrations have fallen from 1,916,949 units in 2019 to 1,381,496
units. The market's performance in December helped little with the
country suffering a contraction of 15% y/y to 119,454 units. In
Italy, the government introduced a range of incentives intended to
help lift the market, the most successful being those which came as
part of the 'Decreto Agosto'. This has helped to moderate the
impact on private registrations, where registrations have dropped
'only' 19.1% y/y during 2020. This compares to the short-term
rental category, which tumbled by 54.3% y/y on the collapse in the
tourism sector, a 44.4% y/y retreat in company car registrations,
while long-term rentals have declined by 24.5% y/y. Furthermore,
the market could well be continuing to see registrations of
vehicles made thanks to this scheme as private registrations
slipped only 0.5% y/y in December. With the introduction of new
incentives as part of the Italian government's latest budget, UNRAE
is more positive with regards the new year. (IHS Markit
AutoIntelligence's Ian Fletcher)
- Vestas has acquired a 25 percent minority stake in greenfield
renewable energy fund manager Copenhagen Infrastructure Partners
(CIP) for a total consideration of EUR 500 million, with EUR 180
million as upfront payment, and EUR 320 million as potential earn
out. Proceeds of the transaction will be committed as
re-investments into CIP, and new funds to accelerate growth and
innovation. Central to the latter part will be CIP's creation and
co-investment into a new Energy Transition Fund, to be launched in
the first half of 2021.The fund will focus on leading-edge
technologies in the field of decarbonization, such as Power-to-X.
CIP currently manages EUR 14 billion of assets and has stated its
ambition to grow this rapidly to EUR 75 to 100 billion by 2030.
Vestas will be represented at the CIP Holding Board but will
however not influence the selection of wind turbine vendors and
services, or participate in negotiating competitive market terms.
CIP will continue to lead project origination, and project and
investment structuring. (IHS Markit Upstream Costs and Technology's
Melvin Leong)
- Offshore wind heavyweights Iberdrola, EDP Renewables and ENGIE
have recently struck deals in Poland to gain access to the market
there. Ocean Winds, the equal joint-venture company of EDP
Renewables and ENGIE, signed a major cooperation agreement with
Polish utility TAURON. Under the terms of agreement, TAURON will
acquire half the share in Ocean Winds' portfolio. In return, Ocean
Winds will receive half the shares of TAURON's Baltic Sea wind farm
projects. Spanish offshore wind company Iberdrola also struck a
deal in Poland to acquire a 50% stake in Sea Wind. Sea Wind has
seven projects in early development with a potential capacity of up
to 7.3 GW. Prior to the transaction, Iberdrola had an offshore wind
project pipeline of around 20 GW. Iberdrola has stated its
intention to geographically diversify its business into markets
with favorable investment conditions, such as Poland, and has
recently gained access to markets such as Japan and Sweden. The
company's key focus however remains in the North Sea, Baltic Sea,
and the United States. (IHS Markit Upstream Costs and Technology's
Melvin Leong)
- Annual inflation reached 14.6% at end-2020 in Turkey,
accelerating over the final quarter of the year. For 2020 as a
whole, inflation averaged 12.3%, fueled by one of the sharpest
depreciating currencies in the world. The central bank governor has
vowed to keep borrowing costs high to tackle inflation, which may
be even worse than officially reported. (IHS Markit Economist
Andrew Birch)
- The Central Bank of the Republic of Turkey (TCMB) reported that
the annual rate of consumer price inflation accelerated to 14.6% as
of end-2020. Inflation accelerated sharply during the final quarter
of the year, up from 11.8% as of September 2020, but remained below
the end-2019 rate of 15.2%.
- With annual inflation hovering around 11.5% to 12.5% throughout
most of the first three quarters of the year, average annual
inflation in 2020 was lower than end-year inflation, at 12.3%.
Average annual inflation was also lower than it had been in 2019
(15.2%) as well as in 2018 (16.3%).
- Although inflation did decelerate compared with the previous
two years, it nonetheless continues to far surpass the TCMB's
inflation target of 5%. End-year inflation also accelerated well
above the last TCMB inflation forecast of 12.1%, which was made at
the end of October.
- Over the course of 2020, food and transportation prices
contributed the most to the rise of overall consumer prices. Prices
of the former soared by 20.6% in 2020 and the latter's prices
jumped by 21.1%. Of all the expenditure categories making up the
total consumer price index, only clothing and footwear prices fell,
by 0.3% in 2020.
- Although annual inflation was elevated, several indicators
suggest that actual prices may have grown even faster and that the
data is being manipulated by the Turkish Statistical Institute. An
independent institution headed by academics from several Turkish
universities, ENAGrup, reportedly estimated that prices actually
grew by 36.7% in 2020.
- A faltering of merchandise exports and the continued rise of
imports caused Turkey's trade deficit to surge in November 2020.
The trade gap for the year as a whole is on track to widen by more
than USD20 billion compared with 2019. The widening of the trade
gap has contributed to the rise in external debt. The trade deficit
will retreat in 2021 but remain large. (IHS Markit Economist Andrew
Birch)
- The Turkish Statistical Institute has reported that the country
posted a merchandise trade deficit of USD5.0 billion in November
2020, up by more than USD3 billion from a year earlier. The
year-on-year (y/y) widening was significant throughout 2020, with
the trade gap through the first 11 months of the year reaching
USD45.3 billion, up by USD20.5 billion from the same period of
2019.
- Although the new central bank governor began tightening
monetary policy in November, demand for imports remained high. That
month, imports surged by 15.9% y/y. Expansionary economic policies
through the first part of 2020 continued to have an effect on
imports, fueling a 41.4% y/y surge in consumption goods imports in
November and a 32.6% y/y jump in capital goods imports.
- Meanwhile, exports faltered in November, with the resumption of
COVID-19-virus lockdowns undermining demand from Turkey's key
export market, the European Union. Shipments to the EU slipped by
1.4% y/y in November.
- The Central Bank of the Republic of Turkey (TCMB) also reported
that as of end-September 2020, Turkey's external debt had climbed
to USD435.1 billion, up by more than USD11 billion over just the
course of the third quarter. Total debt accounted for 71% of
estimated 2020 GDP as of end-September, a surge forward compared
with the end of 2019, when total external debt accounted for just
57% of GDP that year. The TCMB has been a prime contributor to the
rise of debt over the course of 2020, adding nearly USD13 billion
in external debt since the end of 2019, a reflection of its huge
expansion of forward swaps to build foreign-currency reserves.
- The surge in the merchandise trade deficit will combine with a
sharp deterioration in the services balance to send Turkey's
current-account deficit to nearly 5% of GDP in 2020 as a whole. IHS
Markit anticipates that the trade and current-account deficits will
narrow once again in 2021, although they will continue to be large.
Both are expected to remain at around 4% of GDP for 2021 as a
whole.
- We anticipate that the much tighter economic policies being
pursued by the TCMB to rein in inflation will begin to have more of
a dampening effect on imports in the first half of 2021.

- The Democratic Republic of Congo (DRC)'s higher social spending
needs push up the 2021 budget's estimate without clarity on
expenditure cuts, increasing the risk of a higher anticipated
fiscal deficit in 2021. (IHS Markit Economist Alisa Strobel)
- The finance bill for the 2021 fiscal year was tabled on 30
October 2020 in the National Assembly of the DRC. Prime Minister
Sylvestre Ilunga Ilunkamba presented the first draft budget for
2021 on 13 November 2020 in the National Assembly with an estimated
budget targeted at USD6.9 billion.
- However, the National Assembly revised upwards the targeted
budget for 2021 from USD6.9 billion to USD7.1 billion in December
2020. Overall, the national budget for 2021 suggests a USD1.4
billion increase in funds compared with 2020's national budget. The
increase is set to reflect the higher spending needs on social
expenditure. After its adoption by the National Assembly, the 2021
finance bill must be sent to the Senate for a second reading,
before its promulgation by the president of the Republic, Félix
Tshisekedi.
- The prime minister in November 2020 highlighted that the main
projects to be funded by the 2021 national budget include the
security sector's reform program, the creation and deployment of
the revenue chain, the healthcare system's development program, the
construction and rehabilitation of schools, an urban development
program, as well as the fight against erosion. Rural
electrification development and road infrastructure works as well
as exploitation and geological research for the certification of
mineral reserves are also among the main projects to be funded for
2021.
- With a focus of 10% of the allocated budget to the healthcare
sector to address the COVID-19-virus pandemic, 10% to rural
agricultural development, and 20% to education, there remains some
element of uncertainty as to how effective expenditure cuts will be
to offset the higher costs, particularly as public-sector wage cuts
still remain controversial.
- Furthermore, the anticipated larger-than-previously-scheduled
national budget of USD7.9 billion and challenging revenue
generation are expected to widen the fiscal account in 2021,
suggesting the need for a more prudent fiscal policy stance ahead,
while monetary policy is expected to remain accommodative as long
as headline inflation remains below the target.
Asia-Pacific
- APAC equity markets closed mixed; Nikkei -0.4%, Australia flat,
India +0.5%, Hong Kong +0.6%, Mainland China +0.7%, and South Korea
+1.6%.
- Dongfeng Motor has partnered with Aurora Mobile to strengthen
artificial intelligence (AI)-based smart mobility services. This
partnership will enable Dongfeng Motor's one-stop mobility service
platform, DFGO, to enhance operational and service efficiency and
optimize user experience. Aurora Mobile will use its AI-based push
notification services and machine learning-based operational
analysis capabilities to enable DFGO to gain insights into user
needs and improve user experience. DFGO currently offers services
including online ride-hailing, premium car hailing, timeshare car
leasing, taxi-hailing, used-car transaction services and electric
vehicle (EV) charging. In future, DFGO plans to upgrade its
products and technologies by connecting its platform with urban
transportation systems and expanding its service coverage to bike
sharing, bus services, hitch riding and intercity vehicle services.
Last year, Dongfeng partnered with Chinese technology company
Tencent to jointly deploy smart mobility services. It has also
partnered with FAW Group and Chongqing Changan to form a venture
named T3 Mobile Travel Services to establish a ride-sharing
platform. (IHS Markit Automotive Mobility's Surabhi Rajpal)
- Chinese exporters see the shortage of reefer containers and the
rising sea-freight rates continuing in the first week of 2021. This
problem may well stay until H2 2021. Some exporters seem
pessimistic when talking to IHS Markit. The sea freight rate to the
UK for a 40-ft. reefer container has climbed to USD11,000 per ton.
A Chinese frozen vegetable exporter said that: "We are now sending
the scheduled goods with orders placed in Q4 2020. We are making a
loss for each order. But we still have to continue the shipments as
we wanted to fulfil the contracts to maintain long-term
relationships with our European clients." Another local source told
IHS Markit that: "Freight rates to Japan remain stable; rate
increases to the Middle East are not as high as to Europe."
According to the Shanghai Containerized Freight Index, rates for
West Japan were USD244/FEU on 31 December 2020, unchanged from 25
December. Rates to south-east Asia showed a marginal increase of
USD23 to USD933 on 31 December. Sino-Europe railway's refrigerated
availability remains tight in the new year. The UK port congestion
has an impact on Chinese exports. Terry Zhang the sales manager of
Shandong Harvest Agriculture Co Ltd, told IHS Markit that: "The
port congestion in the UK has somewhat deterred exporters from
sending goods. Fresh ginger is at risk of deteriorating due to the
delayed unloading." (IHS Markit Food and Agricultural Commodities'
Hope Lee)
- China Huadian Corporation's first offshore wind project, with a
generation capacity of 300 MW, has come online. The Fuqing Haitan
Strait offshore wind project is located offshore the northeast part
of Longgao peninsula in Fuqing county, and consists of 22 MingYang
MySE7.0-158 turbines rated to 7 MW each. (IHS Markit Upstream Costs
and Technology's Melvin Leong)
- Ørsted is divesting 50% of its stake in its 605 MW Greater
Changhua 1 Offshore Wind Farm to a consortium comprising Caisse de
dépôt et placement du Québec (CDPQ), and Taiwanese private equity
fund Cathay PE. As part of the agreement, Ørsted will continue
construction under a full-scope EPC contract, and provide long-term
operations and maintenance services. The total sales price,
inclusive of the 50% ownership stake and the investors' commitment
to fund 50% of the payments under the EPC contract, is valued at
TWD 75 billion (USD 2.68 billion). The sale is subject to
regulatory approval from the Taiwanese authorities. (IHS Markit
Upstream Costs and Technology's Melvin Leong)
- Japanese sales of mainstream registered vehicles increased by
7.4% year on year (y/y) during December 2020 to 243,753 units,
according to data released by the Japan Automobile Dealers
Association (JADA) today (5 January). This figure excludes
mini-vehicles, thus covering all vehicles with engines greater than
660cc including both passenger vehicles and commercial vehicles
(CVs), sold in Japan. Of this total, sales of passenger and compact
cars grew by 8.2% y/y to 210,696 units in December 2020, while
truck sales were up by 4% y/y to 32,442 units. Bus sales were down
by 37.4% y/y to 615 units. In the full year 2020, sales of
mainstream registered vehicles were down by 12.3% y/y to over 2.8
million units. Sales of passenger and compact cars declined by
12.2% y/y to 2.47 million units, truck sales were down by 12.7% y/y
to 392.361 units, and bus sales were down by 31.3% y/y to 9,334
units. Japanese new vehicle sales posted yet another month of
consecutive growth in the domestic vehicle market in December 2020
owing to the recovery trend in the macroeconomic environment
through the COVID-19 virus pandemic. The rise in sales last month
can also be partly attributed to the low base of comparison from
2019 as customers trimmed their spending following the 1 October
2019 consumption tax rise. Nevertheless, the growth in the last few
months was not sufficient to offset the declines in the first three
quarters of the calendar year as full-year volumes were down by
over 12%. Even with the government easing guidelines for public
gatherings, as well as travel and dining promotional campaigns with
subsidies, weak employment conditions and uncertainties over the
pandemic with possible flare-ups will keep consumers cautious, and
thus remain key downside risks. (IHS Markit AutoIntelligence's Isha
Sharma)

- Preliminary data from the General Statistics Office showed that
Vietnam's GDP expanded by 4.48% year on year (y/y) during the
fourth quarter of 2020, up from a revised 2.69% y/y in the third
quarter. Vietnam's GDP managed to expand by 2.91% y/y in 2020, one
of the strongest growth rates in the world. (IHS Markit Economist
Jola Pasku)
- On the supply side, the industry and construction sector led in
terms of growth, rising 3.98% y/y and contributing 53% to overall
growth. Agriculture came in second (up 2.68%), followed by the
services sector (up 2.34%).
- The services sector posted the lowest growth reading in over
nine years amid COVID-19 pandemic-related disruptions. The ongoing
travel ban on tourist arrivals has disrupted Vietnam's tourism and
associated services, which account for 40% of total revenue in the
services sector.
- Full-year high-frequency data showed that exports also played
an important role in supporting the economic recovery. Vietnam's
exports are estimated to have risen by 5.5% y/y to USD271.0 billion
for 2020, while imports grew 1.7% y/y to USD262.1 billion,
resulting in a trade surplus of USD9.7 billion.
- Despite the COVID-19-induced blow to the demand and supply
sides in 2020, Vietnam has weathered the crisis well. The country's
economy proved resilient and continued to grow at a time when those
of regional peers contracted.
- The major driver behind this resilience stems from the
government's success in controlling the spread of the virus, with
very limited cases of community transmission. The government's
aggressive containment measures in the form of outright travel
bans, heavy testing, direct and indirect contact tracing, mandatory
quarantines, and domestic lockdowns facilitated a return to
normalcy ahead of many regional neighbors.
- The government ramped up spending on large-scale infrastructure
projects such as roads and bridges in an effort to offset the
COVID-19-related shock during the year. Public investment rose to a
nine-year high in the first 11 months of the year (up 34%).
- The pandemic disrupted supply chains and highlighted the risks
associated with over-reliance on China to many global
manufacturers, which prompted a fresh wave of investment to
neighboring Vietnam. The relocation helped propel Vietnam's
manufacturing sector, which grew by 5.8% during 2020, and enabled
the country to have one of the strongest growth rates in the
world.

- Southeast Asian ride-hailing and food delivery firm Grab's net
revenue grew 70% year on year (y/y) in 2020, President Ming Maa
said in a newsletter. In addition, the company has recovered to
above pre-coronavirus disease 2019 (COVID-19) virus pandemic levels
and has achieved segment breakeven for ride-hailing in all its
operating markets. The company has reduced EBITDA spending by
approximately 80% over the last year, reports The Straits Times.
Ming Maa also said that Grab's food delivery business is expected
to achieve breakeven by the end of 2021. Grab is focusing on
expanding its range of services, from transport to food delivery
and payments, and is making aggressive efforts to expand. In 2020,
Grab added nearly 600,000 new merchants onto its platform. Grab's
app has been downloaded on 166 million devices and it processes
more than 6 million ride orders per day. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
- Indonesia's ride-hailing and payments giant Gojek is in
advanced merger talks with local e-commerce company PT Tokopedia,
reports Bloomberg. The companies have "signed a detailed term sheet
to conduct due diligence of each other's business". According to
the report, the merged entity will have a combined valuation of
about USD18 billion and has plans to go public in Indonesia and the
United States. The merged company will offer businesses ranging
from ride-hailing and payments to online shopping and delivery.
Gojek and Tokopedia started conducting discussions for a potential
merger in 2018, but the deal did not materialize. Negotiations
between the companies gained attention in November 2020 after
months-long merger talks between Gojek and rival Grab reached an
impasse. Common investors of Gojek and PT Tokopedia include Temasek
Holdings, Sequoia Capital, and Google. The combined entity will
create a powerhouse dominating the Indonesian market, one of the
world's fastest-growing internet economies. This deal is likely to
face less regulatory opposition than Gojek's merger with Grab as
the latter would have hampered competition in ride-hailing,
delivery, and digital payments in Southeast Asia. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
Posted 05 January 2021 by Chris Fenske, Head of Capital Markets Research, Global Markets Group, S&P Global Market Intelligence
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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.