Daily Global Market Summary - 8 March 2021

European equity markets closed higher, while major US and APAC indices closed mixed. US government bonds closed lower and benchmark European bonds were mixed. CDX-NA closed wider across IG and high yield, while European iTraxx was modestly tighter. The US dollar and copper closed higher, while gold, oil, and silver were lower.

Americas

1. US equity markets closed mixed, with the Nasdaq -2.4% closing in correction territory; DJIA +1.0%, Russell 2000 +0.5%, and S&P 500 -0.5%.
2. 10yr US govt bonds closed +3bps/1.60% yield and 30yr bonds +2bps/2.32% yield.
3. CDX-NAIG closed +3bps/56bps and CDX-NAHY +13bps/314bps.
4. DXY US dollar index +0.4%/92.31.
5. Gold closed -1.2%/$1,678 per ounce, silver -0.1%/$25.27 per ounce, and copper +0.2%/$4.09 per pound.
6. Crude oil closed -1.6%/$65.05 per barrel.
7. A rollover of current OPEC+ crude output from March to April at roughly 24.9 MMb/d, and a promise to only add the 1 MMb/d additional Saudi cut gradually, will drive more tightness in crude markets over the next few months. As opposed to product markets, crude markets are essentially rebalanced, with ICE Brent prompt holding a $6.59/bbl premium over contracts expiring one year out. Less OPEC+ volumes as demand starts to rebound significantly lowers the risk of surplus and will likely drive a global deficit over the second quarter, which should help guide Brent up to $70/bbl and higher. Behind the surprise move is a greater internal cohesion than just a few weeks ago, a focus on price rather than market share, and higher perceived certainty that US shale producers will not be willing to expand output until next year even with the price windfall. The implied messaging to the market was clear that OPEC+ and Saudi Arabia in particular wants to encourage the rally higher and does not fear overheating the market. The Saudi action clearly shifted price risks to the upside, from a more balanced position before the previous meeting. The question now is can they keep this more hawkish position past the next two monthly meetings. (IHS Markit Energy Advisory's Roger Diwan, Karim Fawaz, Ian Stewart, Edward Moe, and Sean Karst)
8. A US Department of the Interior agency announced 8 March it has completed an environmental review of what would be the nation's largest commercial-scale offshore wind project when completed. Vineyard Wind's proposed 800 megawatt (MW) offshore wind farm, which the Interior agency said is slated for completion in the second quarter of 2024, would be located some 12 nautical miles off the coasts of Martha's Vineyard and Nantucket in Massachusetts. Receiving a final environmental impact statement from the US Bureau of Ocean Management (BOEM) brings Vineyard Wind one step closer towards construction. The next step for BOEM, which is Interior's lead agency for overseeing the offshore wind development process, is to coordinate with other federal agencies, notably the US Army Corps of Engineers and the National Marine Fisheries, on signing off on the final record of decision that will either disapprove or approve the proposed offshore project with changes. This decision is due 30 days from the date the final environmental review is published in the Federal Register. (IHS Markit Climate and Sustainability News' Amena Saiyid)
9. In February, light-vehicle sales in Mexico continued to decline on the impacts of the COVID-19 virus outbreak and pandemic-related restrictions, falling 21.1% y/y. Light-vehicle production and exports also declined, with LCV production gaining as passenger car production continued to fall on discontinued product lines. Mexico has begun 2021 with a sharp market decline, as the country continues to battle the COVID-19 pandemic, and lingering business restrictions had an impact in February, as they did in January. Mexico's overall light-vehicle sales declined in 2018 and 2019, and were soft at the start of 2020 prior to the COVID-19 pandemic. Following a drop of 28.0% in light-vehicle sales in full-year 2020, IHS Markit forecasts growth of 12.9% in 2021, especially as COVID-19 vaccines become more widely available in the second half of the year. IHS Markit sees light-vehicle production in Mexico improving during 2021 as well, although both sales and production will remain below pre-pandemic levels. (IHS Markit AutoIntelligence's Stephanie Brinley)
10. In January, Colombia's merchandise exports remained 24.1% below pre-COVID-19-virus pandemic levels. This contraction was driven primarily by declines in exports of fuels and extractives, which fell by 42.2% y/y. (IHS Markit Economist Lindsay Jagla)
    • Among extractives exports, significant decreases in the export of coal products (-69.6% y/y) contributed the most to the overall decline in merchandise exports. Petroleum products also played a significant role, contracting by 24.7% y/y.
    • Exports of manufacturing and agricultural products, including food and beverages, also fell by 0.7% and 2.5% y/y, respectively.
    • The United States remains Colombia's largest trade partner, with 27.2% of all Colombian merchandise exports sent to the former in January. Still, merchandise exports to the US declined by 21.9% y/y.
    • Recovery in the US will be key to Colombia's merchandise exports recovery. IHS Markit expects US import demand to grow significantly at 17.5% in 2021, which will help to boost Colombia's exports back to pre-COVID-19-virus pandemic levels.
11. Brazilian light-vehicle (LV) sales decreased 18% year on year (y/y) in February, while production decreased 4.6% y/y and exports decreased 15% y/y, according to data from the National Association of Motor Vehicle Manufacturers (Associação Nacional dos Fabricantes de Veículos Automotores: Anfavea). Brazil's LV sales were 1.96 million units in 2020, after topping 2.66 million units in 2019, roughly 8% higher than in 2018. In 2019, Brazil's LV sales were driven by increased availability of credit, and the sales increased despite a somewhat sluggish economy, which grew at 1.1% that year. However, in 2021, Brazil's real GDP is expected to rise by 3.5%, and we expect a rise in LV sales in Brazil to more than 2.45 million units this year, owing to the recovery of the market following the COVID-19 virus pandemic. (IHS Markit AutoIntelligence's Tarun Thakur)

Europe/Middle East/Africa

1. European equity markets closed higher; Germany +3.3%, Italy +3.1%, France +2.1%, Spain +1.9%, and UK +1.3%.
2. 10yr European govt bonds closed mixed; Germany +3bps, France +2bps, Spain +1bp, UK flat, and Italy -1bp.
3. iTraxx-Europe closed -1bps/50bps and iTraxx-Xover -4bps/256bps.
4. Brent crude closed -1.6%/$68.24 per barrel.
5. The United Kingdom's Financial Conduct Authority (FCA) issued a statement on 5 March confirming that all sterling, euro, Swiss franc, and yen London Interbank Offered Rate (LIBOR) settings will terminate on 31 December 2021, along with those for one- and two-month dollar LIBOR. Remaining dollar rates (notably three- and six-month dollar LIBOR) will be terminated from 30 June 2023. Based on bank representations, the FCA advised that it does not expect any LIBOR rates to become unrepresentative prior to the stated dates but reiterated that the "lack of an active market" makes LIBOR rates "unsustainable" and "unsuitable" as financial benchmarks. Bank of England governor Andrew Bailey stated that the announcements "mark the final chapter" in the reference rate migration process started in 2017 and stressed that "my message to firms is clear - act now and complete your transition by the end of 2021". (IHS Markit Economist Brian Lawson)
6. An estimated 17% of total food available to consumers was wasted in 2019, according to new research from the United Nations Environment Programme (UNEP). (IHS Markit Agri-Food Policy and Sustainability's Steve Gillman)
   • The food Waste Index Report 2021 found that 931 million tons of food ended up in the bins of households, retailers, restaurants and other food service outlets.
   • The report revealed that nearly every country it examined had a "significant" food waste problem, regardless of the national income level. It also showed that most of the waste came from households, which discarded 11% of the total food available at the consumption stage, while food service and retail outlets threw away 5% and 2% respectively.
   • According to UNEP, this averaged at 121 kilograms of food being wasted per capita each year, with 74 kilograms of this happening in households.
7. Aston Martin's chairman Lawrence Stroll has announced that the company will begin building battery electric vehicles (BEVs) in the United Kingdom in 2025. According to an interview with the Financial Times, the investor in the automaker said that this will consist of a battery-powered sports car built at its Gaydon site, while a sport utility vehicle (SUV) will be built at its St Athan facility. The article also confirmed plans for a hybrid version of the DBX SUV, which is due before the end of 2021 and will be joined by more types of hybrids from 2023. Stroll added, "We are way ahead of our rivals, and all because of our partnership with Mercedes." The senior executive said that although Mercedes may provide the batteries for these BEVs, the company is "looking at all options". With regards to the automaker's current business strategy, Stroll said that a move towards building cars for customers who have allocated slots is already reaping dividends. He said "by showing a little bit the first signs of scarcity, we're already seeing results" adding, "We've already sold out until September on the sports cars and until July on the DBX." As for the automaker launching its first Formula One (F1) car in over 60 years, Stroll said, "80% of people who watch F1 buy a high performance car at various price points…And of the 23 countries where there are races [during 2021], we have dealers in 20." (IHS Markit AutoIntelligence's Ian Fletcher)
8. German manufacturing output once again did better than expected in January. Notwithstanding the strict lockdown since mid-December 2020, its first monthly decline since April 2020 was only slight - unlike the headline production number that suffered from a weather-related construction sector plunge. (IHS Markit Economist Timo Klein)
   • Seasonally and calendar-adjusted German industrial production excluding construction declined by 0.4% month on month (m/m) in January, its first downward correction after eight consecutive months of increase. The latest level of manufacturing output therefore is about 2% below that of late 2019 prior to the pandemic.
   • In contrast, total production including construction fell by a sizeable 2.5% m/m in January, owing exclusively to the severe winter spell that depressed construction activity by 12.2% m/m. Even that was qualified by a massive upward revision of December 2020 construction output from -3.2% m/m to +5.4% m/m, therefore even January's depressed level fell only 3% short of construction activity in late 2019.
   • Intermediate goods production increased anew, whereas investment goods output fell moderately and consumer goods production more sharply. A different split according to industrial branches reveals major divergences - a surge of machinery/equipment production (9.7% m/m) and the ongoing strength of computers and electrical equipment (4.8% m/m) contrasted with a plunge of automobile production (-12.1% m/m, probably related to a shortage of computer chips) and downward corrections in the sectors for food/beverages/tobacco (-3.6%) and chemicals/pharmaceuticals (-2.3%).
9. Volkswagen (VW) has launched its ACCELERATE strategy to transform into a software-driven mobility provider. The automaker has announced integration of software into the vehicle and the digital customer experience as its core competencies. Software-integrated vehicles will allow VW to establish new data-based business models and offer attractive service packages for the customers. VW will expand its zero-emission line-up and will make automated driving widely available by 2030. VW has been in pursuit of a digital model for several years, laying the groundwork through a number of initiatives. The company announced in 2019 that it would invest EUR19 billion in e-mobility and digitization; EUR4 billion has been noted for digitization investments. VW has formed a new division called Car.Software, which employs more than 5,000 "digital experts", with an intention to create its own operating system and invest in its own cloud-computing center. (IHS Markit AutoIntelligence's Stephanie Brinley and Surabhi Rajpal)
10. State Secretariat for Economic Affairs (SECO) data reveal that Switzerland's seasonally adjusted unemployment increased by 2,829 people, or 1.7% month on month (m/m), to 166,335 in February, with this being accompanied by a downward revision to January by about 750 people. (IHS Markit Economist Timo Klein)
    • The upward tendency since August 2020 thus continues but has not gathered any further momentum most recently, despite the move towards stricter lockdown measures in mid-January. The latest level of unemployment exceeded the peak of the previous economic cycle (then near 150,000 in mid-2016) and was about 60% above the mid-2019 low point of around 104,000.
    • The seasonally adjusted unemployment rate, which had hovered at a 17-year low of 2.3% in 2019, picked up from 3.5% to 3.6% in February. Further mild increases to about 3.8% are likely until the third quarter of 2021, but we do not expect the 4.1% cyclical high of 2009 - caused by the global financial crisis (GFC) - to be surpassed despite the likelihood of lagged company insolvencies coming to the fore in the coming months.
11. XenomatiX, a provider of solid-state LiDAR sensors for automated driving, has raised funding of an undisclosed amount from nine different entities. The investors include two international investment funds, BNP Paribas Fortis Private Equity and Capricorn Fusion China Fund; Belgian businessman Peter Croonen; and several other industrial private-equity investors. The company plans to use the capital to accelerate the industrialization of LiDAR modules and support its road measuring application, known as 6D Road Scanning. Alain Brackenier, CFO of XenomatiX, said, "Our team has recently met a technical milestone agreed with an earlier strategic investor. As a result, also this investor increased its stake in XenomatiX". (IHS Markit Automotive Mobility's Surabhi Rajpal)

Asia-Pacific

1. APAC equity markets closed mixed; Australia +0.4%, India +0.1%, Japan -0.4%, South Korea -1.0%, Hong Kong -1.9%, and Mainland China -2.3%.
2. Mainland China's merchandise exports rose 60.6% year on year (y/y) in US dollar terms in the first two months of 2021, according to the General Administration of Customs (GAC). Merchandise imports growth accelerated to 22.1% y/y through February 2021. The low base in 2020 due to the production lockdowns was the main driver behind the headline growth figure. Exports fell 17.4% y/y in the first two months of 2020 and imports declined by 4.1% y/y during the same period. (IHS Markit Economist Yating Xu)
   • By market, the acceleration in exports growth was broad across mainland China' major trade partners, with the United States leading the growth. Demand from the European Union, Hong Kong and Association of Southeast Asian Nations (ASEAN) markets, and Japan also grew over 50% y/y. The implied average growth of exports in the first two months of 2020 and 2021 stands at 15.2%, compared with -4.5% during the same period in 2019.
   • By product, growth in exports of consumer goods and auto-related products outperformed the headline growth, reflecting a faster recovery in overseas demand than in production. Exports of goods such as furniture, home appliances, and autos grew over 80% y/y. Meanwhile, exports of computer and medical instruments continued the growth strength maintained since the second half of 2020.
3. Reuters reported on 5 March that according to unnamed private sources, banks in China, including those that are foreign- and state-owned, have been asked to curb lending growth in 2021. Furthermore, Reuters reported that banks are currently "collecting back" business loans issued in 2020 that were used for personal investment purposes instead. (IHS Markit Banking Risk's Angus Lam)
   • China's credit growth was 12.5% in 2020, ahead of 11.9% recorded in 2019. This is because of the push to lend to micro, small, and medium-sized enterprises (MSMEs), lowering of reserve requirement ratio, mandating lending to the manufacturing sector, and cutting off the loan prime rate.
   • IHS Markit reported in February that banks are recalling back some business loans. We expect that the curbing of real estate lending will continue, particularly since the National People's Congress 2021 has called for more development in the rental sector and properties are for living and not flipping.
4. India will be a major driver of energy demand in the world, with its needs expected to double in the next 15 years, Amitabh Kant, chief executive of National Institution for Transforming India (NITI Aayog), told the CERAWeek by IHS Markit conference. (IHS Markit Climate and Sustainability News' Soo Cheng Bernadette Lee)
   • While both the third-largest electricity producer and consumer in the world, India expects to see significant increases in consumption, Kant said during a panel discussion on what policymakers should do to accelerate the path to a low-carbon future and to attract foreign investors to India.
   • India is undergoing a massive transformation, including expanding its economy, as well as rapid urbanization, with 500 new cities expected to be added in the next five decades. These developments will be accompanied by an increase in energy needs, and meeting this demand through new and renewable sources is vital, Kant said. The country presently has the fourth-highest installation of renewable power capacity in the world, he added.
5. Australian company Energy Renaissance has started construction of its first lithium-ion (Li-ion) battery production facility near Newcastle, according to CarAdvice. The plant will produce Li-ion battery packs for commercial vehicles (CVs) with the production schedule to begin by July this year. According to the report, development costs of the 4,000-sq ft facility will be around AUD28 million and the facility will employ up to 100 people. Initially, the plant will have annual battery output of 48 MWh, which will increase to 180 MWh by 2022. (IHS Markit AutoIntelligence's Nitin Budhiraja)
6. Mitsubishi Fuso Truck and Bus Corporation (MFTBC) has announced that it will receive co-funding from New Zealand's Energy Efficiency and Conservation Authority (EECA) for the operational trials of the eCanter model, according to a company statement. The funding will help subsidize leasing arrangements with five major transport customers that operate in Auckland's Zero Emissions Area (ZEA). According to the plan, each of these five transport operators will deploy an eCanter in the ZEA for a trial period of one year. A sixth eCanter owned by Mitsubishi Fuso will be given to potential customers on a trial basis. The subsidies being given are part of the New Zealand government's decision to co-fund 22 new low-emission transport projects in the country. (IHS Markit AutoIntelligence's Nitin Budhiraja)

Posted 08 March 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.