Daily Global Market Summary 01 May

Most European and APAC markets were closed for the Labor Day holiday, so market activity was limited. The US equity markets closed lower on Friday after digesting the last of the week's flurry of earnings reports, with many of the reporting companies hesitant to provide too much forward guidance in the midst of so much uncertainty around how the COVID-19 pandemic will impact their personnel, supply chains, and sales going into the remainder of the year.

Americas

1. US equity markets closed lower today, retracing the last of the week's gains to end almost flat week-over-week; Russell 2000 -3.8%, Nasdaq -3.2%, S&P 500 -2.8%, and DJIA-2.6%.
   
   
2. 10yr US govt bonds closed -3bps/0.62% yield.
   
   
3. IHS Markit has released its latest light-vehicle sales and production forecasts, including a top-line expectation of global sales dropping 22.4% and production falling 22.0% in 2020. Global light-vehicle sales are forecast to be down to 69.6 million units this year in the wake of the COVID-19 pandemic, according to the most recent analysis from IHS Markit. In addition, IHS Markit forecasts a decline in global light-vehicle production to 69.3 million units. (IHS Markit AutoIntelligence's Stephanie Brinley)
   
   
4. IHS Markit CDX North America Investment Grade index closed +4bps/90bps and CDX High Yield +25bps/650bps.
   
   
5. US companies issued almost $32 billion in high yield bonds in April, marking the biggest month of capital raising by low-rated issuers in three years as optimism from the Federal Reserve's programs spread through credit markets. It's worth noting that close to half of the lower credit borrowers offered secured debt, pledging assets as collateral in the event they are unable to repay their obligations. (FT)
   
   
6. The below chart shows the number of US high yield bonds quoted by 10 or more dealers versus the number of leveraged loans quoted by three or more dealers this year. The data shows the degradation of liquidity in mid-March for both loans and bonds, but the chart highlights how high yield bond dealer depth has since been improving at a faster pace than for loans:
   
7. Total US construction spending rose 0.9% in March, defying expectations for a sharp decline. Construction spending for February was revised lower. In response to the details in this report that bear on our tracking, we raised our estimate of first-quarter annualized GDP growth by 0.1 percentage point to a 4.7% rate of decline, and we raised our forecast of second-quarter annualized GDP growth by 0.3 percentage point to a 36.0% annualized rate of decline. Construction activity has been deemed an essential activity throughout most of the country so does not face the same constraints many activities face that have been deemed nonessential. (IHS Markit Economists Ben Herzon and Lawrence Nelson)
   
   
8. Apple announced that it will not issue financial guidance for the second quarter due to coronavirus based uncertainty; the last time they did not release guidance was late-2003. (WSJ)
   
   
9. Merck lowered its 2020 revenue guidance by about USD2.1 billion due to the COVID-19 virus pandemic, including an unfavorable impact of USD1.7 billion for pharmaceuticals and USD400 million for its Animal Health business. Full-year revenues are forecast to range around USD46.1-48.1 billion, down from the previously announced USD48.8-50.3 billion. (IHS Markit Life Science's Margaret Labban)
   
   
10. Crude oil closed +5.0%/%19.78 per barrel.
    
    
11. Chevron reported $3.6 billion in profits in the first quarter, which is 36% higher than the same period last year. However, it expects financial results to fall later in the year due to the pandemic-led oil-price crash. The company announced additional budget reductions, saying it would cut capital expenditures by $2 billion on top of the $4 billion it had announced just weeks earlier. Chevron had planned to spend $20 billion in 2020 before the virus took hold but now says it will likely spend $14 billion. (WSJ)
    
    
12. ExxonMobil reported a $610 million loss in the quarter, which was its first quarterly loss since 1988, versus $2.4 billion in profits during the same period last year. It had reported a market-related charge of $2.4 billion, with the bulk of the impairment related to its downstream business. (WSJ)
    
    
13. In ExxonMobil's quarterly earnings report, the company reiterated that spending this year will be approximately $23 billion. The company announced the budget cut in early April, saying spending in 2020 will be down 30% from earlier guidance of $33 billion. ExxonMobil joined BP in maintaining its quarterly dividend. In its quarterly report, Shell opted to cut its dividend by 66%. Other smaller operators have also moved to suspend or trim dividend payments to shareholders. (IHS Markit's Plays and Basin's Jeff Gosmano)
    
    
14. LyondellBasell reports first-quarter net income of $144 million, down 82% year-over-year (YOY) from $817 million. A non-cash, inventory valuation charge (LCM) accounted for $351 million of the decline, and integration costs for $13 million. Sales into packaging and medical products were strong, but sales related to transportation fuel and automotive production were squeezed by the coronavirus disease 2019 (COVID-19) pandemic and the oil crash, conditions that will persist during the second quarter, says the company.
    
    
15. Dana has reported its financial results for the first quarter, showing a 10.6% year-on-year (y/y) decrease in sales to USD1.93 billion, compared with USD2.16 billion in first quarter 2019. Dana reported an adjusted EBITDA of USD205 million and a sales margin of 10.6%. Dana's first-quarter sales results were attributed to weaker demand in the heavy-vehicle markets in January and February, as well as global production declines in March on the COVID-19 pandemic. At the close of the quarter, Dana stated it had liquidity of more than USD1.8 billion and USD679 million available in its committed revolving credit facility and USD500 million available under a bridging facility to cope with the fallout from the COVID-19 pandemic. (IHS Markit AutoIntelligence's Stephanie Brinley)
    
    
16. Automakers are looking for emergency financing for plants in Brazil, after state and private lenders in the country demanded collateral from parent companies, according to media reports. According to Automotive News and Reuters reports, automakers in Brazil are looking for financing to make up payrolls and keep the crucial supply-chain operations going during the COVID-19 pandemic. However, the report indicates that banks and the government want carmakers to share loans with suppliers and dealerships. (IHS Markit AutoIntelligence's Stephanie Brinley)
    
    
17. According to the National Statistics Office (Instituto Nacional de Estadística y Geografía: INEGI), Mexico's GDP contracted 1.6% in Q1 compared with October-December 2019 (quarter on quarter, q/q), based on seasonally adjusted data. Primary activities, mostly agriculture, increased 0.5% q/q and were more than offset by sharp declines in the industry and in the service sector. Mexico has been in recession since the beginning of 2019, as GDP declined 0.1% q/q in each of the quarters of the year and also in the full year 2019. Sharp declines in investment were only partially offset by sluggish growth in private consumption. The US, the destination of 80% of Mexican exports, is entering a recession and this translates into lower purchases of Mexican goods; in particular, the all-important Mexican automotive sector will suffer a severe drop in production. Fiscal accounts will not only deteriorate because lower economic growth implies lower tax collection, but also because of lower oil prices, as almost 20% of the government revenue comes from the energy sector. (IHS Markit Economist Rafael Amiel)
    
    

Europe/Middle East/ Africa

1. Ethiopia is set to conclude its key water infrastructure in the 21st century: the mega-dam called Grand Ethiopian Renaissance (GERD) on the Blue Nile river. Although its name suggests a 'Pharaonic' work, it is much smaller than other projects such as the Kariba, Aswan or Volta dams, all of them in Africa. East Africa will become a key territory in the global water conflicts, once Egypt is no longer the dominant country on the Nile basin and other countries are demanding to increase their stakes in this natural resource to secure irrigated orchards and energy supply. The population all along the Nile basin totals around 300 million people and may double in the next 30-40 years at the current birth rate, increasing the energy and food demands of all its countries. As a result, Egypt may moderate Ethiopian demands in the short term. However, it will not be able to maintain a strong agricultural industry if it does not plan strong investments to update irrigation infrastructure, following the Israeli model in the long-term. (IHS Markit Agribusiness' Jose Gutierrez)
   
   
2. The Polish lower house of parliament (Sejm) approved on 30 April a review of the anti-crisis shield package, which aims to mitigate the negative impact of the COVID-19 virus outbreak on the economy. The bill contains a proposal to introduce a 1.5% levy on streaming platforms' revenues, which would apply to both foreign and Polish companies such as Netflix, Amazon Prime Video, Apple TV+ and Ipla. The government's decision to introduce the levy is probably aimed at raising funds for its costly COVID-19 economic relief package, which is worth 11.3% of GDP including the financial shield. US-based streaming provider Netflix previously agreed in 2018 to pay a 2% levy on its revenues in France, indicating that it would be unlikely to object to a similar levy in Poland. A worsening economic downturn in the European Union would increase the likelihood of other member states introducing similar levies to fund national economic relief packages. Streaming service providers will likely partially offset such levies by increasing subscription fees. (IHS Markit Country Risk's Bibianna Norek)
   
   
3. Ruter, Holo, Toyota Motor Europe, and Sensible 4 have teamed up to launch autonomous mobility trials in Oslo (Norway). Sensible 4 will deploy its full stack autonomous vehicle (AV) software in Toyota vehicles that will be integrated into Ruter's public transport service this year. These AVs will be operated by mobility service provider Holo, which has conducted AV pilot projects in five different countries. (IHS Markit Automotive Mobility's Surabhi Rajpal)
   
   
4. German car dealers are finding the market environment extremely difficult after reopening on 20 April, with a number of state governments looking at introducing scrappage programs, according to the website of Car Dealer magazine. German dealers are reporting business to be around 40% of what it was prior to the COVID-19 virus-related lockdown. (IHS Markit AutoIntelligence's Tim Urquhart)
   
   
5. Renault Group is said to be planning to sell off one of the buildings that makes up part of its headquarters in Boulogne-Billancourt (France). Three sources have told Reuters that the five-storey building is located in one of the historic parts of this area and includes archives, sports facilities and is home to its trade unions. Earlier reports have suggested that an announcement related to cutting up to EUR2 billion of costs could come as early as the middle of this month. (IHS Markit AutoIntelligence's Ian Fletcher)
   
   
6. Turkey's shipments in March to the European Union were down by more than one-fifth of what they had been a year earlier. Meanwhile, exports to the Middle East, hit by both the spread of COVID-19 and by the precipitous collapse of energy prices, fell off even more sharply, by nearly 29% year on year (y/y). The sharp drop in exports contributed to a rapid escalation of the merchandise-trade deficit, which jumped to over USD5.3 billion in March, the largest single-month gap since July 2018. The drop-off of merchandise exports will become even more severe in April, as residual orders are fulfilled and new orders are not made. For the year as a whole, IHS Markit anticipates that merchandise exports will be down by 14%, with risks on the downside. (IHS Markit Economist Andrew Birch)
   
   
7. Continental has said that it will not spin off its Vitesco Technologies powertrain unit this year as planned, as a result of the prevailing economic conditions, according to a Reuters report. Originally shareholders were to be asked to rubber-stamp the proposal for Vitesco to become a separately listed entity at the Continental annual general meeting (AGM) on 14 July, but this will not now happen. Continental began the process of rebranding and looking to spin off its powertrain division nearly two years ago and Vitesco Technologies includes Continental's systems and solutions for conventional and electrified drives for the global automotive industry. (IHS Markit AutoIntelligence's Tim Urquhart)
   
   
8. The International Monetary Fund (IMF) has awarded Nigeria USD3.4 billion in emergency assistance under the Rapid Credit Facility (RCF) as the impact of the COVID-19 pandemic amplifies existing economic vulnerabilities. Nigeria's RCF is the biggest loan made yet under the IMF's RCF and will be repayable over three to five years at a 1% interest rate with minimum policy conditionality. The IMF financing will be used to meet urgent current-account and fiscal funding gaps. (IHS Markit Economists Thea Fourie and Martin Roberts)
   
   
9. IHS Markit iTraxx Europe Investment Grade index closed +4bps/84bps and iTraxx Xover +21bps/512bps.
   
   
10. The UK equity markets closed -2.3%, while most European equity and fixed income markets were closed for a holiday.
    
    

Asia-Pacific

1. Japanese sales of mainstream registered vehicles declined by 25.5% year on year (y/y) during April to 172,138 units, according to data released by the Japan Automobile Dealers' Association (JADA) today (1 May). This figure excludes minivehicles, 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 declined 27.5% y/y to 144,674 units in April, while truck sales were down 12.1% y/y to 26,691 units and bus sales fell 21.6% y/y to 773 units. All major automakers in Japan suffered double-digit percentage sales declines last month. Nissan and Suzuki reported the steepest falls, of 44.7% y/y and 47.0% y/y, respectively. (IHS Markit AutoIntelligence's Tarik Arora)
   
   
2. Ashok Leyland has received permission to restart production at its facilities in Alwar, Bhandara, and Pantnagar, but has thus far been unable to secure the necessary supply chain to resume meaningful operations. India's commercial road transport has effectively come to a halt since the COVID-19 virus-related lockdown for all but essential goods. The mix of the commercial vehicle transport sector is unusual in India and is largely devoid of large commercial operators with huge fleets of vehicles, instead relying on a high number of owner-drivers for much of its supply routes, many using outdated vehicles. (IHS Markit AutoIntelligence's Paul Newton)
   
   
3. Toyota has decided to further extend the temporary production shutdown at its two Gateway plants in Thailand until 23 May. OEMs in the country - including BMW, Ford, General Motors, Honda, Isuzu, Mazda, Mitsubishi, Nissan, Suzuki, and Toyota - initially announced production suspensions from late March lasting several weeks into April. However, most have now extended the temporary shutdowns for several days into May as the number of confirmed infections in the country continues to rise (it is currently above 2,900), while new vehicle demand in the domestic and export markets will deteriorate throughout 2020. As of 30 April, IHS Markit expects these production suspensions to result in estimated lost volumes of about 130,514 units in Thailand. We have further downgraded our 2020 light-vehicle production forecast for Thailand by around 320,000 units to reflect the OEMs' production shutdowns during March and April, and also now in May, owing to the pandemic, as well as the deteriorating automotive industry throughout the year. (IHS Markit AutoIntelligence's Jamal Amir)
   
   
4. The Israeli co-founder of Chinese carmaker Qoros, Idan Ofer, has sold 12% (half) his remaining stake in the company for USD237 million to the Chinese private conglomerate Baoneng Investment Group, according to reports. Baoneng Investment Group already owns 51% of the struggling carmaker, having agreed the deal in 2019 with Oder's investment company, Kenon holding group. Qoros was founded in 2007 by Kenon Holdings and local carmaker, Chery, aimed at creating a Chinese brand for export, with ambitions to break into international markets globally. However, the business has struggled to gain traction with the export model and has since turned its focus internally to China's huge but highly competitive vehicle market. (IHS Markit AutoIntelligence's Paul Newton)
   
   
5. Most major APAC markets were closed for a holiday, except for Australia -5.0% and New Zealand -0.8%.
   
   

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Posted 02 May 2020 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.