Weekly Global Market Summary Highlights: January 31-February 4, 2022

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All major APAC and US equity indices closed higher on the week,
while most European markets closed lower. US and benchmark European
government bonds closed sharply lower on the week. European iTraxx
and CDX-NA closed on the week wider across IG and high yield. Oil,
gold, silver, and copper closed higher on the week, while the US
dollar and natural gas were lower week-over-week.

Americas

All major US equity indices closed higher on the week; DJIA
+2.7%, Nasdaq +2.4%, Russell 2000 +1.7%, and S&P 500 +1.5%
week-over-week.

10yr US govt bonds closed 1.92% yield and 30yr bonds 2.22%
yield, which is +15bps and +16bps week-over-week, respectively

DXY US dollar index closed 95.49 (-1.8% WoW).

Gold closed $1,808 per troy oz (+1.2% WoW), silver closed $22.48
per troy oz (+0.8% WoW), and copper closed $4.49 per pound (+4.1%
WoW).

Crude Oil closed $92.31 per barrel (+6.3% WoW) and natural gas
closed $4.57 per mmbtu (-1.4% WoW).

CDX-NAIG closed 64bps and CDX-NAHY 355bps, which is +2bps and
+11bps week-over-week, respectively.

EMEA

Most major European equity indices closed lower on the week
except for Italy +0.1%; France -0.2%, Spain -0.2%, UK -0.5%, and
Germany -1.4% week-over-week.

All major 10yr European government bonds closed sharply lower on
the week; UK closed +17bps, Germany +25bps, France +28bps, Spain
+34bps, and Italy +47bps week-over-week.

Brent Crude closed $93.27 per barrel (+5.4% WoW).

iTraxx-Europe closed 65bps and iTraxx-Xover 315bps, which is
+6bps and +29bps week-over-week, respectively.

APAC

All major APAC equity indices closed higher on the week; Hong
Kong +4.3%, South Korea +3.3%, Japan +2.7%, India +2.5%, and
Australia +1.9% week-over-week.

Monday, January 31, 2022

  1. Escalating tensions in Ukraine hit oil markets at a critical
    juncture, after essentially a year and a half of stock draws that
    have left storage thin, with recovery-born demand growth expected
    by spring and the streaming of incremental OPEC and non-OPEC oil
    yet to prove itself. Without firing a shot, armament along the
    Ukrainian border raises risk of potential disruptions and along
    with it, the price of oil. There is a rare $2/bbl premium at the
    front of the Brent strip (expiring today), along with supersized
    premiums over the next four months. While the range of possible
    outcomes is wide, market risks can broadly be bracketed within
    three distinct pathways in our view (IHS Markit Financial
    Advisory’s Roger
    Diwan
    , Karim
    Fawaz
    , Ian Stewart, and Sean Karst):

    • Simmering tensions (Current base case price outlook). Tensions
      are contained but not resolved. There is no large-scale invasion of
      Ukraine. Yet modest progress on addressing core issues is limited,
      and relations between Russia and the West are frozen. An extended
      stand-off, even if unresolved, progressively allows market anxiety
      to eventually fade and prices to ease back into the sub-$85/bbl
      price range.
    • Rupture – escalation. A Russian invasion of Ukraine triggers US
      sanctions on banking and energy sectors, and disruption of some
      trade flows pushes oil prices higher, though actual volumes lost on
      a sustained basis are relatively modest. Market anxieties are
      stoked, leading to a price spike above $100/bbl.
    • Respite – de-escalation. Diplomatic efforts prove sufficient to
      push both sides to deescalate military presence along the Ukrainian
      border, even if falling short of resolving long-standing issues,
      easing oil’s geopolitical risk premium and pushing prices swiftly
      back lower.
    • Markets now currently find themselves straddled in no man’s
      land somewhere between pathways simmering tensions and rupture –
      escalation, with escalating tensions showing little sign of
      reversal, although still falling short of material direct market
      impact.
  2. Private oil and gas explorer Maverick Natural Resources
    announced January 28 it will acquire Permian producing properties
    from ConocoPhillips for $440 million cash. The Houston-based
    company said the assets span 144,500 net acres in the Permian in
    the Texas counties of Andrews and Ector and the New Mexico counties
    of Eddy and Lea. The assets produced more than 11,000 Boepd, of
    which half was oil as of September 1 of last year and are largely
    operated and held by production. (IHS Markit PointLogic’s Annalisa
    Kraft)

    • The acquisition of the Central Basin Platform and Northwest
      Shelf assets has been approved by Maverick’s Board of Directors and
      EIG Global Partners, its majority equity owner. The purchase will
      be paid for by a $500 million reserve-based loan funded by several
      banks including JPMorgan Chase Bank, N.A.; Royal Bank of Canada;
      Citizens Bank, N.A.; KeyBank National Association; and KeyBanc
      Capital Markets Inc.
    • The deal is expected to close in the second quarter of 2022 and
      has an effective date of September 1, 2021.
    • Maverick CEO Chris Heinson remarked: “This Permian acquisition
      expands the scale of Maverick’s operations and provides high
      quality, oil-weighted drilling inventory. The transaction
      highlights our portfolio focus in Texas and Oklahoma, which follows
      our recent divestitures of assets in California and Michigan.
    • “Pro forma for the acquisition, Maverick’s production exceeded
      78,000 boepd in September 2021. We are conservatively financed with
      pro forma leverage of approximately 0.5x at closing and expected
      pro forma 2022 EBITDA of approximately $450 million. We expect to
      utilize our enhanced scale, operational track record, and
      conservative balance sheet to access capital markets for funding
      future acquisitions, Heinson continued.
  3. The November data from the State Job Openings and Labor
    Turnover Survey (JOLTS) revealed that the number of quits increased
    in 22 states, with 19 states reaching a new series high, mostly in
    the South and Northeast. The quits rate grew the most in the South
    and Midwest, each adding 0.3 percentage point, to reach 3.5% and
    3.1%, respectively. Except for Texas and South Carolina, every
    state in the South faced a rise in quits, causing the region to
    surpass its prior series peak from September. Georgia, Florida, and
    North Carolina led the region in quits during November. The rise in
    Florida’s quits likely came from leisure and hospitality services,
    which accounts for a significant share of the state’s employment.
    This sector was responsible for most of the month’s total quits at
    the US level (sector detail is not available for states). (IHS
    Markit Economist Alexander Minelli)
  4. Japan’s retail sales fell by 1.0% month on month (m/m) on a
    seasonally adjusted basis in December 2021 following three
    consecutive months of increase. Despite the month-on-month
    weakness, annual growth for 2021 turned positive, moving up by 1.9%
    following a 3.2% drop in 2020. The month-on-month decline largely
    reflected a 4.0% m/m decrease in sales of food and beverages and
    continued declines in sales of machinery and equipment and fuel.
    The weakness was partially offset by a 7.9 m/m increase in sales of
    motor vehicles, reflecting improved auto production. (IHS Markit
    Economist Harumi
    Taguchi
    )

    • The CCI fell by 2.4 points to 36.7 in January. While all
      component indices declined, the 4.8-point drop (to 36.7) in the
      employment index probably reflects concerns about the rapid spread
      of the Omicron variant and negative impacts from the expansion of
      the quasi-state of emergency in the country. Households’ outlooks
      for higher prices a year ahead also weighed on the overall
      livelihood index, which moved down by 1.8 points to 36.8.
    • The continued uptrend for department store and convenience
      store sales reflects the resumption of operations, in line with low
      daily infection cases. However, the weaker-than-expected December
      results on retail sales were due, in part, to higher prices of food
      and energy. Retail sales are likely to weaken over the near term
      under the quasi-state of emergency, which covers about 80% of
      prefectures.
  5. Ultium Cells LLC, the joint venture (JV) between General Motors
    (GM) and LG Energy Solutions, has expanded its agreement with
    Li-Cycle on recycling battery-material scrap created during
    battery-cell manufacturing to include lithium-ion battery
    recycling. The agreement will involve the construction of
    Li-Cycle’s sixth and largest lithium-ion battery recycling
    facility, which is to be located at the Ultium Cells plant in
    Warren, Ohio (United States). Ultium Cells will construct a new
    building and Li-Cycle will install and operate its proprietary
    technology and equipment. Li-Cycle says this will provide on-site
    conversion of battery manufacturing scrap to intermediate products
    and operations are due to begin in early 2023. The facility’s
    design is to be optimized for the particular types of battery
    manufactured at the Ultium Cells plant. Li-Cycle says that
    eventually the facility will have the capacity to process up to
    15,000 tons of battery manufacturing scrap and battery materials
    per year. The company says this will mean its global capacity will
    reach 55,000 tons of lithium-ion battery input per year. Li-Cycle
    says the Ohio facility, which it calls a Spoke, will produce ‘black
    mass’, which it says is a powder-like substance consisting of a
    number of highly valuable materials, including lithium, cobalt, and
    nickel. This black mass will be converted into battery grade
    materials at Li-Cycle’s Hub facility in Rochester, New York, also
    due to be operational in 2023. (IHS Markit AutoIntelligence’s Stephanie
    Brinley
    )
  6. UK food and beverage merger and acquisitions (M&A) market
    activity in 2021 was at its highest since 2010, the latest UK Food
    and Beverage Sector M&A report from Oghma Partners shows. The
    UK F&B market continued its strong performance into the last
    four months of the year (T3 2021) with total deal volume amounting
    to 29 transactions. (IHS Markit Food and Agricultural Commodities’
    Julian
    Gale
    )

    • Compared with 2020, total deal volume for the year was up 50.8%
      to 89 transactions. The total deal value for T3 2021 was estimated
      at £722.1 million ($967.5 million). This boosted the 2021 annual
      deal value to an estimated £6.6 billion, which is the largest
      annual deal value recorded by Oghma Partners since 2010.
    • The appetite from financial investors remained strong
      throughout 2021. In volume terms they accounted for 20.7% of total
      deal activity compared with 20.3% in 2020.
    • When comparing deal activity from financial buyers in value
      terms there was a significant increase in both absolute value
      (2021: c. £2.6 billion versus 2020: c. £380.0 million) and the
      proportion of total deal value (2021: 39.3% vs 2020: 25.5%).
      “Driving this activity is the relative defensiveness of the
      sector’s cashflows combined with loose monetary policy which has
      led to an inflow of funds into private equity companies as well as
      a low cost of debt,” Oghma Partners observed.
    • In addition, overseas buyers had another active year,
      accounting for 39.1% of total deal volume. This was the highest
      percentage of non-UK corporate buyers involved in UK food and
      beverage deals since 2010.
    • In 2021, there was a wave of activity in the plant-based food
      and beverage M&A space. Notable activity during the period
      included Portuguese conglomerate, Sonae, acquiring Gosh Food, the
      UK producer of vegan sausages, burgers and falafels (EV: £67.0
      million; EV/EBITDA: 16.1x).
    • In addition, Canadian dairy giant, Saputo, acquired the dairy
      alternative cheese producer, Bute Island Foods for an undisclosed
      amount, “although market rumors suggest this was for yet another
      punchy valuation for a plant-based company,” Oghma Partners
      noted.
    • The firm suggested that whilst buyer demand for plant-based
      food and beverage companies remains high and so do valuations, the
      2021 sell off in Oatly shares (IPO in May 2021 ) and Beyond Meat
      (IPO May 2019) following disappointing revenue numbers could impact
      valuations in the sector moving forward.
    • Another subsector within the UK food and beverage industry that
      was particularly active was Direct-to-Consumer (D2C). Big food
      companies were keen to expand into this area as was seen with
      Nestle’s acquisition of SimplyCook (advised by Oghma Partners –
      financial terms of the deal undisclosed). This deal followed on
      from its acquisition of the healthy meal kit provider, Mindful Chef
      at the end of 2020. Further activity in the space included Italian
      pasta giant, Barilla, acquiring a majority stake in D2C meal kit
      start-up Pasta Evangelists, an acquisition that represents a new
      step in Barilla’s international growth strategy.
    • The trading environment in 2022 is expected to be more
      challenging. “Cost pressures are appearing in most directions
      whether that be labor, energy, raw material or distribution costs,”
      Oghma Partners observed. “The next 12 months will be a further test
      of the business models of many companies. Weaker businesses that
      struggle to get pricing through and/or reduce costs will find the
      prospect of a business exit more testing under these
      conditions.”

Report was not published on Tuesday, February 1, 2021

Wednesday, February 2,
2022

  1. ‘Flash’ estimates for eurozone headline and core inflation
    rates in January again markedly exceeded expectations, although the
    latter declined. Inflation will moderate during 2022 but is likely
    to remain uncomfortably elevated for most of the year in the
    absence of a reversal of the recent surge in energy prices. (IHS
    Markit Economist Ken
    Wattret
    )

    • Contrary to expectations of a large, base-effect-driven
      decline, the flash estimate of January’s eurozone Harmonised Index
      of Consumer Prices (HICP) shows the inflation rate ticking up to
      5.1%, a new record high and well above the market consensus
      expectation (of 4.4%, according to Reuters’ survey).
    • Energy prices were again primarily responsible, rising by 6%
      month on month (m/m), the largest increase on record. Despite
      favorable base effects, therefore, the year-on-year (y/y) rate of
      increase in energy prices accelerated to a new record high of
      28.6%. The contribution of energy to overall HICP inflation jumped
      to a new record high.
    • A full breakdown of the HICP by item will not be available
      until the final January release on 23 February, but soaring gas and
      electricity prices remain key sources of upward pressure.
    • Unprocessed food inflation also continued its recent run of
      increases in January, rising to 5.2%, the highest rate since June
      2020 and almost quadruple October 2021’s rate.
  2. The IHS Markit manufacturing PMI for January showed output
    growth deteriorating markedly. The sub-index covering production
    fell to 50.5 from 53.8 in December, its lowest since the recovery
    form the first COVID-19 lockdowns began in July 2020. The news was
    followed by the ISM survey’s output gauge also falling, down to its
    lowest since June 2020. However, at 57.8 compared to 59.4 in
    December, the ISM index is still indicative of production rising at
    a substantial rate whereas the IHS Markit index is signaling almost
    no growth. For both surveys, any index reading above 50 means more
    companies reported higher output during the month than reported
    lower output. (IHS Markit Economist Chris
    Williamson
    )
  3. The US homeowner vacancy rate—the proportion of residential
    inventory vacant and for sale—remained at a record-low 0.9% in
    the fourth quarter. Data-collecting procedures and response rates
    are nearly back to normal—the data now appear to be more
    reliable. The readings from the first quarter of 2020 to the first
    quarter of 2021 were tainted by bad data related to low response
    rates and Census workers’ inability to make on-site visits. (IHS
    Markit Economist Patrick
    Newport
    )

    • The rental vacancy rate—the proportion of rental inventory
      vacant and for rent—fell to 5.6%, from 6.5% a year
      earlier.
    • The gross vacancy rate, the number of vacant units divided by
      the number of housing units, fell to 10.5%, down from 10.9% four
      quarters earlier and from 11.5% in the fourth quarter of 2019, the
      last pre-pandemic quarter.
    • The homeownership rate came in at 65.5%, down from 65.8% four
      quarters earlier.
    • Estimated housing inventory increased to 141.183 million, up
      1.223 million from a year earlier.
    • Markets are especially tight in the suburbs. Rental vacancy
      rates were highest outside of metropolitan statistical areas (MSAs;
      7.7%), followed by principal cities (5.7%) and the suburbs (5.1%);
      the homeowner rate was lowest in the suburbs (0.7%), followed by
      places outside MSAs (1.0%) and principal cities (1.1%).
  4. A lack of inventory pushed US light-vehicle sales down by 9.8%
    y/y in January. The estimated seasonally adjusted annual rate
    (SAAR) of sales is 14.8-15.2 million units in January. The pace of
    sales is expected to improve during the year, but low levels of
    new-vehicle inventory are set to prevent a sharp change in sales
    results. US light-vehicle sales in 2021 reflected the limited
    demand growth given current inventory conditions. In the first half
    of 2022, the market is expected to suffer much of the same
    conditions and then sales quicken in the second half of the year.
    Given current inventory conditions, it is difficult to project
    significant demand recovery in the first half of 2022. However, by
    the end of 2022, we expect the pace of sales to be more
    recognizable in terms of pre-COVID-19 levels. Sales volume growth
    is expected to be inventory-limited over the next 12 months and IHS
    Markit projects US light-vehicle sales to reach approximately 15.6
    million units in 2022. (IHS Markit AutoIntelligence’s Stephanie
    Brinley
    )
  5. HDFC Bank and the Spices Board of India have partnered to
    launch an innovative digital platform Spice Xchange India. The
    exchange is designed to strengthen the board’s ability to provide
    an international link between Indian exporters and importers
    abroad. The newly created portal would support all B2B
    transactions. HDFC bank is the only banking partner for the
    exchange and would play a crucial role for all stakeholders in the
    spice trade ecosystem. (IHS Markit Food and Agricultural
    Commodities’ Julian
    Gale
    )

    • The platform was launched by Som Parkash, minister of state for
      commerce and industry, government of India, in Kochi.
    • The Spices Board, under the Ministry of Commerce and Industry,
      government of India, is the flagship organization for developing
      and promoting Indian spices worldwide. The Board has 6,000 members
      from across India.
    • The bank has created a web portal with a unique Payment Gateway
      platform that would support all B2B transactions for the Board and
      its members. All members would be eligible to join. They can
      register themselves on the portal by paying a one-time/annual fee
      of INR44,000 ($588) with applicable taxes.
  6. Equinor and technology firm Battelle have signed a memorandum
    of understanding to develop a decarbonized energy cluster in Ohio,
    Pennsylvania, and West Virginia, the two announced February 1. (IHS
    Markit PointLogic’s Annalisa Kraft)

    • Chris Golden, Equinor U.S. country manager, sees major
      low-carbon opportunity in Appalachia. “The Appalachian Basin is an
      important energy-producing region that also shows great promise in
      being a leader for the decarbonization of American industry.
    • The partners agreed to undertake feasibility studies and work
      together on stakeholder outreach. According to the joint release
      the partners already have a presence in the tri-state region. “The
      partnership between Equinor, a global broad energy company, with
      offices in Hannibal, Ohio and Triadelphia, West Virginia and
      Columbus, Ohio-based Battelle, the world’s largest independent
      research and development company, will enable the timely and
      progressive development of one of the first low-carbon industrial
      regions in the United States.”
    • The release detailed the companies’ expertise in CCS. “Battelle
      is a leader in geologic carbon dioxide capture, use and storage
      with more than 100 projects worldwide over the past 20 years.
      Equinor has decades of experience with CCS projects of various
      sizes, from research and development to operations. Since 1996,
      Equinor has captured and safely stored more than 23 million tons of
      CO2.”

Thursday, February 3, 2022

  1. Ford has partnered with Sunrun to advance home energy
    management by using the onboard battery capability of the F-150
    Lightning electric vehicle (EV) pick-up. According to a company
    statement, Sunrun will facilitate installation of the 80-amp Ford
    charge station pro and home integration system, which will allow
    the truck to store and supply power to homes. The F-150 Lightning
    is equipped with Ford intelligent backup power, which enables
    customers to use bidirectional power technology to provide energy
    to their homes. The extended-range battery system for the F-150
    Lightning can store 131 kWh and supply up to 9.6 kW of power. If
    the grid goes down, the truck uses Ford intelligent backup power
    and the home integration system to automatically power a home. Matt
    Stover, Ford charging and energy services director, said, “F-150
    Lightning brings new innovations to customers, including the
    ability to power their homes when they need it most. Teaming up
    with Sunrun leverages their expertise to bring solar power to even
    more customers, giving them the chance to turn their truck into an
    incredible energy storage source —and future truck features can
    help accelerate the development of a less carbon-intensive grid”.
    (IHS Markit AutoIntelligence’s Surabhi Rajpal)
  2. Continental has unveiled a potentially key piece of technology
    in the acceleration of the electrification of the global vehicle
    parc in the form of a robotic battery electric vehicle (BEV)
    charging system, according to a company press statement.
    Continental is partnering on the new technology with startup
    Volterio; it became clear after discussions that they were both
    working on a similar solution simultaneously. Continental’s
    development and production service provider Continental Engineering
    Services (CES) will combine its own know-how and proprietary
    technology with Volterio’s; CES will also be able to meet all
    necessary certification criteria while developing the system to
    production maturity. The plan is for the first near
    production-ready system to be available this year. It will be
    demonstrated practically to OEMs and other potential customers
    before full series volume production begins in 2024, and Germany is
    planned as the production location. This robotized BEV charging
    system is potentially an exciting development for the speed of
    electrification in Europe and in other regions. As around half of
    the EU’s residents do not have access to a garage or driveway in
    which they can home charge a BEV, compelling home charging
    solutions for those consumers are needed. While this solution does
    not necessarily help those potential BEV owners who live in houses
    with no off-street parking, it could be easily rolled out in city
    center parking garages and the kind of car parking spaces that are
    allocated to flat developments in Europe and elsewhere. There are
    also many potential benefits for the user. Unlike conventional
    charging stations, users no longer have to worry about handling
    heavy, potentially contaminated or rain-soaked charging cables in
    confined garages, while the system does not require very accurate
    parking – unlike aforementioned wireless charging infrastructure.
    (IHS Markit AutoIntelligence’s Tim Urquhart)
  3. On February 2, the US Department of Energy (DOE) joined the US
    Departments of Homeland Security (DHS) and Housing and Urban
    Development (HUD), plus the Commonwealth of Puerto Rico, to launch
    a new effort to accelerate work to strengthen the island’s power
    grid and advance new initiatives to enhance Puerto Rico’s energy
    future. (IHS Markit PointLogic’s Barry Cassell)

    • The parties executed a memorandum of understanding that
      enhances collaboration among federal agencies and the Commonwealth,
      and kickstarts the PR100 Study. This study is a community-driven
      and locally-tailored roadmap to help Puerto Rico meet its target of
      100% renewable electricity, improve power sector resiliency, and
      increase access to more affordable energy and cleaner air.
    • Dozens of grid modernization projects will start construction
      this year, and the government-owned Puerto Rico Electric Power
      Authority will sign contracts for at least 2 GW of renewable energy
      and 1 GW of energy storage projects.
    • “The Biden-Harris Administration is helping Puerto Rico
      strengthen the island’s resilience, and in the process unlock its
      potential for cheap and abundant renewable energy,” said US
      Secretary of Energy Jennifer Granholm. “Today’s commitments and the
      launch of the PR100 Study show that 2022 will be a year of action
      to modernize Puerto Rico’s grid and increase energy resilience as
      we accelerate our work with Puerto Rico to execute data-driven,
      community-tailored pathways towards 100% clean electricity.”
    • FEMA Permanent Work Projects Will Begin Construction – FEMA,
      the Central Office for Recovery, Reconstruction and Resilience
      (COR3), the Puerto Rico Electric Power Authority (PREPA), and
      PREPA’s contracted system manager, LUMA Energy, have established
      working groups and collaboration processes to reconstruct the
      island’s electric grid. It is expected that at least 138 projects
      will be under construction bidding or have begun initial
      construction activities, including island-wide substation repairs,
      the replacement of thousands of streetlights across five
      municipalities, and the creation of an early warning system to
      improve dam safety.
    • Clean Energy Projects Will Move Forward – Puerto Rico is
      procuring 3,750 MW of renewable energy and 1,500 MW of energy
      storage, enough clean energy to power over 1 million homes. Over
      the last year, DOE has provided technical assistance to the
      Government of Puerto Rico to align the procurement process with
      global best practices and ensure access to capital to ultimately
      lower electricity costs for ratepayers who currently pay twice the
      national average. PREPA is currently in final negotiations of the
      first tranche of proposed projects: 844 MW of renewable energy, 220
      MW of energy storage, and two Virtual Power Plants.
    • Implementation of $1.9 billion in HUD Grant Funding – In 2022,
      the Puerto Rico Department of Housing (PRDOH) will implement an
      action plan to enhance electrical system reliability and
      resilience. Puerto Rico’s proposed plan includes the development of
      both small and large microgrids.
  4. Mexico’s Alpek plans to acquire Oman-based polyethylene
    terephthalate (PET) producer OCTAL, Alpek announced on Tuesday. The
    Mexican petrochemical producer intends to purchase 100% of OCTAL’s
    shares for $620 million, subject to regulatory approval, by H1 this
    year. (IHS Markit Chemical Market Advisory Service’s Chuan Ong)

    • Alpek sees value in OCTAL’s PET sheet business, which has the
      potential to grow 6.4% annually through 2025, amid a demand for
      100% recyclable packaging.
    • OCTAL’s proprietary “DPET” technology is also attractive to
      Alpek, and can be deployed across its existing plants to save
      costs, on top of synergy savings from asset integration.
    • Alpek explained that OCTAL’s DPET technology produces PET
      sheets with a carbon dioxide footprint that is 25% lower than
      industry standards, an improvement to Alpek’s carbon intensity,
      helping Alpek reduce emissions in a transition to more sustainable
      packaging alternatives.
    • The Mexican company added that the acquisition will allow Alpek
      to benefit from projected strong global demand for PET resin, and
      will expand Alpek’s presence into the PET sheet and thermoforming
      industries.
    • Alpek splits its business into two segments – the polyester
      segment encompasses purified terephthalic acid (PTA), PET, recycled
      PET (rPET), and polyester fibres, while its plastics and chemicals
      segment includes polypropylene (PP), expandable styrenics, and
      other specialty and industrial chemicals.
    • According to Alpek, it is the largest rPET producer in the
      Americas, the third-largest expandable polystyrene (EPS)
      manufacturer worldwide, and the only producer of PP in Mexico.
    • OCTAL said its operations span four plants in Saudi Arabia, the
      U.S., and Oman, with the world’s largest single-location integrated
      PET producing site in Salalah, Oman.
  5. The ECB’s press release following its February policy meeting
    was very similar to the December 2021 version, which was relatively
    dovish compared with those of other major central banks recently.
    The key elements of the ECB’s policy guidance remain unchanged, as
    follows (IHS Markit Economist Ken
    Wattret
    ):

    • Policy rates are expected to remain “at their present or lower
      levels” until the three inflation criteria introduced in July
      2021’s guidance are achieved.
    • Net asset purchases under the Pandemic Emergency Purchase
      Programme (PEPP) are being conducted at a slower pace in the first
      quarter of 2022. They will cease at the end of March.
    • The Governing Council intends to reinvest the principal
      payments from maturing securities purchased under the PEPP until at
      least the end of 2024.
    • Monthly net purchases under the Asset Purchase Programme (APP)
      will amount to EUR40 billion (USD46 billion) in the second quarter
      of 2022 and EUR30 billion in the third quarter. From October
      onwards, they will be maintained at a monthly pace of EUR20 billion
      for as long as necessary. Net purchases are expected to end
      “shortly before” policy rates start to rise.
    • Principal payments from maturing securities purchased under the
      APP will be reinvested for an extended period past the date when
      policy rates start to rise.
    • Under stressed conditions, flexibility will remain an element
      of monetary policy whenever threats to monetary policy transmission
      jeopardize the attainment of price stability. Net purchases under
      the PEPP could be resumed, if necessary.
    • The Governing Council stands ready to adjust all of its
      instruments, as appropriate, to ensure that inflation stabilizes at
      its 2% target over the medium term.
    • There was one subtle but significant change to the latter
      element of the guidance above. While it was reiterated that the ECB
      stands ready to adjust all of its instruments, the prior reference
      to “in either direction” was removed, implying a tightening bias
      (although the easing bias for policy rates was retained).
      Furthermore, the press conference was littered with indications
      that the ECB’s assessment of inflation prospects and risks had
      changed, potentially materially.
  6. Amid a surge in output, US productivity (output per hour in the
    nonfarm business sector) rose at a 6.6% annual rate in the fourth
    quarter, more than reversing a 5.0% decline in the third quarter.
    During 2021, productivity rose 2.0% following a 2.5% increase
    during 2020. Those increases exceeded the average annual increase
    during the three years prior to the pandemic of 1.5%. (IHS Markit
    Economists Ken
    Matheny
    and Lawrence Nelson)

    • Compensation per hour rose at a 6.9% annual rate in the fourth
      quarter following increases averaging 6.1% over the prior two
      quarters. Growth in compensation per hour has been elevated, on
      average, during the pandemic: since the fourth quarter of 2019,
      compensation per hour has risen at a 6.8% annual rate. Employment
      in lower-wage sectors has declined relative to employment in
      higher-wage sectors, while wage gains have risen particularly in
      lower-wage sectors such as leisure and hospitality.
    • With productivity growth nearly matching growth in compensation
      per hour, unit labor costs edged up at a slight 0.3% annual rate in
      the fourth quarter. However, this follows much larger increases in
      previous quarters so that during 2021, unit labor costs rose
      3.1%.
    • Unit labor costs surged in the early stages of the pandemic, as
      compensation per hour rose much more than productivity. The rise in
      unit labor costs slowed on average after the initial surge but
      quickened again over the second and third quarters of 2021. Over
      those two quarters, unit labor costs rose at an average annual rate
      of 7.6%, as compensation per hour rose at a robust pace (6.1%)
      while productivity declined (down 1.3%).
    • The rise in labor costs during the pandemic is contributing to
      inflationary pressures.

Friday, February 4, 2022

  1. US nonfarm payroll employment rose 467,000 in January,
    considerably stronger than the consensus estimate. Meanwhile, the
    unemployment rate rose 0.1 percentage point to 4.0%. (IHS Markit
    Economists Ben
    Herzon
    and Michael
    Konidaris
    )

    • The solid gain in payrolls was surprising, in light of (1) a
      substantial rise in initial claims through mid-January, (2) a
      previously reported surge in early January in the number of persons
      away from work because of COVID-19, (3) a widely reported
      private-sector estimate of a large decline in payrolls, and (4)
      general concern about the possible effect of Omicron on
      employment.
    • Omicron did show up in this morning’s report, but not in
      employment; it showed up in hours worked. In the payroll survey, a
      person is counted as employed if they worked or received pay for
      any portion of their pay period that includes the 12th of the
      month, even if it was for just one day.
    • Roughly one-third of private-sector employees are on weekly
      payrolls, with the balance on pay periods at least two weeks in
      length, making it unlikely that, say, a five-day quarantine could
      register as a hit to payroll employment.
    • A five-day quarantine would, however, show up as a reduced
      average workweek. Indeed, the private workweek showed a sharp
      decline in January. This likely will have some impact on private
      wages and salaries. As we get past the Omicron wave, we believe the
      private workweek will rebound.
    • Average hourly earnings likely were also affected by Omicron.
      The 0.7% increase in January was the largest since December 2020.
      While tight labor markets generally are boosting wage gains, the
      unusually large increase in January likely reflected the effect of
      salaried employees, whose hours may have been reduced because of
      Omicron but whose pay was not.
  2. By the end of 2022, 24 states plus the District of Columbia
    will have increased their minimum wages, thanks to recently passed
    laws, ballot measures, inflation indexing, or cost-of-living
    adjustments. The District of Columbia will have the highest minimum
    wage in the country by July 2022, increasing 20 cents to
    $15.20/hour. Following the nation’s capital, California
    ($15.00/hour), Washington ($14.49/hour), Massachusetts
    ($14.25/hour), Connecticut ($14.00/hour), Oregon ($13.50/hour), New
    York ($13.20/hour) and New Jersey ($13.00/hour) will have the
    highest minimum wage rates in the country by the end of 2022. On 1
    May 2022, Virginia will enact the nation’s largest minimum wage
    increase, of $1.50, although that will still only raise its total
    to $11/hour. California, Connecticut, Florida, Illinois, New
    Jersey, and New Mexico are on a similar path, increasing their
    minimum wage rates by $1 this year. Of the 26 states that will not
    increase the minimum wage in 2022, 20 of them are still at the
    federal minimum of $7.25/hour. Many of those states are in the
    southern part of the US, but they also include Idaho, Utah, North
    Dakota, Minnesota, Wisconsin, and Pennsylvania. (IHS Markit
    Economist Steven
    Frable
    )

    • Looking at states’ minimum wages in real terms (2012 dollars),
      the highest minimum wage rate will be Washington ($12.19/hour),
      followed by the District of Columbia ($11.46/hour). Connecticut,
      California, and Oregon round out the top five.
    • By the end of 2021, there will be 15 states where the minimum
      wage is $10 or more in real terms.
    • At the bottom of the list are Wisconsin ($5.64/hour), New
      Hampshire ($5.81/hour), Utah ($6.03/hour), Texas ($6.07/hour), and
      Pennsylvania ($6.21/hour), where higher costs of living mute the
      value of their federal minimum wage.
    • Interestingly, it became clear in 2021 that even rising minimum
      wages cannot always increase real incomes. Indeed, the 2021 minimum
      wage increases in Colorado, the District of Columbia, Michigan, and
      Minnesota amounted to essentially zero dollars in real terms,
      indicating that in those states, wage increases were unable to
      outpace the rising cost of living.
  3. The Bank of England (BoE) announced its first back-to-back
    interest rate rise in 17 years at its February meeting. The BoE
    expects an even higher inflation peak in early 2022, prompting its
    Monetary Policy Committee (MPC) to embrace a more hawkish stance,
    suggesting that it will accelerate the pace of interest rate
    normalization. (IHS Markit Economist Raj
    Badiani
    )

    • The BoE’s MPC voted 5-4 to increase the Bank Rate by 25 basis
      points (bp) to 0.5% at its meeting that ended on 2 February. This
      marked the first back-to-back interest rate rise since 2004 after
      the MPC raised the Bank Rate by 15 bp to 0.25% at its December 2021
      meeting.
    • The dissenting voices favored increasing the Bank Rate by 50
      bp, to 0.75%. The four members wanting a larger rise were Dave
      Ramsden, one of the deputy governors, as well as Jonathan Haskel,
      Catherine Mann, and Michael Saunders.
    • They pushed for a higher interest rate rise to provide some
      insurance should the BoE repeat its inflation forecasting errors in
      2021. They also pointed to emerging signs that companies expect
      prices to rise significantly and that workers want larger pay
      rises, suggesting more persistent inflationary pressures.
    • Meanwhile, the MPC voted unanimously for the BoE to begin
      quantitative tightening, or to reduce the stock of UK government
      and corporate bond purchases, namely ceasing to reinvest maturing
      assets (including a program of corporate bond sales).
    • As of 2 February, the total stock of assets held in the Asset
      Purchase Facility (APF) was GBP895 billion (USD1.2 trillion),
      comprising GBP875 billion of UK government bond purchases and GBP20
      billion of sterling non-financial investment-grade corporate bond
      purchases.
    • Specifically, the BoE will not reinvest the proceeds of GBP70
      billion of government bonds maturing during 2022 and 2023. The
      process begins as soon as March 2022, with the BoE not reinvesting
      the cash flow generated by the redemption of gilts totaling GBP27.9
      billion.
  4. After plunging to 45.0, Canada’s Ivey Purchasing Managers’
    Index (PMI) jumped 5.7 points to 50.7 in January. Purchasing
    managers’ spending activity marginally increased in January after
    showing a mild decrease in the previous month. The increase was
    likely due to the higher spending on inventories. Given the
    continued slower supplier deliveries, purchasing managers keep
    investing in inventories to prevent a possible production
    disruption caused by inventories’ shortage. Combined with a
    continued supply chain disruption and high raw material prices
    including energy prices, the surge in the price index likely
    indicates stronger upward pressure on inflation. (IHS Markit
    Economist Chul-Woo
    Hong
    )

    • The employment index lowered to 49.1, which was the first
      contraction since January 2021, indicating a net job loss. This
      coincides with the steep 200,100 net employment plunge as reported
      by the Labour Force Survey in the month.
    • While the supplier deliveries index dipped further to 24.1, the
      lowest level since April 2020, the inventories index rebounded to
      54.2.
    • The price index surged 14.6 points to 92.2, a record-high
      level.
    • As regional restrictions are gradually eased, real GDP growth
      starting in February will be solid in the coming months.
  5. Grid-scale energy storage systems are unlikely to see any price
    declines until 2024, when manufacturing of lithium-ion batteries
    scales up to meet the increase in demand from automakers, according
    to an IHS Markit analysis of clean technology trends. Released 3
    February, the analysis finds that prices for lithium-ion batteries
    rose 10%-20% to $110 per kWh in the latter half of 2021,
    predominantly for LFP (lithium iron phosphate) cells, which is the
    favored technology for grid-energy storage. (IHS Markit Net-Zero
    Business Daily’s Amena
    Saiyid
    )

    • However, IHS Markit analysts say these price hikes, which are
      driven by soaring raw material costs and demand from automakers,
      will be tempered by the anticipated rise in the global LFP cell
      production capacity.
    • Announced expansion plans currently suggest that LFP cell
      capacity across the globe will reach 330 GWh annually in 2025,
      compared with less than 200 GWh in 2020.
    • LFP batteries have been the choice of technology for the
      grid-scale energy storage industry in recent years due to their
      lower cost and better safety track record in comparison to the main
      alternative, NMC (lithium nickel manganese cobalt oxide) batteries,
      which automakers favored for EVs until 2020.
    • As automakers seek to ramp up their EV fleets in response to
      the net-zero pledges made by countries where they have a large
      market presence, such as China, Europe, and the US, they are seeing
      the value of LFPs. Last year, Ford took a cue from Tesla and
      indicated it would consider LFP cells for EVs.
    • Tesla announced in December it would begin offering its
      LFP-powered “standard range” models globally, rather than only in
      China as it had before. The EV giant already has positioned itself
      as the third largest energy storage integrator globally, holding
      11% of the energy storage market.
    • But with automakers getting into the demand mix, the ample
      supply of LFP batteries that the energy storage industry enjoyed
      until 2020 is no longer the case, Wilkinson wrote.
    • The availability of LFP batteries depends on the pace at which
      automakers manufacture EVs using these cells as opposed other types
      of lithium-based batteries. In 2021, the automotive and
      transportation sector accounted for 80% of lithium-ion battery
      demand, a figure IHS Markit estimates is set to rise to 90% by the
      middle of the decade.
  6. European pig prices fell back once again over the past week,
    with a slack market offering little in the way of encouragement to
    under-pressure pig producers. Prices have in fact seen little real
    change since October – but over that period, costs and expenses for
    producers have continued to soar. (IHS Markit Food and Agricultural
    Commodities’ Chris Horseman)

    • In December 2021, the Commission assessed the ‘remainder’ for
      EU pig producers – the nominal gross margin per animal after
      deduction of feed and replacer costs – at just EUR 10. This is the
      lowest figure recorded since at least 2013, and compares
      unfavorably with the long-term EU average of around EUR 48 per
      animal.
    • It is also far short of remainders of upwards of EUR 70 which
      farmers were achieving for much of 2019.
    • Markets signals are however offering little respite at present,
      with consumption still on the low side, and exports still
      constrained by weak demand from China, and by tight restrictions on
      exports from Germany and other countries affected by African Swine
      Fever.
    • The EU average price for Class E pigs in the week ending 30
      January was EUR130.36 per 100kg, down by 0.9% on the previous
      week.
    • Spain is bucking the European trend with a pattern of
      strengthening prices. The average Spanish price was up by 1.9%
      week-on-week to EUR134.44 per 100kg, capping a rise of 6% over the
      past three weeks.
    • But there were substantial week-on-week price reductions in
      Poland (-3.8%), Denmark (-2.2%), Belgium (-1.3%) and Germany
      (-0.5%).
    • Italian prices are not routinely communicated to the
      Commission, but they have fallen sharply since ASF was discovered
      there several weeks ago.
  7. Amazon disclosed in a security filing that it holds 5.2% stake
    in Aurora Innovation, a company that specializes in autonomous
    vehicle (AV) technology for cars and trucks. In 2019, Aurora raised
    more than USD530 million in Series B funding round from multiple
    investors including Amazon. Amazon now owns 35,239,761 shares of
    Class B common stock of Aurora. Amazon is stepping up its efforts
    in the AV sector, as eliminating the cost of a human driver could
    make delivery services far cheaper. Last year, Amazon placed an
    order for 1,000 autonomous systems from technology startup Plus. In
    2020, Amazon acquired AV technology startup Zoox, which plans to
    develop fleets of small, on-demand AVs that do not have a steering
    wheel or interior controls. In 2019, Amazon announced that it was
    using automated trucks developed by Embark to haul cargo on the
    I-10 highway in the United States. (IHS Markit Automotive
    Mobility’s Surabhi Rajpal)
  8. Diesel’s share of the passenger car market in the European
    Union fell below 20% for the first time in more than three decades
    last year, according to data from the ACEA. Given that diesel
    accounted for around half of the overall European market less than
    a decade ago, it shows how the popularity of this fuel type – which
    was once the darling of EU regulators because of its ability to
    lower carbon dioxide (CO2) emissions – has waned in the wake of the
    Volkswagen (VW) ‘dieselgate’ affair and as industry electrification
    accelerates. The fuel type’s 19.6% share in 2021 was exactly
    matched by hybrid vehicles. Registrations of hybrid electric cars
    increased by a very robust 60.5% year on year (y/y) last year,
    marking the first time that hybrid electric vehicle sales (at
    1,901,239 units) overtook those of diesel vehicles in the EU, by
    just 40 units. Combined sales of what ACEA refers to as
    electrically chargeable vehicles, which comprise PHEVs and pure
    BEVs, took an 18% share of the overall EU market in 2021. However,
    it should also be noted that gasoline (petrol) was still the
    dominant fuel type overall in the EU last year with a 40% overall
    market share. This meant that conventionally powered non-hybrid
    gasoline and diesel models still accounted for the majority of
    passenger car sales in the EU during the year with a combined share
    of 59.6%. (IHS Markit AutoIntelligence’s Tim Urquhart)




Posted 07 February 2022 by Chris Fenske, Head of Fixed Income Research, Americas

IHS Markit 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.


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