COVID-19 Daily Update: April 7, 2020

After hopes that the coronavirus crisis was easing in the hardest-hit regions of the globe, equity markets rallied yesterday. But today, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite gave back early gains to close little changed, as the U.K. and New York State reported their deadliest days and France surpassed 10,000 total fatalities. According to the latest Johns Hopkins University data, 1.4 million cases of coronavirus have been confirmed around the world and more than 81,250 people have died in 177 countries.

The International Labor Organization forecasts this economic slump will be worse than the Global Financial Crisis of 2008-2009, predicting the equivalent of 195 million jobs worldwide will be lost as the coronavirus paralyzes the global economy.

Turkey has the world’s fastest rising infection rate. Cases are doubling every four days in Russia. Morgues are providing drive-thru funerals in Spain, and Ecuador is distributing cardboard coffins to its citizens. But despite high death tolls, the coronavirus curves in the U.K., U.S., Italy, France, and Spain appear to be reaching a plateau. Wuhan, the city in China’s Hubei province where the coronavirus originated, will lift its more than 10-week lockdown tomorrow. China announced no new deaths for the first time since the beginning of this year.

“There is a global scramble for personal protective equipment and for other types of medical equipment,” E.U. crisis management commissioner Janez Lenarcic said, warning of the chaotic market that has spurred a global bidding war for essential supplies. “This virus has spread faster and further than anyone expected, and this has resulted in a shortage of supply and a dramatic increase in demand.”

Misinformation is accelerating deaths related to coronavirus. In Iran, 600 people have died from alcohol poisoning on the belief that alcohol consumption can protect against COVID-19. U.S. President Donald Trump continues to tout the malaria medication hydroxychloroquine, although evidence about its effectiveness in treating coronavirus is sparse. With the urgent need for treatments and vaccines, there is intensive pressure to make those products available before there is enough evidence to show they work, Mark McClellan, director of the Duke-Margolis Center for Health Policy, told S&P Global Market Intelligence.

President Trump criticized the World Health Organization’s handling of the deadly crisis today. “We’re going to put a hold on money spent to the W.H.O.; we’re going to put a very powerful hold on it and we’re going to see,” he said. “The W.H.O. really blew it. For some reason, funded largely by the United States, yet very China-centric. We will be giving that a good look.”

The E.U.’s top scientist, Mauro Ferrari, resigned from his post as president of the European Research Council over the bloc’s coronavirus response.

OPEC, Russia, and nine other allies plan to hold a virtual summit tomorrow to finalize an oil-production deal, with additional invitations sent to the U.S., Canada, Brazil, Colombia, Ecuador, Argentina, Trinidad and Tobago, Egypt, Chad, Indonesia, Norway, and the U.K. How much crude supply can be cut back in a negotiated pact will depend on how many nations join in, but hopes that the U.S. will participate are diminishing, according to S&P Global Platts. A globally coordinated oil-production cut is "likely" but would fail to deliver the kind of reduction needed to balance the crude market, Goldman Sachs' global head of commodities Jeff Currie said in an interview with S&P Global Platts.

The G20 will host an extraordinary energy ministers' meeting on Friday to "foster global dialog and cooperation to ensure stable energy markets and enable a stronger global economy,” according to a statement from the group.

Twelve of the world's largest public oil and gas companies by market value have announced specific cuts to their 2020 capital spending programs, totaling approximately $43.6 billion, as global crude prices remain below $30 per barrel. ExxonMobil said today it will slash its 2020 capital spending by $10 billion.

Today is Tuesday, April 7, 2020, and here is essential insight on COVID-19 and the markets.

GLOBAL ECONOMY

Rushing coronavirus drugs, vaccines to market a risky venture, experts say

With the urgent need for treatments and vaccines for the new coronavirus, there is intensive pressure to make those products available before there is enough evidence to show they work, said Mark McClellan, director of the Duke-Margolis Center for Health Policy. The malaria drug hydroxychloroquine is a prime example, where there is limited evidence it may be effective in COVID-19 — the disease caused by the novel coronavirus — but there is a growing demand for the medicine, said McClellan, a former commissioner of the U.S. Food and Drug Administration during the George W. Bush administration.

Much of the interest in hydroxychloroquine and a related drug, chloroquine, was sparked by President Donald Trump, who has promoted the medicines to treat and prevent COVID-19, despite a lack of evidence they are safe and effective in the disease. Because the drugs are approved in the U.S. to treat malaria, lupus and rheumatoid arthritis, U.S. doctors can prescribe them off-label for other uses, including COVID-19 — a disease that lacks any approved treatments.

—Read the full article from S&P Global Market Intelligence

OPEC+ awaits green light from other key producers as oil cut math gets complicated

OPEC's ambitions for expanded global production cuts to level out the oil market's coronavirus nosedive remain in the balance, with countries still far apart on many details — not least of all who's in and who's out. OPEC, Russia and nine other allies plan to hold a virtual summit Thursday to finalize a deal, and additional invitations have been sent to the US, Canada, Brazil, Colombia, Ecuador, Argentina, Trinidad & Tobago, Egypt, Chad, Indonesia, Norway and the UK, according to OPEC sources.

How much crude supply can be clawed back in a negotiated pact will depend on how many nations join in, but hopes that the world's largest producer, the US, will participate grow fainter by the day. US officials declined to comment Tuesday, but a White House source said no one from the Trump administration was expected to attend the OPEC+ video conference.

—Read the full article from S&P Global Platts

CHART OF THE DAY

UPDATE: 12 oil majors to slash capex by $43.6B amid price collapse, coronavirus

As of April 7, 12 of the world's largest public oil and gas companies by market value have announced specific cuts to their 2020 capital spending programs, totaling approximately $43.6 billion, as global crude prices have tumbled below $30 per barrel. In total the announced cuts by the 12 integrated majors represent an approximate 23% decline in capital spending compared to their initial plans and far eclipse announced 2020 capex reductions by independent oil and gas producers.

—Read the full article from S&P Global Market Intelligence

Interview: Global cut won't be enough to balance oil market: Goldman's Currie

A globally coordinated oil production cut is "likely" but would fail to deliver the kind of reduction needed to balance the crude market, Goldman Sachs' global head of commodities Jeff Currie said in an interview with S&P Global Platts Tuesday. "It's too little, too late," Currie said about a possible coordinated cut between OPEC, Russia and various others, potentially including countries like Brazil and Norway. "If they get an agreement to cut say 10-15 million b/d, it is still not sufficient," the commodities expert said, given that demand is down 26 million b/d.

—Read the full article from S&P Global Platts

Crude oil futures rebound as potential supply deal spurs optimism

Crude oil futures rose in mid-morning trade in Asia Tuesday, overturning some of the overnight losses, as the potential of a crude oil deal spurred some optimism into the market again. At 10:25 am Singapore time (0225 GMT), ICE Brent June crude futures rose 89 cents/b (2.69%) from Monday's settle at $33.94/b, while the NYMEX May light sweet crude contract was 94 cents/b (3.55%) higher at $27.02/b. Hopes of supply cut discussions remained with an OPEC+ meeting still slated to take place online on Thursday. The meeting was originally scheduled for Monday.

—Read the full article from S&P Global Platts

Pandemic response could include significant clean energy investment, experts say

While the recent $2.2 trillion stimulus package passed by the U.S. Congress did not include many energy, let alone renewable energy, provisions, industry observers are predicting that may not be true in future response packages, especially bills focused on infrastructure investments.

Nations must use their recovery strategies to build resilience into their economies, said Rachel Kyte, dean of The Fletcher School at Tufts University, during an April 6 webinar hosted by the Atlantic Council. And since economies will be more dependent upon electricity once the pandemic ebbs, she said, more energy infrastructure will be needed to facilitate that greater dependence.

—Read the full article from S&P Global Market Intelligence

Bureau of International Recycling lobbies to speed up scrap flows

The Bureau of International Recycling is actively reaching out to governments and the international shipping industry to help with the flow of scrap as the world deals with an unprecedented lockdown in the face of the coronavirus pandemic, the lobby group said Tuesday. Measures to reduce transmission of the COVID-19 virus have restricted the movements of citizens, and sometimes goods. This has an impact on the movement of recyclables from facilities in exporting countries to facilities in importing countries, according to the BIR.

In a statement the bureau said that it has contacted governments, "shipping lines and their international organizations, as well as port authorities, so that they support the recycling industries' request to waive costs and fees on containers stuck in ports due to government shutdowns, as well as ground charge for stuck containers."

—Read the full article from S&P Global Platts

PODCAST OF THE DAY

Listen: COVID-19, weather conditions, market fundamentals leave corn markets in turmoil

S&P Global Platts agriculture specialists Liz Thang, Rafael Savoia, Sergio Alvarado, and Andrei Agapi examine the factors driving corn prices as trading communities in Asia and the Americas try to manage market volatility and logistics disruptions due to the coronavirus pandemic, as well as the usual weather issues.

—Share the Commodities Focus podcast from S&P Global Platts

S&P downgrades hit nearly 200 consumer companies during coronavirus outbreak

Restaurants and auto parts makers accounted for the largest share of the nearly 200 consumer companies downgraded by S&P Global Ratings in recent months amid the coronavirus pandemic, according to an S&P Global Market Intelligence analysis. From Jan. 1 through April 6, the rating agency downgraded the long-term credit ratings of 192 companies in the consumer sector. All but five of those actions occurred during March and April as companies began to limit or close operations to help slow the spread of the virus and protect workers.

The TJX Cos. Inc.; The Kraft Heinz Co.; Marriott International Inc.; Carnival Corp. & PLC; Darden Restaurants Inc.; Aramark; and automakers including Bayerische Motoren Werke AG, Daimler AG and Ford Motor Co. are among the largest corporations downgraded by S&P Global Ratings. Some of the companies have also recently tapped their credit lines to shore up cash in response to the pandemic. More than half of the downgrades were against companies in the U.S., while Europe made up more than one-fifth of such actions. The rating agency downgraded 18 restaurant companies and the same number of auto parts and equipment makers, representing the highest number of actions for any single industry in the sector.

—Read the full article from S&P Global Market Intelligence

ESG Evaluations Remain Unchanged For Now In Light Of COVID-19

S&P Global Ratings has reviewed its portfolio of six public Environmental, Social, And Governance (ESG) Evaluations in light of the COVID-19 pandemic and has left all scores unchanged for now. We will continue to monitor the portfolio.

ESG Evaluations are S&P Global Ratings' view of an entity's capacity to operate successfully in the future and may be affected by the risks and disruptions caused by COVID-19. The ESG Evaluation comprises two assessments: the ESG profile considers near-term and observable risks and opportunities, and an entity's preparedness considers its ability to manage emerging, disruptive, and strategic risks. We consider this pandemic to be a social risk that could affect our view of the ESG profile of an entity--particularly the social profile--and a disruption that could affect our view of an entity's preparedness. We may revise our opinion of an entity's ESG profile and preparedness, and adjust our ESG Evaluation score appropriately. These adjustments could be either negative or positive, and would take into account the management team's efforts to mitigate the risks posed by COVID-19.

—Read the full report from S&P Global Ratings

ASIA

SoftBank's asset sales, COVID-19 portfolio hit to rattle Vision Fund 2 investors

SoftBank Group Corp.'s latest efforts to pay down debt and stem portfolio company losses amid the coronavirus crisis are unlikely to be enough to attract outside investment for its upcoming second Vision Fund, experts told S&P Global Market Intelligence.

The Japanese conglomerate said March 23 it will sell up to ¥4.5 trillion of assets over the next year to reduce debt and increase cash reserves. The company will also repurchase up to ¥2 trillion of common stock, in addition to a previously announced buyback of 145 million shares. SoftBank did not disclose which assets it would sell, but reports have focused on its stake in Chinese internet group Alibaba Group Holding Ltd. SoftBank Group's share price approximately halved in March as a market downturn caused by the coronavirus pandemic hit companies in the Vision Fund.

—Read the full report from S&P Global Market Intelligence

VIDEO OF THE DAY

Watch: Market Movers Asia, Apr 6-10: OPEC+ delays oil output cut talks; COVID-19 continues to disrupt markets

The highlights in Asia's commodity markets this week: OPEC+ producers postpone emergency meeting to discuss production cuts; floating storage demand drive tanker rates to multi-year highs; steel markets await clarity on China's mill activities since the domestic lockdowns eased. Also in this episode: LNG supply glut is set to increase, China's utilities are set to issue thermal coal tenders, and tightening quarantine measures affect soybean logistics.

—Share this video from S&P Global Platts

EMERGING MARKETS

Gulf OPEC states get head start in market share war as crude output surges in March: Platts survey

OPEC's core Gulf countries of Saudi Arabia, the UAE and Kuwait appear to have wasted no time in ramping up their crude production after the breakdown of talks with Russia over a new supply accord last month. The three countries contributed to OPEC pumping a three-month high of 28.97 million b/d in March, with several members busting their production quotas, even though they weren't set to expire until the end of the month, an S&P Global Platts survey found.

Compliance among the 10 OPEC countries with quotas collapsed to 13% from 120% in February, according to Platts calculations.

—Read the full article from S&P Global Platts

Nigeria ramping up crude oil output despite sharp fall in global demand

Nigeria has started to ramp up crude oil production, the head of the state-owned Nigerian National Petroleum Corp. said Tuesday, even as the country has been struggling to find buyers with COVID-19 having destroyed demand around the globe. "As of yesterday (Monday), Nigeria produced 2.3 million barrels of crude oil, including condensates," Mele Kyari, NNPC Group Managing Director, said in a statement.

That came a week after the March 31 expiry of a deal between OPEC and allies to limit output to support prices. On March 6, the parties failed to agree a rollover deal to combat the impact of the coronavirus pandemic. Since April 1, OPEC members have been able to adopt a pump-at-will strategy in the wake of a 70% fall in oil prices.

—Read the full article from S&P Global Platts

China April oil exports seen falling as pandemic erodes global demand

China is poised to cut oil product exports in April as lockdowns across the world to limit the coronavirus pandemic sapped global demand, according to refiners, traders and analysts. State-run refining giant Sinopec sees limited oil product exports in Q2 compared with the same period last year as the number of willing buyers in the international market dwindled following the pandemic, Sinopec's Senior Vice President Ling Yiqun said last week.

One of its units Guangzhou Petrochemical has cut its jet fuel exports further by 70% to around 30,000 mt in April from normal level of 100,000 mt/month, according to a company source. Another state-owned integrated oil and gas giant PetroChina slashed its April exports from March for its refineries, including cutting a half to 60,000 mt from its Liaoyang Petrochemical and 22% reduction to 350,000 mt from its exporting-oriented West Pacific Petrochemical Corp. or Wepec. Moreover, its subsidiary Guangxi Petrochemical, which exports up to 370,000 mt/month, planned to suspend exports and extend its shut down despite the 50-day maintenance that finished end-March. The refinery exported 290,000 mt and 325,000 mt of oil products in February and March, respectively, during the maintenance. Sinochem Quanzhou Petrochemical was also said to reduce its product exports.

—Read the full article from S&P Global Platts

India lockdown: LNG vessels build up outside ports due to force majeure rejections, tank-top concerns

Suppliers rejecting force majeure notices from Indian buyers and tank-top concerns in the Dahej and Hazira terminals have caused LNG vessels to build up along the west coast of India. The discharge rate at Indian terminals has been lower since a 21-day lockdown was imposed in the country on March 24 to contain the spread of the coronavirus. For the two weeks during the lockdown India has discharged 12 LNG cargoes, compared with 16 clips for the two weeks prior, S&P Global Platts trade flow software cFlow showed.

"Suppliers are not ready to accept FM and we cannot take cargoes due to lower demand and the tank-top situation so there is no other alternative but for vessels to line up outside the ports," an Indian LNG importer said. However, another Indian LNG importer added that they had mutually agreed with their suppliers to defer most of the cargoes which were expected to arrive into India over end-March and April.

—Read the full article from S&P Global Platts

LatAm banks rethink share buybacks as coronavirus crisis looms

LatAm lenders are pausing share buyback and dividend payments, as regulators take steps to mitigate the potential economic fallout from the coronavirus in the region. As share prices plunged in the wake of the outbreak, highly liquid banks rushed to repurchase stock. Since mid-February, outflows from emerging equity markets have been double those seen in 2008. Brazilian equities have been among the hardest hit. In the last month, the 330 listed corporations in the local stock exchange lost roughly $570 billion dollars in market value, a 36.5% drop that wiped out three years of returns.

—Read the full article from S&P Global Market Intelligence

EUROPE AND THE MIDDLE EAST

Recent Rating Reviews On EMEA Utilities Reflect The Sector's Strength Against COVID-19 Shock

S&P Global Ratings has not downgraded any utilities in EMEA since governments implemented COVID-19-related lockdown measures in the region in early March, but has evertheless revised four outlooks to negative and placed four ratings on CreditWatch with negative implications. Currently, 13% of the sector has a negative rating bias. Most of S&P Global Ratings’ negative reviews are related to merchant power exposure and earnings' downside risk for 2020 and 2021, together with already tight headroom in the current credit metrics. S&P Global Ratings recognizes, however, that these companies also have a degree of flexibility to adjust costs, investments, and dividends to protect their creditworthiness.

Capital markets remain open to the sector, and some landmark transactions have been completed over the recent weeks. S&P Global Ratings nevertheless remains quite cautious regarding refinancing needs for companies rated 'BBB-' or lower. S&P Global Ratings considers the main risks for utilities will stem from prolonged lockdown measures, which could notably imply more downward pressure on sovereign ratings and negative political intervention, especially regarding bill collection risk.

—Read the full report from S&P Global Ratings

COVID-19: Coronavirus-Related Public Rating Actions On Nonfinancial Corporations And Affected European CLOs

In response to investors' growing interest in the COVID-19 coronavirus and its credit effects on companies and European collateralized loan obligations (CLOs), S&P Global Ratings is publishing a regularly updated list of rating actions taken globally on nonfinancial corporations, which have had an effect on European CLOs, and a summary table. These are public ratings where S&P Global Ratings mentions the COVID-19 coronavirus as one factor or in combination with others.

—Read the full report from S&P Global Ratings

Bulletin: SSE Should Be Relatively Resilient To COVID-19 But Current Rating Headroom Is Limited

S&P Global Ratings sees SSE as relatively resilient to the effects of COVID-19 given the essential service it provides and the regulated or long-term contracted nature of its activities. In line with government guidance on tackling COVID-19, SSE is implementing a contingency plan to manage any disruption, deliver on its core responsibilities, and carry out essential operations while protecting employees and supporting customers.

Due to the pandemic, S&P Global Ratings currently expects a reduction in electricity demand (mainly industrial and commercial), which could undermine the company's merchant generation and business supply activities. However, SSE fully hedged its power production for 2020 and mostly hedged for 2021. Additionally, SSE's business supply operations, which are subject to a potential increase in bad debt if there's a spike in customer defaults, are only a small contributor to the group's EBITDA (about 3% in the financial year ending 2019). More importantly, SSE's renewable generation is protected by long-term fixed tariffs, which somewhat reduces downside risk, while its networks operations are protected by the U.K. regulatory framework that allows for the full recovery of operating, capital, and financing costs, alongside strong ring-fencing license conditions.

—Read the full report from S&P Global Ratings

Coronavirus uncertainty turns banks' loan loss provisioning into guesswork

Expected loss estimates under the European IFRS 9 accounting regime will be more guesswork than model-driven prediction as no existing approach can gauge the impact of the new coronavirus pandemic on the economy. Although banks can use the flexibility provided in the accounting standard to limit the impairments they would have to recognize on loans that come under COVID-19-related stress, the economic outlook plays a significant role in these estimates. Banks will have to tap in the dark for a big part of their loss modeling as economists and market observers are still only theorizing about the pandemic's hit to the real economy.

—Read the full article from S&P Global Market Intelligence

Big deals on ice as Europe's utility sector hits pause on M&A amid coronavirus

After a busy few years of consolidation in Europe, utilities and other investors in power, gas and renewables are set for a quiet year — at least when it comes to M&A. With financial and commodity markets in turmoil and both company and asset valuations going haywire as a result, industry experts say deal flow could significantly slow down over the coming months. Some large sales processes are already being delayed and a prolonged crisis could also hamper the steady sales of power plant portfolios and even large-scale takeovers, as utilities focus on maintaining critical infrastructure and financial and other investors re-evaluate potential transactions.

—Read the full article from S&P Global Market Intelligence

UNITED STATES

ExxonMobil slashes 2020 capital spending by 30%

ExxonMobil said Tuesday it will slash its 2020 capital spending by $10 billion as North America's largest energy company cuts its bottom line deeper than the other integrated oil majors around the world. The moves comes as US crude oil pipeline giant Plains All American Pipeline said it will cut its spending by almost 50% and Oklahoma oil producer Continental Resources aims to reduce its production volumes by 30% in April and May.

The oil major said it will cut its capital spending about 30% from $33 billion to $23 billion. CEO Darren Woods said the biggest reductions will come in the Permian Basin where ExxonMobil is by far the most active driller. The other majors, including Chevron, Royal Dutch Shell, BP and Total, all previously announced cuts of 20% or 25%. ExxonMobil also will defer its final investment decision on the Rovuma LNG project in Mozambique to at least 2021.

—Read the full article from S&P Global Platts

Investment grade bond issuance sets records, with help from Fed

The rising wave of investment-grade bond issuance following the U.S. Fed's seismic March 17 announcement of a Primary Dealer Credit Facility (PDCF) and March 23 rollouts of direct primary- and secondary-market interventions continues to set issuance records by the day.

The $6.25 billion docket of investment-grade placements on April 3, in the shadow of a brutal U.S. jobs report, was the lightest total over the 13 active sessions since March 17, but was nevertheless enough to push last week's $113 billion, five-day total into the all-time top spot, ahead of the prior week's $111.5 billion total, according to LCD. Bond issuance from March 17 through April 3 was $287 billion (including a whopping $62 billion over the first three April sessions), or $30 billion more than issuers printed over the entirety of the second quarter last year, according to LCD. As well, March's $261 billion in full-month volume was $90 billion more than the prior peak level for any calendar month — the $171 billion in January 2017 amid a post-election refinancing frenzy.

—Read the full article from S&P Global Market Intelligence

Insurers' responses global pandemic to dominate Q1 earnings calls

Insurance companies will likely spend significant portions of their first-quarter earnings calls to discuss how they plan to offset the financial impact of the COVID-19 pandemic. With the stock market still volatile as dire economic forecasts and rising infection counts dominate the headlines, CFRA Equity Research analyst Sel Hardy said investors are looking for "concrete steps" companies are taking to cut costs and find remedies for the income losses, with "leverage and liquidity" among their major concerns.

"Investors would like to hear how companies are managing their liquidity, servicing their debt and working capital needs going forward," Hardy said in an email to S&P Global Market Intelligence.

—Read the full article from S&P Global Market Intelligence

Allstate expects shelter-in-place auto payments to average about $30 per policy

Filings submitted April 6 to various state regulators by subsidiaries of Allstate Corp. provide additional information as to the nature and scope of the $600 million "shelter-in-place payback" program the company implemented as a result of changes in driving behavior during the COVID-19 pandemic.

The paybacks are designed to reflect the impact of a reduction in miles driven and the frequency of accidents. Allstate companies are filing the payback as an endorsement to existing personal auto policy forms as a way to "get money back to consumers quickly before the full impact of the pandemic is sorted out," according to a statement included in many of the documents obtained to date by S&P Global Market Intelligence.

—Read the full article from S&P Global Market Intelligence

Florida banks remain popular target in 2020, but COVID-19 fallout quashes deal

Four Florida bank deals have been announced this year, including three in January. The Sunshine State has been the second-most popular target in the country after Tennessee's six deal announcements in 2020 to date. Last year, 15 Florida bank deals were announced that are either pending or completed, including six transactions with a credit union buyer.

—Read the full article from S&P Global Market Intelligence

COVID-19 Activity In U.S. Public Finance

Access S&P Global Ratings' latest links to coronavirus-related activity in U.S. public finance, updated regularly.

—Read the full report from S&P Global Ratings

Written and compiled by Molly Mintz.