COVID-19 Daily Update: March 20, 2020

As major Asian economies are reporting few new COVID-19 cases, millions of Americans are being ordered to stay indoors. Europe is the epicenter of the pandemic. Death tolls in Spain and Italy are rising faster than China’s did at the same stage of the outbreak, and more than 150 countries have confirmed cases. There are 258,000 total confirmed cases worldwide—more than 11,200 people have died, and approximately 87,400 people have recovered, according to data from Johns Hopkins University. Real estate, energy, retail, auto, airline, and additional sectors continue to struggle under the economic constraints of the pandemic. Shelter-in-place and other lockdown orders are roiling markets and slowing operations to a standstill.

Saudi Arabia said it would suspend all domestic passenger flights, trains, buses, and taxi services for two weeks starting tomorrow morning to prevent the further spread of the coronavirus.

In the United States, California's stay-at-home order for the state’s 40 million residents will likely further weaken the state's demand for gasoline and diesel. This could send prices lower and open the possibility that refiners will start cutting capacity, according to market sources. Across the country, Pennsylvania forced all metallurgical and thermal coal mines, as well as major industries, to close operations effective Thursday, March 19 until further notice to slow the spread of the outbreak.

Trade operations at some of Argentina’s ports and terminals have been hit as workers talk with port authorities about safety measures to contain the spread of the coronavirus, according to a private shipping agency based in the country.

Crude prices and oil and gas indexes suffered their worst two-week performance on record, pummeled by an oil price war and expectations for lower fuel demand as efforts to mitigate the COVID-19 pandemic grind global commerce into low gear. Kremlin spokesman Dmitry Peskov said today that Russia and Saudi Arabia aren’t conducting a price war in the oil market.

On Wednesday, we reported that Société Générale believes it has enough capital to manage through the crisis should it need to dip into its reserves. Today, S&P Global Market Intelligence data shows that French banks have low levels of liquidity relative to other large European banks and their reliance on less "sticky" wholesale funding may exacerbate risk amid the coronavirus pandemic.

The intensity of the pandemic is pressuring healthcare systems in multiple ways. China has been a major supplier of pharmaceutical ingredients for a range of medicines, from painkillers to antibiotics, but the coronavirus outbreak could prompt overseas drugmakers to consider diversifying their source of supply. The emergence of COVID-19 introduced an unexpected obstacle into the established supply system.

President Donald Trump said the U.S. Food and Drug Administration had granted approval to a more than 80-year-old malaria medicine to treat the new coronavirus. The drug is not approved in the U.S. for COVID-19, and there are no approved therapies to treat COVID-19.

Today is Friday, March 20, and here is essential insight on COVID-19 and the markets.

LOOKING AT THE MARKET

29 Days Later

On February 19th, the S&P 500® closed at an all-time high of 3386; last night, exactly one month later it closed at 2409, a 29% decline from the high. We should first start by putting the decline into historical context. The peak-to-trough decline in the Dow Jones Industrial Average was 33%, comparable to its slide during the bursting of the Tech bubble from 2000 to 2001.  We are still off from the 54% decline in the Global Financial Crisis in 2008, and would need an even steeper drop to put this recent crisis on par with the Great Depression’s 89% market decline. The unusual aspect of the current selloff has been its speed; the previous declines happened over multiple months and years; this recent drop happened in less than a month, with some days of trading echoing the extraordinary events of 1987. Broadly, global equities have plummeted across the board. Almost every major market is down more than 20% over the period. China, which didn’t have quite the same run-up in early 2020 due to the coronavirus’ early spread there, offers a rare exception.

—Read the full article from S&P Dow Jones Indices

Some Sectors Are Slippery Slopes as Markets Head Downhill

While ski resorts in the Northern Hemisphere were hampered by a mild end of winter, the downhill we are all experiencing has introduced a level of uncertainty and volatility beyond the slopes. The week of March 9, 2020, will go down in history as a time of unprecedented challenge and change. The spread of the COVID-19 virus globally led the World Health Organization to declare a global pandemic. Across the globe, governments and businesses have postponed or cancelled business travel, conferences, flights, festivals, sporting events, and political gatherings. Couple the pandemic with an oil price war between Saudi Arabia and Russia, and you’ve got your hands full.

The total return of the S&P 500® was down 22.9% YTD on March 12, 2020, at a value of 5,051.97, but it bounced back by 9.32% on Friday, March 13, 2020, returning -15.73% YTD. When comparing the total return equity performance to debt, investment-grade corporate bonds as measured by the S&P U.S. Investment Grade Corporate Bond Index returned -1.16% YTD, while the lower-rated S&P U.S. High Yield Corporate Bond Index was down 8.88% YTD.

—Read the full article from S&P Dow Jones Indices

COVID-19: Coronavirus-Related Public Rating Actions On Non-Financial Corporations To Date

In response to investors' growing interest in the COVID-19 coronavirus and its credit effects on companies, S&P Global Ratings is publishing a regularly updated list of rating actions we have taken globally on nonfinancial corporations. These are public ratings where we mention the COVID-19 coronavirus as one factor or in combination with others.

—Read the full article from S&P Global Ratings

Ratings On European Airlines Lowered And Placed On CreditWatch Negative Due To Coronavirus Outbreak

The spread of COVID-19 cases across the globe has caused air traffic demand to plunge in recent weeks. Unprecedented government travel restrictions and quarantine orders, which are rapidly tightening across the world in response to the pandemic, have led many airlines to temporarily ground large portions of their fleets and announce drastic cost-cutting measures.

The pandemic materially threatens the credit quality of European airlines and poses serious challenges for the global airline industry as a whole. There is significant uncertainty regarding the severity and longevity of the coronavirus outbreak, and as such our base-case forecasts are susceptible to possible revisions in the near term. Nonetheless, following flight cancellations, capacity cutbacks, and aircraft groundings across the industry we expect the airlines' liquidity positions to deteriorate, and that lower revenues and cash flows will result in significantly weaker credit metrics in 2020 than our previous expectations.

—Read the full article from S&P Global Ratings

Default, Transition, and Recovery: The Global Recession Is Likely To Push The U.S. Default Rate To 10%

We expect the U.S. trailing-12-month speculative-grade corporate default rate to rise to 10% within the next 12 months, from 3.1% in December 2019, as a global recession is now here amid the coronavirus pandemic. Financial market turmoil in response to the pandemic is pressuring funding conditions while earnings for some sectors are expected to plummet under the strain of supply disruptions and tanking demand.

In our pessimistic scenario, a protracted period of fighting to contain the virus and reduced effectiveness of stimulus measures could lead to a longer recession, pushing the default rate to about 13%. The oil and gas sector is likely to be particularly hard hit during this time--oil prices have fallen below $30 per barrel amid expanding supply following the standoff between Saudi Arabia and Russia. A quick resolution between the two parties is not expected.

—Read the full article from S&P Global Ratings

VIDEO OF THE DAY

The oil market hasn’t recovered from the March 8 collapse of the OPEC+ negotiations. ICE Brent crude futures dropped March 16 to the lowest level in more than 16 years as global markets continued to respond to OPEC output concerns and the global coronavirus pandemic, but appear to be rebounding. Global oil demand continues to shrink and independent oil and gas producers are facing increased chances of default as stocks tank. Meanwhile, the U.S. State Department’s named on March 17 nine entities under new sanctions for continuing to trade petrochemicals with Iran.

—Read essential intelligence on oil markets in crisis from S&P Global

Worst on record: Crude prices, oil and gas indexes tank at unprecedented pace

Crude prices and oil and gas indexes recorded their worst two-week performance on record, pummeled by an oil price war and expectations for lower fuel demand as efforts to mitigate the COVID-19 pandemic grind global commerce into low gear.

U.S. West Texas Intermediate crude futures settled at $20.37 per barrel on March 18, tumbling 56.5% over the course of 10 consecutive trading days. The plunge marked the largest decline since the WTI contract started trading in March 1983, according to an analysis of S&P Capital IQ data.

—Read the full article from S&P Global Platts

CHART OF THE DAY

Tracking The Spread And Economic Impact of The Coronavirus

State Distribution of Confirmed U.S. Coronavirus COVID-19 Cases, Mar. 19, 2020