Daily Update: April 11, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Global Credit Under Pressure

Global and regional credit cycle indicators signal that a credit correction is likely underway this year, according to a series of recent reports by S&P Global Ratings. The reports identified risk from the threats of slowing economic growth, stubborn inflation and tightening finance conditions, which together are expected to weigh on credit access.  

S&P Global Ratings credit analysts currently expect default ratings to double this year to more than 4.0% in the U.S. and 3.25% in Europe, according to a March 30 report. The consumer goods, retail, media and real estate sectors are most at risk, along with those on the lower end of the ratings scale, the analysts wrote. 

For the second quarter, lending standards appear poised to tighten in much of the world, particularly in North America and Europe, according to S&P Global Ratings. Recent volatility in the U.S. and European banking sectors appeared contained, the analysts wrote, but the events have shaken consumer confidence. Meanwhile, interest rates have remained high and will likely stay that way in the near term as policymakers remain focused on curbing inflation. As a result, financing will be more expensive and difficult to obtain for some businesses and households, the analysts said. 

In North America, S&P Global Ratings warned that borrowers should prepare for difficult credit conditions. Tighter lending standards are likely to be most felt by small to medium-sized businesses and households, the agency wrote. Consumer-reliant sectors will be most vulnerable if an expected period of low economic growth this year is deeper or lasts longer than anticipated. 

In Europe, high inflation could keep interest rates in “restrictive territory” for as long as two years, S&P Global Ratings said, adding that tighter lending standards are likely to reveal “pockets of financial vulnerability.” The agency’s analysts are watching for signs of potential credit vulnerability for Europe in several areas, namely bank lending, property markets and refinancing for certain corporate sectors, including consumer goods, business and consumer services, and media and leisure. 

The credit picture for emerging markets remains “under pressure” and will likely continue to be throughout 2023, according to S&P Global Ratings. “Slower economic activity along with stubborn inflation and rising financing costs will undermine corporates' and households' payment capacity,” it said in a report. One upside for emerging markets is the continued improvement in supply chains, which should help to lower logistics costs, the analysts said. The report also highlighted the risk of a credit crunch as small banks and nonbank financial institutions in emerging markets face rising hurdles from a sustained increase in interest rates. 

In Asia-Pacific, banks appeared to be more shielded from the turmoil seen elsewhere, but S&P Global Ratings still warned of financing access risk from volatile markets and uncertain economic outlooks. “The cash flows and liquidity of lower-rated and highly leveraged borrowers are particularly exposed,” the rating agency said. China’s expected 5.5% real GDP growth in 2023 will be somewhat offset by slowing growth elsewhere. Excluding China, the analysts expect real GDP growth in Asia-Pacific to slow to 3.8% in 2023 from 4.7% in 2022. 

Today is Tuesday, April 11, 2023, and here is today’s essential intelligence.

Written by Christina Mitchell.

Economy

An Israeli Home With A U.S. Twist

S&P Dow Jones Indices’ new research paper shows that Israeli investors have a greater home bias than other nations: they have invested more heavily in domestic equities and allocated to the U.S. in lower proportions than their developed markets peers such as the U.K., Europe and Canada. With U.S. equities making up nearly 60% of the S&P Global BMI’s market capitalization, such allocations may be overlooking a sizeable portion of the global equity opportunity set.

—Read the article from S&P Dow Jones Indices

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Capital Markets

U.S. Bank Merger Of Equals Activity Shows Signs Of Life After 5-Year Low In 2022

U.S. bank mergers of equals nosedived in 2022 amid a challenging economic environment and a broader industry slump in dealmaking but showed signs of life again in the first quarter. Only four U.S. bank mergers of equals (MOEs) were announced in 2022 for a combined deal value of about $255 million, the lowest yearly totals for both metrics since 2017 and a sharp slowdown from an uptick in activity between 2018 and 2021. However, MOE activity picked up slightly in the 2023 first quarter with two MOE announcements for a total deal value of $228.3 million.

—Read the article from S&P Global Market Intelligence

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Global Trade

Kuwait Al Zour Refinery's Surging LSFO Exports Set To Close Western Arbitrage To Asia

An imminent surge in low sulfur fuel oil exports from Kuwait's new Al Zour refinery is set to fundamentally alter global trade flows, with ripple effects likely to be felt particularly in the European and Asian fuel oil markets, market participants said April 3-4. Much of Kuwait's LSFO output is likely to make its way East to the world's largest bunkering hub of Singapore, rendering the arbitrage economics that have long enabled Western cargoes to arrive in Asia increasingly unviable.

—Read the article from S&P Global Commodity Insights

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Sustainability

Sustainability Insights: Research: U.S. Broadband Expansion: Bridging Access Gaps

This research explores how expanding broadband infrastructure to increase the number of people with access could help improve socioeconomic outcomes, particularly for rural and low-income communities in the U.S. S&P Global Ratings examines the states' roles in closing the access gap by leveraging federal resources under the American Rescue Plan Act and the Bipartisan Infrastructure Law for broadband expansion to unserved and underserved communities.

—Read the report from S&P Global Ratings

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Energy & Commodities

Middle East Oil Exports To Asia Seen Weakening Amid OPEC+ Cuts, Cheap Russian Barrels

Middle East oil exporters are expected to continue to lose market share in some Asian countries, particularly in price-sensitive India, amid the 1.66 million b/d voluntary cuts by OPEC+, cheap Russian barrels and higher priced Dubai-linked cargoes. Although exports from seven major oil producers in the Middle East rose 0.6% year on year to 17 million b/d in the first quarter, these countries' exports to India plunged 25% to 2.338 million b/d over the same period, according to tanker-tracking data from S&P Global Commodities at Sea. The seven producers are Iraq and the six Gulf countries: Kuwait, UAE, Oman, Saudi Arabia, Qatar and Bahrain.

—Read the article from S&P Global Commodity Insights

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Technology & Media

5G Tracker: 94 Markets Worldwide Have Commercial 5G Services

Developing markets, especially in Africa, took the spotlight for recent commercial 5G launches as operators in many developed regions had already launched 5G in previous years. The switch from non-stand-alone to stand-alone 5G is slowly picking up, but the lack of demand for 5G itself has caused some operators to be tentative on making the switch.

—Read the article from S&P Global Market Intelligence

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