Daily Update: August 27, 2021

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.

As the delta coronavirus variant spreads, the economic recovery and demand outlook is changing across Asia—where many countries were the first to rebound from the COVID-19 crisis.

Asia is experiencing increased activity and mobility, which serves as a proxy for oil demand. Negative effects spurred by the delta variant in the largest Asian economies may not weigh as heavily as expected, according to S&P Global Platts. Average mobility in Asia's top oil consumers (outside China) improved in the week ended Aug. 21 despite new containment measures, and demand indicators in most of the world's biggest oil-consuming countries improved or held steady. However, S&P Global Platts Analytics recently lowered its Asian demand forecast for the third quarter due to the restrictions economies have implemented to combat additional virus waves.

Some Asian countries’ economic and credit conditions are faring worse than others, particularly Thailand and the Philippines. S&P Global Ratings has revised their full-year GDP growth forecasts to 1.1%  and 4.3%, respectively, from the June outlook of 2.8% and 6%.

"A fresh slump in demand in emerging Southeast Asia is hitting sectors that have already faced a challenging year," Vishrut Rana, S&P Global Ratings’ Asia-Pacific economist, said in a recent report. "As the pandemic drags on, balance sheets will deteriorate for households, small and midsize enterprises, banks, and the wider economy, leading to more medium-run economic scarring."

“While the COVID-19 pandemic and knock-on effects on global economic growth became major dampers in 2020, observed defaults for issuers in Greater China and Asia overall remained lower than for issuers globally,” S&P Global Ratings said in a separate report this week. “However, defaults for Chinese onshore bonds are increasing in size.”

Nonetheless, top bankers across Asia expressed cautious optimism about their industry’s growth prospects during second-quarter earnings calls, according to S&P Global Market Intelligence. South Korea has already raised its benchmark interest rate by  one-quarter of a percentage point, to 0.75%, on Aug. 26—the first country in the region to do so, on the back of its steady economic outlook—which is likely to bring forth a stabilization of net interest for commercial banks.

"The current situation will not continue forever," Takumi Kitamura, chief financial officer of Japan’s Nomura Holdings, said. "Especially, the monetary easing created lots of money that has been left to be invested somewhere. So sometime in the future, we will start to see the move with such funds waiting to be invested."

Elsewhere in Asia outside of South Korea, "growth recoveries are quite divergent and policy priorities also differ," Sonal Varma, Nomura's chief economist for Asia excluding Japan, told S&P Global Market Intelligence. "Hence, we expect more policy divergences based on local idiosyncratic factors.” 

Today is Friday, August 27, 2021, and here is today’s essential intelligence.

Uncertainty in the Global Economy

Allstate, Farmers Insurance Lead Push For Homeowners Rate Hikes In H1

The Allstate Corp. and Farmers Insurance Group of Cos. obtained the greatest number of rate increase approvals for homeowners insurance during the first half of 2021 as the industry sought to get ahead of losses from recent catastrophes and rising prices for home repair materials.

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

The Credit Cycle

Dial M For Merger: Low U.S. Interest Rates Spark A Record Wave Of Private M&A

As the U.S. economy rebounds from the pandemic, private equity firms have wasted no time ramping up their activity, with the number of PE-backed transactions reaching 341 based on LCD in the first half of 2021. S&P Global Ratings attributes the soaring popularity of M&A to three related factors: low borrowing costs and healthy interest coverage (despite higher leverage), excess cash on balance sheets, and the need to reposition for a post-pandemic world.

—Read the full report from S&P Global Ratings

Market Dynamics

Title Insurers Log Highest Median Dividend Yield Among U.S. Underwriters At H1-End

Title insurance companies led the pack by recording the highest median dividend yield among all U.S. insurance sectors for the 12 months ended June 30. The median dividend yield for title companies was 3.24% for the trailing 12-month period, according to an S&P Global Market Intelligence analysis.

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

Risk Parity Act Two: Presenting The S&P Risk Parity 2.0 Indices

In 2018, the S&P Risk Parity Indices became the first transparent, rules-based benchmarks offered in the space. S&P Dow Jones Indices has been in regular dialogue with several of the leading asset owners, asset managers, and consultants focused on risk parity. Insights from these valuable interactions motivated S&P Dow Jones Indices to launch a second series of indices, the S&P Risk Parity 2.0 Indices.

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

ESG in the Time of COVID-19

Labor Disputes, Floods, Maintenance Dampen Nickel Output In Q2'21

Production from the top five primary nickel producers plunged 24.1% year over year in the second quarter as an array of hurdles from labor disputes to maintenance and flooding slowed production. However, higher nickel prices shielded some of the leading companies from significant financial loss.

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

Electric Vehicle Charging Build-Out In U.S. At 'Inflection Point,' Siemens Official Says

In a major acceleration of its electric vehicle charging business in the U.S., Siemens plans to produce more than 1 million EV chargers for U.S. homes and businesses over the next four years, according to the German engineering giant. This would be a significant jump from the roughly 75,000 EV chargers the company installed in the US over the past decade.

—Read the full article from S&P Global Platts

The Future of Energy & Commodities 

German Court Rejects Russian Nord Stream 2's Appeal For Derogation

A German court has rejected an appeal by Nord Stream 2 AG to allow its pipeline to be exempt from the EU's Gas Directive rules. The rejection means the 55 Bcm/year Nord Stream 2 pipeline will have to follow regulations relating to third-party access rules, requirements on transparent tariffs, and the legal unbundling of transportation and production operations.

—Read the full article from S&P Global Platts

Listen: Mexico Remains A Destination For Upstream Investors Despite Government Shift

Companies operating in Latin America have set their eyes on nascent opportunities in the region like Guyana and Brazil, as Mexico has put the liberalization of its upstream sector on hold. But the attractiveness of the 25 billion barrels of oil equivalent found in the deepwater Gulf of Mexico has not been lost because of politics. S&P Global Platts talked with Sergio Pimentel, a partner at Mexico City consultancy Agon and a former official at CNH, Mexico's energy regulator, about the country's regulations and how they can still be used to bring investment into the country.

—Listen and subscribe to Commodities Focus, a podcast from S&P Global Platts

Written and compiled by Molly Mintz.