Daily Update: December 3, 2020

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The U.S. has been unable to control the COVID-19 crisis. As hospitalizations of coronavirus patients surpass 100,000 for the first time during the pandemic and the Centers for Disease Control warns that this winter could be the “most difficult time” the country has ever faced in history, the equity of measures taken to support the economy in the past nine months and into the future is being called into question.

“The economy, which has recouped two-thirds of the economic losses from the COVID-19 recession, is now showing signs of weakness this holiday season in the midst of climbing COVID-19 infection rates,” S&P Global Ratings’ Chief U.S. Economist Beth Ann Bovino said in a report this week. “While promising vaccine news fills the airwaves as the weather chills, the viral spread as people head indoors leaves the near-term economic outlook at risk.”

Bipartisan lawmakers proposed a $908 billion stimulus package to aid state and local governments and small businesses on Dec. 1 that, if passed, would extend Americans a lifeline through March. But “since June, S&P Global Economics has said that it is not a far-fetched possibility that we could get a scenario of no more fiscal stimulus and a COVID-19 resurgence that cripples growth in the fourth quarter,” Ms. Bovino said.

New data from the U.S. Small Business Association showed that federal funding for businesses struggling under the strain of the crisis wasn’t equitably distributed. Only 1% of the 5.2 million borrowers that sought $1.4 million or above in federal funding from the Paycheck Protection Program received more than a quarter of the $523 billion that was dispersed through the government’s  program. The cornerstone of the Coronavirus Aid, Relief, and Economic Security (CARES) Act was established to relieve businesses with fewer than 500 employees, but it expired in August. The majority of funds went to bigger businesses, as 600 larger companies received the maximum loans of $10 million. Almost all of the loans (totaling  92%) dispersed were $250,000 or less.

According to S&P Global Market Intelligence, U.S. banks’ total PPP loan balances grew in the third quarter due to lending that continued through August and a complicated forgiveness process that has been slow to start due to changing guidance and difficulties processing the loans. The federal loans accounted for 4.7% of the U.S. banking industry’s total loans and leases by Sept. 30. During the same three-month period from July through September, declining PPP loans spurred community banks with less than $10 billion in assets to experience sluggish median loan growth of 0.6%. This is down from 6.8%  in the previous quarter. The third quarter also saw the first quarter-over-quarter decline in U.S. banks’ aggregate commercial and industrial loans, of 5.6%, due in large part to the PPP’s expiration.

Many U.S. companies haven’t been able to weather the storm brought on by the pandemic. In the past two weeks, 18 public and private companies with public debt with assets or liabilities at the time of the filing of at least $2 million have declared bankruptcy, according to an S&P Global Market Intelligence analysis. This brings the year’s total bankruptcies, as of Nov. 29, to a nine-year record.

S&P Global Economics expects real GDP to contract 3.9% this year, followed by marginal growth of 4.2% next year.

“All of this assumes passage of a $1 trillion stimulus package before year-end. Even with that boost, by the fourth quarter of 2023, real GDP would still be $96 billion (or 1.9%) smaller than what we expected in our December 2019 forecast,” Ms. Bovino said. “In our downside scenario [where no stimulus is implemented], GDP will decline for two consecutive quarters. In such a scenario, the economy is only likely to get back to its pre-pandemic level in the second half of 2022, with higher risk of leaving the economy with longer-term scarring.”

Today is Thursday, December 3, 2020, and here is today’s essential intelligence.

Uncertainty in the Global Economy

Economic Research: Latin America's Economic Recovery from the Pandemic Will be Highly Vulnerable to Setbacks

S&P Global Ratings continues to expect the recovery in most major Latin American economies from the COVID-19 downturn to be among the slowest in emerging markets. This is due to the severity of the damage inflicted to the labor market and investment, and in some cases economic weakness that preceded the pandemic. S&P Global Ratings’ 2021 GDP growth forecast for the six largest Latin American economies is relatively unchanged at 4.1% (versus 4.5% in the previous update). A contraction of 7.7% is expected for 2020.

—Read the full report from S&P Global Ratings

COVID-19 Galvanizes Food Companies to Raise Bets on Plant-Based Products

The world's biggest food companies are rapidly increasing investments in plant-based products, partly to meet surging consumer demand for alternative protein sources and partly to offset risks associated with meat production that the COVID-19 pandemic has exposed.

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

The Future of Credit

The Shape of Recovery for Global Steel Companies Depends On ABC: Assets, Balance Sheets, China

The consequences of the COVID-19 pandemic are weighing heavily on much of the rated steel industry. However, S&P Global Ratings sees steel companies' starting points as the pandemic broke out as decisive for the path their credit quality takes in 2021.

—Read the full report from S&P Global Ratings

Credit Trends: Risky Credits: U.S. and Canadian 'CCC' Rated Companies are Walking on Thin Ice

Although the total number of U.S. and Canadian corporate issuers rated in the 'CCC' category or lower by S&P Global Ratings decreased to 237 as of Oct. 31—its lowest since March—it is substantially higher than pre-pandemic totals.

—Read the full report from S&P Global Ratings

Market Volatility

U.S. Dollar Again Loses Ground to Peers In November, with More Weakness Expected

The U.S. dollar lost ground to its developed-market peers in November, and currency strategists expect further weakness into 2021 as the Biden administration moves into the White House and coronavirus vaccines are developed.

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

Banking Sector Under Pressure

Post-COVID, Chile's Banks Still Face Heaps of Risk

Over the course of the year, banks in the Andean country have sipped a dangerous cocktail of social unrest reminiscence and the full-blown impact of the pandemic.

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

The Future Of Banking: Central Bank Digital Currency May Replace Cash, Not Banks

Central banks are exploring three possible models for the adoption of Central Bank Digital Currencies (CBDCs). S&P Global Ratings believes that central banks will lean heavily toward a model where banks and other financial intermediaries continue to play a strong role, rather than one managed by the central banks themselves or a combination of both. Depending on the model selected, CBDCs could meaningfully affect how intermediation occurs with a banking system.

—Read the full report from S&P Global Ratings

Credit Trends: Seven Potential Fallen Angel Banks Across Asia-Pacific Face COVID-19 Threat

Seven of the 15 'BBB-' rated banks in Asia-Pacific face elevated downside risks. For five of the 15 banks, sovereign-related factors afford some headroom for a weakening in stand-alone creditworthiness at current ratings. Only one of the 11 'BBB-' rated nonbank financial institutions in Asia-Pacific faces elevated downside risks.

—Read the full report from S&P Global Ratings

Corporate Ownership of Banks In India May be Tough to Implement, Analysts Say

The much-critiqued recommendation by a panel of India’s central bank to allow large corporates to own significant stakes in banks may be tough to implement, even if accepted by the regulator and lawmakers in principle, analysts say.

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

Deutsche Bank Aims to Grow Commodity Trade Finance Business Amid Peers' Retreat

As European lenders retreat from commodity trade finance, Deutsche Bank AG is looking to grow its business in the sector, according to Daniel Schmand, the bank's global head of trade finance and lending.

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

Technology & Innovation

5G Survey: Despite COVID-19 Delays, Operator Roadmaps Still Lead to 5G

Despite the negative impact on network upgrade activities caused by the COVID-19 pandemic, mobile network operators, or MNOs, remain overwhelmingly committed to 5G infrastructure buildouts and service deployments.

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

Analysts Optimistic About Zoom's Post-COVID-19 Future Despite Recent Stock Drop

Zoom Video Communications Inc.'s meteoric rise in 2020 is unlikely to unravel in 2021, despite investor skittishness about the resilience of the work-from-home software boom after the COVID-19 pandemic subsides, analysts said.

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

Startup Insurance Broker's Carrier Deal Creates Path for Tech-Enabled Life Sales

Startup Bestow Inc. is confident that its accessibility will overcome a lack of name recognition in the life insurance marketplace. The COVID-19 pandemic has brought to light an underserved market that has now been made more acutely aware of mortality.

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

ESG in the Time of COVID-19

Listen: The Essential Podcast, Episode 25: CEOs and Stakeholder Capitalism — The Purpose of a Corporation

Who matters? Whose voice is heard? Whose interests are represented? These are the fundamental questions that advocates of stakeholder capitalism are asking. Martin Whittaker, CEO of JUST Capital, an organization considered by many to be the driving force behind the stakeholder capitalism movement, and Doug Peterson, CEO of S&P Global and one of the original signatories of the Business Roundtable’s Purpose of a Corporation, join the Essential Podcast to discuss companies’ shift to leading for the benefit of all stakeholders, customers, employees, suppliers, communities, and shareholders.

—Listen and subscribe to the Essential Podcast from S&P Global

Power Market Update: For Independents, Rising Renewables Remains The Primary Challenge

As the power industry undergoes the largest fuel-switch in its history, independent power producers (IPPs) must separate the cyclical, short-term shifts from the structural, long-term disruptors.

—Read the full report from S&P Global Ratings

INTERVIEW: New U.S. Policy Should Boost EV Adoption: ZETA

Policy proposals from President-elect Joe Biden on the energy transition will likely accelerate the adoption of electric vehicles, executive director of the US Zero Emission Transport Association, Joseph Britton, told S&P Global Platts in an interview Dec. 2.

—Read the full article from S&P Global Platts

South Korea needs to do more to decarbonize energy supply: IEA

South Korea in 2018 was the 12th-largest economy in the world by GDP, and the fourth-largest economy in the Asia Pacific region, after China, Japan and India. About 82% of its total population of around 52 million is urbanized, making it one of the most energy-intensive economies with a high 85% dependence on fossil fuels, the International Energy Agency said in its Korea 2020 Energy Policy Review launched in November.

—Read the full article from S&P Global Platts

Global Carbon Capture And Storage Capacity Grew by 33% In 2020, Says New Report

Global carbon capture and storage facility capacity increased by 33% in 2020 and 12 new commercial projects were added in the Americas, bringing that total to 38 operating facilities, which is about half the global total, think tank Global CCS Institute said Dec. 1.

—Read the full article from S&P Global Platts

The Future of Energy & Commodities

OPEC+ Economic Inequalities Complicate Knife Edge Oil Diplomacy

Agreeing on oil quotas isn't the only problem vexing the OPEC+ group. COVID-19 has amplified the economic disparity between poor and wealthy members of the producer alliance, adding to the challenge of finding a consensus to suit all their fiscal oil price breakevens.

—Read the full article from S&P Global Platts

Activists Say Coal Increasingly 'Uninsurable' as Focus Shifts to Oil, Gas

A campaign working to drive a wedge between the insurance and fossil fuel sectors reported that U.S. insurance companies are still adopting exclusionary policies for coal or other fossil fuel projects at a rate slower than most of their global peers and said coal is becoming increasingly "uninsurable."

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

Written and compiled by Molly Mintz.