Daily Update: February 26, 2024

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.

Geopolitics and Supply Chains

Supply chains were always political. Countries have avoided trade with geopolitical rivals for fear they would become economically dependent on those rivals or aid in the development of their economies. Political commentator Thomas Friedman presented the Dell Theory of Conflict Prevention in his book The World is Flat. According to this theory, no two countries will fight a war against each other as long as they are both part of the same global supply chain. However, it is also true that no two countries that anticipate the possibility of a war with one another are likely to remain part of the same global supply chain. As geopolitical tensions have increased over the last decade, we see that trade is often the first casualty in any potential conflict. Friedman’s Dell Theory may be more descriptive than predictive.

In anticipation of S&P Global’s TPM Conference, taking place March 3-6 in Long Beach, California, a group of researchers at S&P Global have launched the latest report in the Look Forward series, this time focusing on the state of supply chains in 2024. Because supply chains are critical to the global economy, the Daily Update will focus on different aspects of this report throughout the week. Today’s update will look at “Supply chain politics: National security meets economic growth.”

Beginning in the 1980s, there has been a global neoliberal consensus on the desirability of global trade and global supply chains. In the past decade, that consensus broke down as populist and nationalist governments imposed tariffs and increasingly withdrew from international trade organizations and multilateral trade agreements. Protectionism and sanctions are products of a new emerging consensus that trade is a zero-sum game in which economic advantage for geopolitical rivals must be prevented.

Government policies around trade are increasingly focused on national security priorities. The nearshoring and reshoring of supply chain inputs has the advantage of shortening supply chains and avoiding exposure to geopolitical rivals or geopolitically sensitive bottlenecks such as the Red Sea. However, these advantages come at a cost in terms of company profitability and the price consumers pay for goods. Resilience is a desirable quality, particularly for critical materials, but friendly and nearby nations may have higher labor costs.

Global trade remains robust. While protectionism is undoubtedly more of a political and economic force today than in the recent past, liberalization of trade has increased in the past two years. Large economies and major trading blocks are negotiating expanded trading agreements around the world, including the Trans-Pacific Partnership, the post-Brexit UK and India. Conflicts and sanctions continue, but the relative stability of global prices (despite modestly higher inflation) seems to indicate that goods are reaching customers, even if trade routes have become convoluted and, in some cases, willfully concealed.

The wild card for supply chains will be the effect of elections over the course of 2024. Already, Brazil and Argentina have new (and radically different) leadership. Elections this year in Mexico, the US and the EU will shuffle the deck for global trade.

Today is Monday, February 26, 2024, and here is today's essential intelligence.

Written by Nathan Hunt.

Economy

US Flash PMI Indicates Steady Growth In February As Price Pressures Cool Further

The early PMI data for February indicate that the US economy continued to expand midway through the first quarter, pointing to annualized GDP growth in the region of 2%. Although service sector growth cooled slightly, manufacturing staged a welcome return to growth, with factory output growing at the fastest rate for ten months.

—Read the report from S&P Global Market Intelligence

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Capital Markets

Credit FAQ: Swiss Banks In 2024: Better Safe Than Sorry

The highest interest rates in a decade led to widening margins and jumps in income and dividend distributions, benefiting Swiss banks' results in 2023. At the same time, last year's demise of Credit Suisse opened opportunities for local peers, but also created waves and turmoil in deposit and bond markets. S&P Global Ratings believes overall economic sentiment for the banking sector is not at risk. It expects Swiss banks' safety-conscious business models, sound underwriting standards and the country's economic resilience to continue supporting S&P Global Ratings’ very-low-risk assessment of the banking sector, strongest globally.

—Read the report from S&P Global Ratings

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Global Trade

UK Introduces New Sanctions On Russia's Arctic LNG 2 Project, Shadow Tanker Fleet Operators

The UK has introduced new sanctions targeting continued trade of Russian oil and gas, including shadow tanker fleet operators and the Arctic LNG 2 project, the Foreign Office said in a statement Feb. 22. Among entities sanctioned in the new measures include Russian oil trader Niels Troost and his Geneva-based company Paramount Energy & Commodities SA, the activities of which facilitate "unfettered trade in Russian oil beyond the reach of the oil price cap," the government said.

—Read the article from S&P Global Commodity Insights

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Sustainability

Listen: Exploring Intuit's Approach To Supplier Engagement, AI And Just Transition

In this episode of the ESG Insider podcast, we sit down with Debbie Lizt on the sidelines of the GreenBiz conference in Phoenix, Arizona. Debbie is head of global sustainability at Intuit, one of the world’s largest software companies. She describes how Intuit is engaging with suppliers on decarbonization, its approach to generative AI and how the company is working to ensure a just low-carbon transition in communities.

—Listen and subscribe to ESG Insider, a podcast from S&P Global Sustainable1

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Energy & Commodities

Listen: LatAm Shuffles The Heavy Sour Oil Deck In The Americas

Latin American crude production is on the rise, with countries like Brazil, Guyana and Argentina leading the way. However, Latin American heavy sour crude output is expected to decline, and flows will be reshuffled as Canada’s Trans Mountain crude pipeline expansion starts up and as operations begin at Pemex’s Olmeca refinery. Why is heavy sour crude output declining, and what does the output decline and reshuffling of barrels mean for crude prices?

—Listen and subscribe to Oil Markets, a podcast from S&P Global Commodity Insights

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Technology & Media

Untangling The Web Of Strategic Tech Investment In Generative AI

Strategic investors across the board — hyperscalers; infrastructure, software and media providers; and even generative AI players themselves — are all racing to claim a piece of the hot GenAI pie. However, a limited number of investment opportunities has not only propelled valuations to astounding highs, but also created a tangled web of interests, influences and unorthodox investment structures that are only becoming more complicated as these companies scale.

—Read the article from S&P Global Market Intelligence

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