Daily Update: February 5, 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.

Political Upheaval and Drug Violence Test Ecuador’s New President

On Oct. 15, 2023, Daniel Noboa prevailed in a runoff election to become the 48th president of Ecuador and the youngest to ever hold that office. The 36-year-old Noboa, born and educated in the US, was an unexpected winner in a race marred by the murder of presidential candidate Fernando Villavicencio by a drug cartel in August 2023. Noboa’s predecessor, Guillermo Lasso, had a shortened term after multiple impeachment proceedings caused Lasso to dissolve the National Assembly, automatically triggering a general election. President Noboa’s first term in office will only last 18 months, the balance left over from Lasso’s term. Confronting a fragmented assembly and escalating violence from drug cartels, Noboa is struggling to provide stability in the resource-rich Andean nation.

The greatest challenge facing President Noboa is the continued strength and aggressiveness of Ecuadorian drug cartels. On Jan. 8, Noboa declared a state of emergency, granting the armed forces broad authority to combat the drug cartels. The cartels responded by bombing police stations and storming installations in the port of Guayaquil, including a university and a TV station. The government has responded by tightening security at mines and ports to protect the country’s economically important copper, gold and silver mining operations and crude oil production.

On Jan. 11, S&P Global Ratings revised Ecuador’s credit outlook to negative from stable and affirmed a B-/B credit rating on Ecuador’s sovereign debt. The revision in the credit outlook was attributed to the ongoing violence, deteriorating fiscal performance, declining investor sentiment and Noboa’s truncated term of office. 

“We expect GDP growth to decelerate to 1.2% in 2024, from an estimated 1.8% in 2023,” S&P Global Ratings said. “The economic slowdown, coupled with the fall in oil income and stagnation of policymaking at the end of the outgoing administration, pushed the general government deficit to 3.5% of GDP in 2023, from a balanced position in 2022.”

The decline in oil income is partly the result of a national referendum that took place in the country last year to limit further drilling in an area of Ecuador’s Amazon rainforest called Block 43. Popular opposition to more hydrocarbon development is an economic challenge for a country where 40% of government income derives from sales of crude oil and related products. The decommissioning of the projects in Block 43 has been delayed due to opposition from local Indigenous communities and government stakeholders. 

Local exporter group Fedexpor has demanded further action from the government to confront the cartels and guarantee the safety and security of exports. 

"This latest violence puts rule of law and Ecuadorians' safety at risk," Fedexpor said in a statement. "We call on all state institutions and the private sector to implement immediate actions that guarantee normal productive operations, particularly the country's exports."

Today is Monday, February 5, 2024, and here is today's essential intelligence.

Written by Nathan Hunt.

Economy

China's Property Downturn Stokes Fears About Commodities Demand In 2024

China's property market, a key driver of the country's economic growth and commodity consumption, received yet another headwind with a Hong Kong court on Jan. 29 ordering debt-ridden property development giant, China Evergrande Group, to liquidate after failing to reach a restructuring deal with creditors. The property sector accounts for a significant portion of China's consumption of steel, aluminum, gasoil, copper, bitumen and some petrochemical products.

—Read the article from S&P Global Commodity Insights

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Capital Markets

S&P 500 Dividend Aristocrats Rebalance: Fastenal In, Walgreens Out

The S&P 500 Dividend Aristocrats seeks to track an elite group of companies that have raised their dividends for a minimum of 25 consecutive years. This index has just concluded its annual reconstitution, which was effective at the market close on Jan. 31, 2024. Fastenal has been added, while Walgreens is out, which keeps the membership list at 67 stocks.

—Read the article from S&P Dow Jones Indices

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Global Trade

Listen: Red Sea Concerns: A Fresh Shake-Up To European Oil Market Logistics

In the face of continued security issues in the Red Sea stemming from Houthi attacks on commercial vessels, European trade patterns for oil products across the barrel are changing. S&P Global Commodity Insights’ Robert Perkins, managing news editor for downstream oil, and associate editors Nadia Bliznikova and Takis Gounaris join Global Director of Crude and Fuel Oil Joel Hanley to discuss the impacts the Red Sea disruption are having on the European supply-demand balance for key oil products.

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

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Sustainability

Taiwan Government Faces Energy, Climate Policy Challenge After Elections

Taiwan’s government is expected to maintain continuity in energy policy with the ruling Democratic Progressive Party (DPP) winning elections again, but it also carries over uncertainty around long-term decarbonization plans to meet net zero goals and achieving its near-term 2025 renewables target. The newly-elected President Lai Ching-te has committed to continue his party’s climate agenda, but observers say Taiwan lacks a systematic plan to meet climate targets, and escalating geopolitical tensions with China complicate equipment supply chains for renewables projects.

—Read the article from S&P Global Commodity Insights

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Energy & Commodities

Cleanup Of DRC Artisanal Cobalt Mining Could Be Key To Battery Supply Chains

Artisanal cobalt mining in the Democratic Republic of Congo could emerge as a key chess piece in global efforts to diversify battery material supply chains if the practice can be cleaned up and made safer. The DRC accounts for over 75% of global cobalt output and holds the most reserves, with China owning 17 of the country's 35 mining properties containing cobalt, according to an analysis of S&P Global Market Intelligence data.

—Read the article from S&P Global Market Intelligence

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Technology & Media

Nvidia Rides AI Wave To Ramp Up Venture Investments

In a time when most corporate venture investors are in retreat, NVIDIA Corp. is on the offensive, using its growing cash pile and stellar stock performance to invest in a wide range of startups and companies. In corporate venturing, the venture arms of larger companies leverage their parent's resources and expertise, while independent venture capital firms draw funds from external investors. Nvidia nearly quadrupled its venture investments in 2023 and participated in 38 rounds of funding. The company has announced three startup investments to date in 2024.

—Read the article from S&P Global Market Intelligence

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