Daily Update: January 31, 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.

Defining the Cloud’s Next Phase

After several years of explosive growth for cloud services during the pandemic, Microsoft’s earnings last week hit Wall Street like a warning shot: While Microsoft and other Big Tech cloud providers continue to see cloud revenue growth, the rate of that growth is starting to trend downward.  

Datacenters and cloud services providers have weathered previous 21st-century downturns relatively well, and organizations continue to utilize cloud services. However, business leaders are looking for ways to control cloud spending amid macroeconomic uncertainty. 

Despite this, surveys last year of enterprise IT decision-makers by 451 Research, part of S&P Global Market Intelligence, indicated that the larger trend toward the digitalization of work had yet to slow down. More than 75% of respondents expected transformative changes to their IT structures within three to five years. 

“This is still happening and, in many ways, a recession or any kind of economic pressure makes this more likely [to continue],” 451 Research Director Kelly Morgan said in a November 2022 webinar on the tech industry outlook for 2023. 

451’s cloud price index showed that cloud providers have been trying to keep costs down for customers despite broader inflationary pressures. Cloud pricing overall remained relatively stable in the third quarter of 2022, though some adjustments were noted in various cloud categories, 451 Research Analyst Gabriella Brown wrote in a November 2022 research report. 

451 Research analysts Greg Zwakman and Liam Eagle wrote in a Jan. 16 report they expect the global managed services market to grow to just under $100 billion in 2026, up from just under $60 billion in 2021. Cloud services are expected to be a key factor in that growth. 

“Faced with the growing complexity of IT environments as they undergo modernization and transformation, enterprises are increasingly engaging with managed services providers to help design and manage a mix of applications and procedures within on-premises and cloud environments,” Zwakman and Eagle wrote.  

The blurring of distinctions between IT work environments is something 451 Research analysts Melanie Posey and Dan Thompson discussed in a December 2022 “Next in Tech” podcast. Instead of picking a single operating model or service provider, more enterprises are choosing to place some workloads in public cloud environments, while others remain on-premises in privately managed clouds, the analysts noted. 

Despite inflation, higher energy prices and overall belt-tightening among enterprises, 451’s most recent Voice of the Enterprise survey on the outlook for cloud and managed services in 2023 indicates many organizations remain committed to spending more on cloud services, Posey said. How much more depends on the macroeconomic environment. 

“Organizations report that ongoing macroeconomic uncertainty would put the brakes on the magnitude of public cloud spending growth,” Posey said.  

Today is Tuesday, January 31, 2023, and here is today’s essential intelligence.

Written by Christina Mitchell.

Economy

GICS Changes Are Approaching

After the close on March 17, 2023, changes to the Global Industry Classification Standard structure will go into effect in GICS Direct and in S&P DJI’s indices. These changes will affect most sectors and will change what it means to be sector neutral. For example, Exhibit 1 compares the S&P 500 sector weights at the end of 2022 under the existing GICS structure compared to the new structure, assuming it had already gone into effect. Information Technology and Consumer Discretionary’ s weights are set to fall, while Financials and Industrials’ weights are set to increase.

—Read the article from S&P Dow Jones Indices

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Capital Markets

This Week In Credit: Markets Prepare For Data Influx (Jan. 30, 2023)

The market remains upbeat, but this week will hold ample clues as to whether this optimism is misplaced. The U.S. Federal Reserve Bank on Wednesday, and the European Central Bank and Bank of England on Thursday, will provide their latest read on inflation and latest policy rate decisions. We will also see a deluge of inflation and labor-market-related data alongside the continuation of fourth-quarter earnings reports.

—Read the report from S&P Global Ratings

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Global Trade

Black Sea Watch: Grain Flows Ease On Month As Inspection Delays Remain Unresolved

Seaborne flows through the Black Sea grain corridor have averaged 102,051 mt/d over Jan. 1-28, 15% lower than December, an analysis of the UN's Black Sea Grain Initiative Joint Coordination Centre data by S&P Global Commodity Insights found Jan. 30. "Unless JCC inspections speed up, flows will not be improved," a chartering broker from Odesa said. "We will continue as is." During the period Jan. 23-28, daily average grain flows eased to 101,295 mt/d, according to JCC data, 21% below the average during week 3.

—Read the article from S&P Global Commodity Insights

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Sustainability

Listen: How Discussions Of Stakeholder Capitalism Have Evolved At Davos

The annual Davos summit just ended, and one of the topics of discussion at this World Economic Forum event was stakeholder capitalism. In simple terms, stakeholder capitalism is the idea that companies are responsible to a wide range of stakeholders, including their customers, employees, suppliers and communities, as well as their shareholders. A few years ago, this was a big topic at Davos as the World Economic Forum helped develop a set of “Stakeholder Capitalism Metrics” to offer companies universal, comparable disclosures focused on people, planet, prosperity and governance. This episode of the ESG Insider podcast looks at how discussions of stakeholder capitalism are evolving.

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

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Energy & Commodities

Listen: The Essential Podcast, Episode 74: Elements Of The Energy Transition #4 — Helium

Terence Kooyker, founder and CEO of the commodity hedge fund Valent Asset Management, joins the Podcast to discuss Helium, lucky element #2 on the periodic table. The Essential Podcast from S&P Global is dedicated to sharing essential intelligence with those working in and affected by financial markets. Host Nathan Hunt focuses on those issues of immediate importance to global financial markets — macroeconomic trends, the credit cycle, climate risk, ESG, global trade and more — in interviews with subject matter experts from around the world.

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

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Technology & Media

Middle East & Africa Sales And Production Commentary — January 202

Light vehicle demand in the Middle East and Africa region posted an estimated increase of 8.7% in December 2022 compared with the same month in 2021, signaling a stable demand trend during the final months of the year. The upward trajectory has now been positive over five consecutive months. However, the uncertainty regarding global inflationary pressures and rising interest rates will continue to cast doubts that a fuller recovery in new-vehicle registrations is possible, as the first half of the 2023 outlook continues to call for a weak pace regarding modest car demand.

—Read the article from S&P Global Mobility

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Join global leaders, policymakers and executives from across energy, climate, finance, technology and industry at CERAWeek 2023 for timely dialogue, shared learning and connection.

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