Daily Update: June 16, 2020

Disruption Demands Diversity

The coronavirus pandemic has exacerbated inequalities worldwide by disproportionately hurting disadvantaged communities and pushing millions of people into unemployment. Now, as the global health crisis continues and the economic downturn shows mixed signs of recovery, the movement for equality that has expanded from U.S. streets to cities around the globe is calling upon corporations to diversify their leadership and workplaces.

The combination of these two disruptive forces may cultivate an economy that prioritizes stakeholders, rather than shareholders, at its center—depending on companies’ commitments to policy changes.

“Companies have been profiting off black culture and black consumers for decades,” Omar Johnson, founder of California-based marketing firm ØPUS United and formerly vice president of marketing at Apple and chief marketing officer of Beats by Dr. Dre, said in a full-page New York Times advertisement on June 14. “To me, [racial injustice and anti-black prejudice] isn’t only a social justice problem or an equal opportunity problem. This is a business problem, too.”

“Inside your company walls, you need to hire more black people… Outside your walls, you have to step up. As businesses, you have obligations to the communities you benefit from. And that work has to start now,” Mr. Johnson said. “This isn’t the time for another ‘diversity report,’ or for any report at all. This is a time for action, inside and outside. This is a time for change: inside ourselves and our companies; across our communities and our country.”

Three weeks after the death of George Floyd, as part of the reckoning with racism as a human rights and public health issue, the corporate response has yielded unprecedented statements of solidarity, donations to civil rights organizations, and pledges to hire more people of color.

JPMorgan Chase CEO Jamie Dimon kneeled with employees at the bank’s Mt. Kisco, New York branch, aligning with the anti-racism movement by participating in the previously controversial protest pose. Bank of America committed to donating $1 billion over four years to help communities address inequalities exacerbated by the pandemic, while Apple announced the creation of a $100 million racial-justice program for its company to be led by Lisa Jackson, vice president of environmental, policy, and social initiatives at Apple and the first black woman in American history to be the Environmental Protection Agency administrator.

After Alexis Ohanian, the co-founder of Reddit, stepped down from the company’s board, asking to be replaced by a black candidate, Michael Seibel, CEO of the startup accelerator Y Combinator, became the first black board member in the company’s 15-year history. Amazon said it would implement a one-year moratorium on police forces’ use of Rekognition, the company’s facial-recognition technology that has been criticized by civil rights groups for misidentifying individuals with darker skin tones. Many large corporations, including Nike and the National Football League, will recognize Juneteenth, the annual commemoration of the end of U.S. slavery, as a company holiday.

Still, employees and consumers have questioned companies’ intentions, and are demanding they do more than what is merely good for business.

“Thank you for your Black Lives Matter graphic. May I please see a picture of your executive leadership team and company board?” California-based entrepreneur Brandi Riley said on Twitter at the beginning of this month. “For years people in positions of power purposely and systemically mistreated, used, overlooked, traumatized black and other [people of color] in plain sight and have never been held accountable,” Ms. Riley said on June 10.

“Listen to your black employees. They’ve been sounding the alarm for years. But don’t stop there. Dig into the cold, hard black data,” ØPUS United’s Mr. Johnson said. “Learn where black people exist in your company — and, more importantly, where they don’t. Count the too-few black faces in meetings. Notice the muted black voices in conversations where decisions get made.”

According to S&P Global Ratings, “unprecedented employment challenges stemming from the coronavirus pandemic are rippling across the broader economy and affecting how employees operate and interact with their employers,” ultimately presenting “a rare opportunity for employees to leverage the pandemic as a platform to demand change in the workplace.”

Despite research proving that more diverse companies have greater financial performance, 99.2% of Fortune 500 companies are led by white chief executive officers.

“While companies promote their diversity efforts, they have not been especially successful bringing diversity to the C-suite,” according to Stanford research from April that analyzed Fortune 100 companies and determined that “racially diverse executives hold only 16 percent of total C-suite positions[,] only 16 have a non-white CEO[,] 26 of the Fortune 100 have no ethnic diversity at the C+1 level, and 6 have no ethnic or gender diversity at this level.” Additionally, nearly six in 10 of the U.K.’s largest publicly traded companies have no people of color on their boards, according to a government-backed Ernst & Young report analyzing FTSE 350 companies in February.

In the U.S., “these events [of police brutality] are yet another reminder that many of our fellow citizens endure the burden of unjust, exploitative, and abusive treatment by institutions in this country,” Raphael Bostic, president and CEO of the Atlanta Federal Reserve and the first black regional president in the central bank’s 107-year history, wrote in a June 15 essay. “Over the course of American history, the examples of such institutionalized racism are many, and include slavery, federal law (consider the Three-Fifths Compromise our founding fathers established to determine federal representation), sanctioned intimidation during Reconstruction, Jim Crow laws in southern states, redlining by bankers and brokers, segregation, voter suppression, and racial profiling in policing.”

“These institutions hurt not only the African Americans they've targeted, but the systemic racism they've codified also hurt, and continues to hurt, America and its economy,” Mr. Bostic continued. “By limiting economic and educational opportunities for a large number of Americans, institutionalized racism constrains this country's economic potential. I believe the Federal Reserve Bank of Atlanta, and the Federal Reserve more generally, can play an important role in helping to reduce racial inequities and bring about a more inclusive economy.”

Likewise, widespread calls for companies to take more meaningful action extend beyond racial justice. As of last year, only four Fortune 500 CEOs openly identified as LGBT+. On June 14, the U.S. Supreme Court in a landmark anti-discrimination decision declared gay and transgender workers protected under the 1964 Civil Rights Act, ruling that individuals can’t be fired because of such identities and characteristics.

“America’s largest employers know that the economy works best when employees can be who they are, without fear of bias, discrimination, and inequality,” the Business Roundtable said in statement. “Business Roundtable endorsed the Equality Act to ensure that employees are protected from discrimination on the basis of sexual orientation and gender identity. Today’s decisions in Bostock v. Clayton County are an important step forward in the effort to ensure equality and fairness in the workplace.”

Today is Tuesday, June 16, 2020, and here is today’s essential intelligence.

Uncertainty in the Global Economy

Economic Research: India's COVID-19 Recovery Will Be Key To The Sovereign Ratings

The effects of the COVID-19 pandemic will reverberate for the Indian economy over the next few years. A drop in economic growth this year could stymie reform momentum. If the Modi administration handles the crisis successfully, the event may boost its political support, giving it room to introduce painful, but necessary, measures.

—Read the full report from S&P Global Ratings

Chinese e-commerce companies pin hopes on 618 festival for quick bounce-back

Chinese e-commerce companies are turning to aggressive discounting and vouchers for the mid-year 618 shopping festival as they seek to revive consumer spending in the wake of the COVID-19 outbreak. The three largest Chinese e-commerce companies — Alibaba Group Holding Ltd., JD.com Inc. and Pinduoduo Inc. — all reported slower revenue growth for the first quarter of 2020, the period that covered the worst of the pandemic. Soaring demand in some categories, such as online groceries, did not translate to better margins as logistics subsidies, commission waivers for marketplace merchants and extra costs incurred from protective equipment ate into profits.

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

European hotel owners to weigh business models as COVID-19 shakes up sector

Now is not a good time to own a hotel however it operates. Whether privately owned, leased, managed, or franchised, the COVID-19 pandemic has had such a devastating impact on the sector that few are making money. Still, the crisis is beginning to raise questions about certain ownership structures, with a number of hotel property owners already finding their model unsustainable.

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

Delayed launches, slow sales drive drugmakers to adapt marketing amid pandemic

For some biotech and pharmaceutical companies ready to send new drugs out into the world, the coronavirus pandemic has caused a shift in drug launch practices from face-to-face interactions to virtual communication. First seen at the end of 2019 and designated a worldwide pandemic in March, the virus prompted widespread "social distancing" measures to quell the spread of the COVID-19 disease it causes. The resulting work-from-home policies and surge in video conferencing halted the traditional in-person visits pharmaceutical sales representatives pay to many doctors.

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

Banking Sector Under Pressure

Bankers showing 'tough love' in commercial lending amid COVID-19 uncertainty

Imagine a strip mall: Its store fronts were all leased to small businesses when the owner went to the bank and got a loan with a 50% loan-to-value, a seemingly safe bet for the lender. Then the coronavirus pandemic hit, the nation went into lockdown, and suddenly 60% of those stores were vacant. This is the situation lenders are facing in the post-pandemic world. Bankers must navigate a new economic reality where many borrowers are being propped up by temporary government stimulus and the full impact of COVID-19 remains unclear. That leaves them in a difficult position as they evaluate loan applications and gauge risk in their existing portfolio.

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

Commerzbank walks costs tightrope to complete overhaul amid COVID-19

Germany's Commerzbank AG will need to keep a close eye on costs and capital management if it is to complete its strategic restructuring by 2023 as originally planned while also battling the effects of the COVID-19 pandemic, according to analysts. Its Commerzbank 5.0 strategy, unveiled in September 2019, envisioned a net reduction of some 2,000 full-time equivalent positions and the closure of about a fifth of its branches in Germany, along with the sale of its 69.3% stake in Polish unit mBank SA. But it has canceled the mBank sale amid concerns it would be unable to fetch an attractive price due to worsened market conditions.

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

Virus-caused lockdowns boost mobile banking app downloads in Southeast Asia

The disruption caused by the novel coronavirus pandemic made more Southeast Asians turn to mobile apps for their banking needs, a switch that may last even after the outbreak is over, experts say. Data from Sensor Tower, an intelligence and insights provider for the global apps downloads, show that mobile banking app downloads have increased since March, when many Southeast Asian countries restricted business operations and enforced social distancing, including closing bank branches temporarily.

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

Islamic Finance 2020-2021: COVID-19 Offers An Opportunity For Transformative Developments

S&P Global Ratings expects the Islamic finance industry to show low-to-mid-single-digit growth in 2020-2021 after 11.4% in 2019 following strong sukuk market performance. COVID-19 offers an opportunity for more integrated and transformative growth with a higher degree of standardization, stronger focus on the industry's social role, and meaningful adoption of financial technology (fintech). Coordination between different stakeholders is key to the industry leveraging these opportunities for sustainable growth.

—Read the full report from S&P Global Ratings

The Future for Energy & Commodities

Watch: Market Movers Europe, Jun 15-19: OPEC+ monitors oil demand recovery as trade flows remain in focus

In this week's highlights: OPEC+ expects to meet again for further output cuts; European power markets will look for signs of demand recovery; the European gas market will be eying Ukrainian storage use; and the EU is expected to make a key announcement on steel trade policy.

—Watch and share this video from S&P Global Platts

US crude stocks expected lower on storm-driven production decline

US crude inventories are expected to have fallen last week amid weather-related Gulf of Mexico production losses and a drop in imports, an S&P Global Platts analysis showed June 15. Inventories likely fell by 3.5 million barrels to roughly 535 million barrels, based on the most recent US Energy Information Administration data. Still, that would leave stocks at around a 13.5% surplus to the five-year average.

—Read the full article from S&P Global Platts

OIL FUTURES: Crude prices tick up with stock markets as Fed offers new support

Crude oil prices rose with the stock markets on June 15 after the US Federal Reserve offered additional economic support following a morning of mostly negative trading amid coronavirus resurgence fears from Beijing to Texas. After crude prices fell by about 4% to start the day, they eventually jumped back into positive territory. Despite new lockdowns amid outbreaks in Beijing, Chinese officials insisted things are under control and another Wuhan is not developing. Also, US President Donald Trump has not shown signs of supporting new lockdown measures as coronavirus cases rise in several states, including Florida, Texas and Arizona.

—Read the full article from S&P Global Platts

US Supreme Court rules in Dominion's favor on ACP project trail crossing

The US Supreme Court ruled June 15 that the Forest Service had the authority to issue authorization for the Atlantic Coast Pipeline to cross under the Appalachian Trail, in an important advance for the stalled 604-mile, 1.5 Bcf/d gas line and its lead developer, Dominion Energy. The 7-2 decision does not remove all the legal barriers to the project, designed to move Appalachian gas to Midwest markets, but clears an important hurdle that put the project route in jeopardy. Debate in the case hinged on whether the National Park Service or Forest Service had authority over the decision. The difference is important because the Mineral Leasing Act does not allow rights-of-way for pipelines across federal lands that are National Park System lands.

—Read the full article from S&P Global Platts

UAE's energy minister cautions against non-OPEC+ countries rushing to overproduce

UAE's energy minister has cautioned against a rush by non-OPEC+ countries to overproduce at a time when demand is beginning its recovery from COVID-19-induced weakness and OPEC+ members are attempting to rebalance the market via output cuts. "We feel unless we have another wave of the COVID-19, a second wave, I think we will see the demand recovery at a pace that is adequate to the cut we have done as OPEC+, provided other producers do not rush quickly and overproduce," Suhail al-Mazrouei said in a webcast interview with the US-based think tank Atlantic Council on June 15.

—Read the full article from S&P Global Platts

Japanese refiners to receive full July volumes from Saudi Aramco: sources

At least two Japanese refiners have received confirmation from Saudi Aramco they will receive full volumes for July loading, company sources told S&P Global Platts June 15, a strong indication the country may not see the kind of cuts in crude volumes seen in June. There had been market talk of allocation cuts to customers in Asia, according to Japanese and other regional market sources. OPEC+ recently extended the coalition's 9.6 million b/d output cut agreement through July. Under the deal, Saudi Arabia will hold its crude production to 8.49 million b/d.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.