Daily Update: June 2, 2022

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.

Inflation’s Effects Are Here To Stay

As companies and consumers endure surging prices for fuel, food, and other commodities, the implications of price pressures are burdening everyone—from consumers in advanced economies like the U.S. to those in emerging markets spanning Central Asia, the Middle East, and Africa.

Moving far beyond the expected transitory pickup in consumer prices, persistent and exceptionally high inflation rates have hit the global economy—with upward pressure from pandemic-prompted supply chain disruptions and the war in Ukraine, according to S&P Global Market Intelligence’s Economics & Country Risk Analysis. Globally, record inflation and trade tensions played a role in propelling the S&P GSCI broad commodities benchmark index by 5.1%, marking another monthly gain and bringing its year-to-date performance to 47%, according to S&P Dow Jones Indices.  

With inflation solidified as many nations’ primary policy challenge, S&P Global Ratings anticipates that U.S. dollar rates pushed higher by the Federal Reserve will tighten financial conditions and moderate growth in the world’s largest economy and worldwide. Consumers in the U.S. are reducing their overall purchases in response to their diminished purchasing power. But communities in emerging market economies aren’t necessarily afforded that choice—since roaring inflation is restricting the availability of affordable food supplies due to their dependence on agriculture imports.

Conditions have changed in the world’s largest economy, with the emergence of less confident and more price-sensitive consumers creating material risks for retailers, according to S&P Global Ratings. And forward inflation expectations the U.S. offer little relief from current pressures, with consumer inflation expectations over the next five years remaining near 11-year highs.

The outlook for inflationary implications in emerging economies is similarly dismal. The combination of rising food and energy prices threaten to spur sociopolitical instability in countries like Egypt, Jordan, Lebanon, Morocco, Tunisia, and beyond.

“We believe the shock to food supply will last through 2024 and beyond, with negative implications for emerging market countries, affecting GDP growth, fiscal performance, and social stability … Our analysis of sovereigns' food import exposures suggests that low and low-to-middle income countries in Central Asia, the Middle East, Africa, and the Caucasus would be worst hit by the first-round impact,” S&P Global Ratings said in research published this week. “The countries worst affected are likely to be some of the world’s poorest. While even a one-year shock of the magnitude observed would be likely to cause malnourishment and increase food poverty, if our thesis of fertilizer shortage and export restriction-driven multiyear shock plays out, the impact could be catastrophic, absent remedial measures.”

Today is Thursday, June 2, 2022, and here is today’s essential intelligence.

Written by Molly Mintz. 

Economy

Listen: The Essential Podcast, Episode 62: Intent & Initiative In Small Teams — Leveraging The Non-Commissioned Officer For Business

Three S&P Global executives—Tina Morris, Shaun Wurzbach, and Ed Ware—with military experience join the Essential Podcast to talk about the unique role and skills of non-commissioned officers in the U.S. military and how to apply these lessons to businesses. 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 from S&P Global

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Capital Markets

Credit Trends: Food Fight: U.S. Grocery Leads Retail Sectors Chewed Up By Inflation, Cost Pressures

U.S. grocery retailers and distributors, after posting stellar operating performance in 2020-2021 amid COVID-19 pandemic stay-at-home trends, could face steep margin and profit pressure in 2022. S&P Global Ratings anticipates grocery will be one of the hardest hit subsectors of U.S. retail—an especially affected corporate sector—after a string of upgrades the past two years.

—Read the report from S&P Global Ratings

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Global Trade

Listen: With War In Europe, Focus Sharpens On The U.S. As A Global Natural Gas Supplier

European and Asian buyers of liquefied natural gas have increasingly been turning to U.S. supplies as Russia's gas is spurned. This has reinvigorated contracting and LNG terminal development activity in the U.S., where the midstream and upstream sectors, and regulators in Washington, are keenly aware of the developing market opportunity for global gas. S&P Global Commodity Insights' Americas gas news manager Joe Fisher speaks with LNG editor Harry Weber, natural gas editor J. Robinson, and government/regulatory editor Maya Weber about how shifting natural gas trade flows caused by the war in Ukraine are affecting the U.S. natural gas industry now, and what industry participants and regulators are saying about growing opportunities in global gas.

—Listen and subscribe to Commodities Focus, a podcast from S&P Global Commodity Insights

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ESG

European Hydrogen Backbone Sees Enough Supply To Surpass EU 2030 Targets

The European Hydrogen Backbone initiative has identified more than enough renewable hydrogen supply that is planned to come online by 2030 to meet the EU's domestic production goals. The EHB, a group of 31 energy infrastructure operators, said in a May 31 report it had identified 12 million mt/year of EU green hydrogen production that could start up by 2030, surpassing the EU's target of 10 million mt/year of production by then.

—Read the article from S&P Global Commodity Insights

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Energy & Commodities

Ukraine Conflict Boosts Europe's Clean Energy Ambition Amid Headwinds

Europe has pledged a rapid transition away from Russian fossil fuels in response to the war in Ukraine, raising already ambitious decarbonization goals in a concerted effort to end dependence on Russian gas by 2027. In the short-term, however, European carbon emissions could rise in response to the closure of nuclear reactors and a move to burn more coal in response to soaring gas prices. With damaging inflation and disruption to supply chains also factors in the medium term, S&P Global Commodity Insights assesses the challenges currently facing the energy transition as the conflict nears its 100th day.

—Read the article from S&P Global Commodity Insights

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Technology & Media

2021 Smartphone Shipments Rose 5.2% Against The Backdrop Of A Chip Shortage

Worldwide smartphone shipments declined an estimated 1.8% year over year in the fourth quarter of 2021, mostly from continued component shortages and pandemic-related disruptions. Shipments for the total year, however, still grew an estimated 5.2% as factory shutdowns in 2021 were not as frequent or as severe as in 2020 while consumer demand remained robust.

—Read the article from S&P Global Market Intelligence

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