Daily Update: June 22, 2020

In the short-term, economic activity appears to be rebounding across certain regions, but the long-term outlook for the global economy in coexistence with the coronavirus pandemic remains uncertain—as case numbers still increase and credit conditions continue to worsen.

Looking at the world’s two largest economies—the U.S. and China—yields a contrasting perspective on factors driving the post-pandemic world.

“China's economy is healing but private-sector confidence remains fragile,” S&P Global Ratings Chief Asia-Pacific Economist Shaun Roache said in a recent report. “Households are worried about future income prospects and are holding back spending. The new COVID-19 cluster at Beijing's Xinfadi market reminds us that the battle is not over and is likely to keep households cautious for a while longer.”

S&P Global Ratings anticipates China will recover later this year and into next year, with a current growth forecast of 1.2% for 2020 and 7.4% for 2021. But if confidence remains weak, policymakers in the country may need to choose between lowering growth or adding more stimulus.

“Both the pandemic and private-sector confidence will determine the shape of China's recovery,” Mr. Roache said. “We still think a relatively steep-sided U is most likely as stimulus fires up activity this year before handing over to a more confident private sector in 2021.”.

The new cluster of cases in Beijing is, according to S&P Global Platts, likely to dampen oil demand as restrictions are reimplemented. The government’s response in containing the virus’ spread will determine the extent of the demand destruction.

Over the weekend, China suspended imports of poultry from a Tyson Foods meat-processing plant in Springdale, Ark., where hundreds of workers tested positive for the virus. The action further heightened concerns over global meat exports. Plants across the U.S. have become epicenters for many local  outbreaks.

Sales and job figures for the U.S. restaurant and bar industry, one of the most hurt by the lockdown and downturn, improved in May--yet the industry is still falling behind its pre-coronavirus performance, according to S&P Global Market Intelligence. U.S. Census Bureau data showed sales for food services and drinking establishments were down 39.4% in May compared to the previous year, to a seasonally adjusted $38.63 billion. Bureau of Labor Statistics data showed an increase of 1.4 million workers in May in food services and drinking establishments, for a seasonally adjusted 7.6 million and marking a 36.6% drop from the same time a year earlier.

The May jobs report was likely affected by the combination of government support to businesses, direct stimulus payments to American consumers, and indications that consumer spending is picking up, Martha Gimbel, an economist and labor market expert at Schmidt Futures, told S&P Global Market Intelligence. It is "very unclear how both consumer demand and government support are going to play out in the long run," Ms. Gimbel said.

Nearly 9 million cases of coronavirus have been confirmed worldwide, and almost 500,000 people have died, according to Johns Hopkins University.

Today is Monday, June 22, 2020, and here is today’s essential intelligence.

Uncertainty in the Global Economy

Infrastructure: Global Toll Roads' Steep Climb Out Of COVID

Mature toll roads have historically been at the stable end of the transport infrastructure asset spectrum. Traffic numbers in most countries have been resilient over the years, with toll roads typically supported by long-term frameworks, often indexed-to-inflation. The pandemic upended that stability, with global traffic and revenues tumbling around the world. S&P Global Ratings expects global toll roads may need 12 months to recover, or longer in some instances, and that a significant number of entities will come out of the crisis with diminished operations and ratings.

—Read the full report from S&P Global Ratings

Economic Research: The China Confidence Game

China's economy is healing but private sector confidence remains fragile. Households are worried about future income prospects and are holding back spending. The new COVID-19 cluster at Beijing's Xinfadi market reminds us that the battle is not over and is likely to keep households cautious for a while longer. We expect a recovery later this year and into 2021 but if confidence remains weak, policymakers may have to choose either lower growth or more stimulus.

—Read the full report from S&P Global Ratings

Broadband Growth Remains Stable In East Asia Despite COVID-19 Impact

Telcos in East Asia reported stable year-over-year fixed broadband subscriber and revenue growth in the first quarter despite the impact of COVID-19. Still, the monthly and quarterly numbers reflect traces of the crisis. The region, which served a total of 382.7 million broadband households as of year-end 2019, was most affected in the first wave of the pandemic. Telcos have responded differently to the surging demand for broadband services and aim to increase and retain subscribers without lowering their ARPU.

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

The Future of Credit

Credit Trends: The Potential Fallen Angels Tally Reaches A New High At 126

So far in 2020, there have been 30 fallen angels, or issuers downgraded to speculative grade ('BB+' or lower) from investment grade ('BBB-' or higher), with over $300 billion in rated debt (as of May 31). Four of the six additions to this tally in May were from the transportation sector, and three of these were airlines. Meanwhile, the number of potential fallen angels (issuers rated 'BBB-' with negative outlooks or ratings on CreditWatch with negative implications) reached a record high of 126 globally, from a high of 111 the previous month and nearly triple the total of 44 in January. This increase shows considerable room for more downgrades to speculative grade.

—Read the full report from S&P Global Ratings

Calmer corporate bond markets may limit Fed's total purchases

The Federal Reserve's initial purchases of corporate bonds have helped nudge down corporate borrowing costs closer to pre-pandemic levels. If that continues, the Fed may not have to snap up many bonds after all. The central bank's Secondary Market Corporate Credit Facility has been buying exchange-traded funds containing companies' bonds for weeks, but as of June 16, the purchases have included the underlying bonds themselves. Analysts expect those purchases of corporate bonds to be limited given the return of relative calm to markets, unless another pullback in sentiment leads to renewed market stress. As of June 17, the facility held roughly $7 billion in ETFs and corporate bonds, according to the central bank's weekly balance sheet release.

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

ESG in the Time of COVID-19

Despite diversification efforts, fewer than 1 in 5 mining leaders are women

Women fill less than one-fifth of the leadership roles across global mining companies, according to a new S&P Global Market Intelligence analysis of executives and board members. Gender diversity has increasingly been a focus for investors screening for environmental, social and governance factors and has long been a challenge for the mining sector. However, women make up just 14.9% of mining companies' executive ranks, 18.1% of the industry's board positions and 13.2% of the sector's C-suite executive roles, according to the analysis of company data.

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

Standardized Non-Financial Disclosures Will Clear The Path For Better ESG Analysis

A single standardized disclosure framework to enhance comparability and consistency would facilitate credit analysis and ESG-focused analysis. S&P Global Ratings supports the creation of a core set of reliable ESG metrics for standardized minimum data. We welcome more comparable, reliable, relevant, and accessible information on entity-specific matters relating to climate change, ESG, and supply-chain governance, as well as forward-looking information that would enhance the analysis of creditworthiness, ESG, and green bonds. Companies should draw stronger connections between financial and non-financial reporting, to provide a more-coherent, forward-looking, and comprehensive corporate narrative. S&P Global Ratings supports increased digitization of non-financial reporting to facilitate the use and analysis of information and to promote usability.

—Read the full report from S&P Global Ratings

New York agencies release outline for complying with climate law

New York state agencies said 42,858 GWh of incremental renewable energy production capacity must be deployed by 2030 through the state's offshore wind and renewable energy standards collectively to comply with what they describe as the most ambitious clean energy law in the US. "Governor Cuomo's visionary climate and energy legislation requires us to build smart, economic renewable energy at greater scale and at a much faster pace so as to deliver the just, clean, resilient and affordable energy system that New Yorkers need," Department of Public Service CEO John Rhodes said in a June 18 statement.

—Read the full article from S&P Global Platts

The Future for Energy & Commodities

Beijing outbreak dampens oil demand, but government response key

The reemergence of COVID-19 cases in Beijing is expected to dampen oil demand as flights are canceled, schools shut and neighborhood lockdowns initiated, but the extent of demand destruction for both oil and gas will depend on how swiftly the government is able to contain the spread and which sectors are most seriously impacted. For now, the measures taken by the government seem moderate, but effective. Some provinces are tightening checks on people and vehicles from Beijing, but no stricter measures are implemented at the national level, S&P Global Platts said in a report June 16.

—Read the full article from S&P Global Platts

Analysis: Low gas prices not enough for Asia to move away from coal

Record low global gas prices may have hit the appetite for coal in the Americas and in Europe, but it may do little to snatch away the fuel's strong presence in Asia, thanks to the region's limited scope to switch between fuels. While countries like Japan may witness some switching to LNG in the power sector, it won't be enough to offset the voracious appetite for coal in countries like China and India, where bulk of the power comes from coal-fired plants. "There are limitations to coal-to-gas switching in Asia where cogeneration power plants are less common. So the ability for a power utility to switch generating fuel procurement to take advantage of low prices is quite limited. There are limitations in gas storage too," said Matthew Boyle, lead coal analyst at S&P Global Platts Analytics.

—Read the full article from S&P Global Platts

FEATURE: Hungary sees strategic role for Croatia LNG, eyes equity stake

The Hungarian government believes the 2.6 Bcm/year LNG import terminal in Croatia will be of strategic importance to Hungary and remains interested in buying an equity stake to add to the capacity already booked in the facility by state-owned MVM. Budapest considers gas imports via the planned floating terminal at the island of Krk -- which is due to begin operations in January 2021 -- as key to helping to diversify its gas import portfolio. MVM's trading subsidiary MFGK has even pledged to source its LNG imports for the facility only from western European players to reduce its dependence on Russian gas.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.