Daily Update: March 18, 2021

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All eyes will be on the Federal Reserve’s dovish stance over the months—and ultimately years—ahead as the U.S. economy, employment, and inflation grow.

The U.S. central bank maintained its benchmark federal funds interest rate at effectively 0% and signaled that it will likely leave the rate unchanged through at least 2023. In addition, the Fed will continue purchasing $120 billion in bonds each month until data indicates an economic recovery.

“When we see actual data coming in that suggests that we’re on track to perhaps achieve substantial further progress, then we’ll say so,” Fed Chairman Jay Powell said during a press conference following the central bank’s annual policy meeting on March 17. “And we’ll say so well in advance of any decision to actually taper.”

Inflation remains below the Fed’s 2% target. But against the backdrop of a recent surge in government bond yields and the outlook for an economic rebound later this year, approximately two-thirds of investors surveyed this month by Bank of America said they see rising inflation and the potential for a bond market paroxysm as the most pressing market risks. Separately, 31 U.S. corporates declared bankruptcy during the first two weeks of March, following 35 total bankruptcies in all of February, according to S&P Global Market Intelligence data.

Other market observers have warned that the pressures of the pandemic prevail over all others.

"While some inflation is unavoidable due to base effects, fiscal stimulus, and stronger economic activity, uncontrolled inflation is highly unlikely,” Oxford Economics lead economist Oren Klachkin told S&P Global Market Intelligence. "Investors shouldn't yet be satisfied that COVID has been successfully contained … While much slower virus spread and accelerating vaccine distribution are encouraging developments, new COVID strains remain a risk. Also, recent moves by several states to reopen raises the risk of rapid COVID transmission.”

Still, with the global vaccine rollout underway and the U.S. administering nearly 3 million daily inoculations, the world’s largest economy is likely to heat up come summertime. Warming its forecasts from their December projection of 4.2% growth this year, Fed officials now anticipate that U.S. GDP will expand by 6.5% in 2021.

“While we welcome these positive developments, no one should be complacent,” Fed Chairman Powell said. “At the Fed, we will continue to provide the economy the support that it needs for as long as it takes.”

The sunnier outlook also extends to the jobs market, where the central bank believes the U.S. unemployment rate is likely to decline to 4.5% by year-end. The pathway forward to the pre-pandemic 3.5% unemployment level, however, may be challenging. Even as the unemployment rate fell to 6.2% in February, S&P Global Economics believes the realistic rate is closer to 9%. However, that number is likely to decline this year at a measured pace.

“Aside from ongoing pandemic risks, investors should be more worried about the long-term damage inflicted by this crisis, namely on the employment front,” Mr. Klachkin said.

Today is Thursday, March 18, 2021, and here is today’s essential intelligence.

Uncertainty in the Global Economy

Economic Research: Emerging Asia's Recovery Can Withstand A Reflation Trade

Recovery across Asia's emerging economies should withstand rising U.S. yields so long as this reflects reflation rather than a monetary shock as in 2013. Current account balances are also now stronger, inflation is lower, and real interest rates are higher which should allow central banks to remain focused on supporting recovery. If markets price a policy mistake and U.S. real yields surge higher, risks of a "taper tantrum" rise, with India and Philippines most exposed.

—Read the full report from S&P Global Ratings

More Deals, Higher Prices Lead To Greater Antitrust Scrutiny For Pharma M&A

Under the administration of President Joe Biden, the U.S. Federal Trade Commission is rallying fellow regulators in Canada, the U.K. and Europe to revise the way they study the impact of pharmaceutical M&A. Antitrust reviews generally involve examining product and pipeline overlap, and FTC acting Chair Rebecca Kelly Slaughter envisions a more sophisticated approach that includes a transaction's effects on prices and access to medicines.

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

The Future of Credit

Building Up Debt: U.K. Social Housing Sector Braces Itself For Borrowing

S&P Global Ratings estimates that the U.K.-based social housing providers will need to borrow £20 billion in the two years to March 31, 2023, to fund their capital expenditure programs and refinance maturing debt.

—Read the full report from S&P Global Ratings

SME Lending Soars, Says BoE, Even as UK Doubles Down With New Borrowing Scheme

Bank of England research shows soaring lending to small and medium-sized enterprises during the pandemic, even as the U.K. government opens the taps on further lending, and rising indebtedness could become an issue.

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

Even With Restaurants Rebounding, U.S. Food Retailers And Suppliers Are Expected To Stay Strong In 2021

Sudden COVID-19-related stay-at-home orders, extreme hoarding of food and other staples, and the rapid acceleration of e-commerce made food-at-home (FAH) companies one of the biggest winners in the U.S. retail and restaurant sector in 2020.

—Read the full report from S&P Global Ratings

Market Volatility

The Case for The S&P 500 GARP Index

The S&P 500® GARP (Growth at a Reasonable Price) Index just had its second anniversary since its launch in February 2019. During the latter half of this time, the world experienced the worst global pandemic in a century. Equities entered a swift V-shaped bear market and rebound. During the past one-year period, the S&P 500 GARP Index outperformed the S&P 500 and other selected single-factor indices by a wide margin. For the overall post-launch two-year period, the S&P 500 GARP Index again outperformed the S&P 500 and other selected single-factor indices, with the exception of the S&P 500 Pure Growth.

—Read the full article from S&P Dow Jones Indices

Banking Sector Under Pressure

Asian Financial Hubs Dominate Global Financial Centers Index

Asian cities continue to dominate a list of most competitive financial centers in the world and the confidence in the global financial systems is stabilizing as vaccines raise hopes that the COVID-19 pandemic will likely abate this year. Six of the top 10 cities in the biannual Global Financial Centres Index compiled by the Z/Yen Group in cooperation with the China Development Institute are Asian hubs.

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

Technology & Innovation

Roblox's Metaverse Bet Key For Company's Success As Public Entity – Analysts

Though tween-centric Roblox Corp. has surged in popularity amid the pandemic, analysts are confident the gaming site is more than just a passing fad.

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

Tech and SPACs: Feeding The Frenzy

After the boom years of 2019 and 2020, there are plenty of special purpose acquisition company sponsors and investors who have minted cash on the deal structure, which involves the IPO of a holding company and the subsequent merger of that company with an operating entity. But it is unclear whether 2021's run of new SPAC sponsors will find the merger partners they need, and even if they do, whether investors will hold the same appetite for growth companies that propelled tech and tech-focused media equities to new valuation heights in 2020.

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

ESG in the Time of COVID-19

Global Wind Additions Accelerate In 2020, but Challenges to Scale Remain

While 2020 was a year of unprecedented disruptions, wind power newbuild activity proved resilient, with wind turbine capacity additions accelerating across the globe.

—Read the full article from S&P Global Platts

New Opportunities Emerge for HVDC In Era of Renewables: Hitachi ABB

The first multi-terminal high voltage direct current connections are being installed in meshed networks, offering significant improvements in system reliability and efficiency, according to Niklas Persson, Managing Director of Hitachi ABB Power Grids' Grid Integration business unit.

—Read the full article from S&P Global Platts

Environmental Groups Accuse Chevron of 'Greenwashing' In FTC Complaint

Three environmental advocacy groups accused Chevron Corp. of "greenwashing" in a complaint to the Federal Trade Commission, accusing the U.S. oil major of "egregiously misleading consumers" by overstating its investments in renewable energy and its efforts to reduce emissions of greenhouse gases.

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

The Future of Energy & Commodities

Texas' Sole Utility Regulator Resigns

Arthur D'Andrea, chair of the Public Utility Commission of Texas, resigned March 16 following the release of a call in which he told BofA Securities analysts that he would work against repricing billions of dollars worth of sky-high electricity transactions that occurred during and after February's deadly winter storm that nearly caused Electric Reliability Council Of Texas Inc.'s power grid to collapse.

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

Natural Gas In Storage Set to Decrease by About 30% of Five-Year Average: Survey

Analysts call for another below-average storage withdrawal to U.S. gas stocks, and a rare seasonal net injection is possible in the weeks ahead as the February deep freeze fades into memory for markets.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.