Daily Update: March 31, 2021

Subscribe on LinkedIn to be notified of each new Daily Update—a curated selection of essential intelligence on financial markets and the global economy from S&P Global.

The future for cities will almost certainly be sustainable—but how soon metropolitan centers in the U.S. will go green is still up in the air.

Municipalities are leaning into sustainable finance to fund projects that benefit the environment and contribute to society. In the U.S., municipal sustainable debt could grow this year by $18 billion, or 4.1% of total municipal issuance, according to S&P Global Ratings. This follow’s last year’s record surge in sustainable debt spurred by the coronavirus crisis. Municipal issuers added $27.6 billion in debt with green, social, or sustainability labels in 2020—more than double the level in 2019.

“Cities [need] to invest in improving their quality … to invest in cutting down congestion, to improve their environmental performance, all of these different things,” James Pomeroy, global economist at HSBC, told S&P Global’s Essential Podcast. “This crisis has just completely accelerated the way we think about those things. It wouldn't be surprising to me at all if cities across the world were to be looking at those sorts of investments very, very closely right now. We need to spend much, much more on making cities a better place to live.”

Education issuers accounted for the majority of social municipal debt issued last year. Notably, 10 municipal issuers, primarily in transportation and water sectors—the New York MTA, Los Angeles County Metropolitan Transportation Authority, Power Authority of the State of New York, Florida Development Finance Corporation, San Francisco Bay Area Rapid Transit District, Illinois Finance Authority, San Francisco Public Utilities, San Diego County Water Authority, Los Angeles County Public Works Financing Authority, and Hastings Campus Housing Finance Authority—accounted for 65% of green-labeled debt issued last year. And nearly all of the sustainability bonds issued in the U.S. municipal market were targeted to finance affordable housing projects and typically include green building elements, according to S&P Global Ratings.

Cities in California, Colorado, New York, and beyond have prioritized electrifying their buildings to begin to advancing their energy transitions alongside the Biden Administration’s focus on developing a national clean-electricity standard. However, pushback over bans on the use of natural gas in utilities and sweeping changes to how building codes are developed remain a challenge to these decarbonization efforts.

To be sure, those obstacles are unlikely to entirely stop the shift.

“Many green initiatives were already underway prior to COVID-19, but the pandemic is accelerating this trend,” S&P Global Market Intelligence said in a recent report on the new era for sustainability-minded real estate. “Recent sustainability initiatives specific to the industry are focused on building materials, energy efficiency, and waste management. Sustainable real estate companies use recyclable building materials, improve structural efficiency, and consider site aspects during the development stage. Refurbishing existing buildings with energy- and water-efficient appliances, improving energy management by using smart meters, and engaging with tenants on their impact are important measures for sustainability. Companies can validate their efforts through credible green building certification schemes, as well as by disclosing their ESG strategies and comparing their activities relative to peer groups.”

Today is Wednesday, March 31, 2021, and here is today’s essential intelligence.

Uncertainty in the Global Economy

U.S. Retailers Welcome Consumers Back to Stores As E-Commerce Growth Slows

Major U.S. retailers are launching new experiences to lure consumers back to physical stores in the coming months as the economy reopens, and pandemic-fueled digital sales growth is expected to slow down faster as a result, analysts say.

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

Market Dynamics

Opportunity Does Not Equal Attainment

S&P Dow Jones Indices previously argued that most managers should prefer above-average correlation, because the incremental volatility a manager accepts to pursue an active strategy will be lower when correlations are high. Active managers should prefer above-average dispersion, because stock selection skill is worth more when dispersion is high. Both correlation and dispersion rose in 2020. Despite these relatively auspicious conditions, most active managers still failed to outperform.

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

The Shift to Passive in India

In 2020, the Indian ETF market continued to expand, finishing the year with ~USD 37 billion in assets spread across 99 listings. This represents a year-over-year increase of USD 23.3 billion, or 171%, placing India as the ETF market in the Asia-Pacific region with the highest growth on a percentage basis in 2020.”

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

Hungry, Cash-Rich Gold Miners May Bolster Investor Faith in Financings

The price of gold has pulled back in 2020, but analysts say investor appetite remains strong to finance venture firms and projects in the gold sector, in part given expectations for mergers and acquisitions in the mining industry.

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

The Future of Credit

Credit Conditions Asia-Pacific: Uneven Recovery

Asia-Pacific economies and sectors are recovering from COVID-19 at varying rates. This will lead to widening credit trends in the region. Sectors such as essential retail and telecoms should fully recover in 2021 but others, e.g. airlines, will take several more years. These disparities translate into widening ratings trends.

—Read the full report from S&P Global Ratings

Credit Conditions Emerging Markets Q2 2021: Brighter Prospects Prone To Setbacks

Credit conditions in emerging markets (EMs) look brighter than last year, given that developed economies' recovery accelerates and vaccination progresses. These factors are supporting EMs' external demand and industrial activity. Nevertheless, many sectors will continue struggling amid an uneven economic recovery and lackluster domestic demand.

—Read the full report from S&P Global Ratings

Credit Conditions Europe Q2 2021: New Horizons, Old Risks

European credit conditions remain generally favorable but imbued with uncertainty around the evenness of the recovery path and how long it will take.

—Read the full report from S&P Global Ratings

Credit Conditions North America Q2 2021: As Outlook Brightens, Risks Remain

Credit conditions remain favorable for most borrowers, as government support underpins market liquidity, and coronavirus vaccine rollouts offer optimism that an end to the pandemic is in sight. U.S. GDP is set to grow 6.5% this year—the most since 1984. With even low-quality borrowers able to tap credit markets at welcoming rates, we see signs that investors aren’t being adequately rewarded for the risks they’re taking and may soon demand better yields—all against the backdrop of record-high debt.

—Read the full report from S&P Global Ratings

Concerned about Inflation? Here’s a Tip

The newly launched S&P GSCI (U.S. 10-Year TIPS) TR was designed with inflation protection in mind. This index takes the renowned broad commodity market benchmark, the S&P GSCI, and aims to add boosted return potential from an exposure to on-the-run U.S. 10-Year Treasury Inflation-Protected Securities (TIPS).

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

Banking Sector Under Pressure

Danske Could Absorb $3.3B Money-Laundering Fine and Still Hit Own CET1 Target

Danske Bank A/S' capital levels and projected first-quarter earnings imply that it could withstand a money-laundering fine of 20.9 billion kroner, or $3.3 billion, today and still achieve its management common equity Tier 1 ratio target of 16%, according to S&P Global Market Intelligence estimates.

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

Some Chinese Banks Mull More Bond Buying to Mitigate Pressure on Margins

Some of the largest banks in China are considering investing more in domestic bonds this year, hoping the recent recovery of short-term market interest rates will help mitigate the continued pressure on their net interest margins.

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

Technology & Media

Movie Theaters Face New Windowing Challenges as They Lift Post-Pandemic Curtain

The credits may soon be rolling on the COVID-19 pandemic lockdowns, and cinema analysts are on the edge of their seats for the sequel.

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

ESG in the Time of COVID-19

Flexible Hours, Political Pressure May Ease German Bank Gender Problem

A male-dominated financial sector, restrictive societal norms, unconscious bias — the barriers to women being appointed to bank boards in Germany are many and complex. Political pressure and quotas should be part of the solution, according to industry experts.

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

U.S. Sets 30 GW Offshore Wind Capacity By 2030 Goal, Creates Industry Support

The U.S. Interior, Energy, Commerce, and Transportation Departments March 29 said the Biden administration will pursue a goal to deploy 30 GW of offshore wind capacity in the U.S. by 2030.

—Read the full article from S&P Global Platts

The Future of Energy & Commodities

Venezuelan Oil Sanctions Crossroads Could Come Amid Summer Dearth of Diesel

U.S. oil sanctions on Venezuela could reach a tipping point this summer if a dire diesel shortage further exacerbates a humanitarian crisis that continues to unfold even as President Nicolás Maduro has strengthened his hold on power.

—Read the full article from S&P Global Platts

Oil Market Seeks Cues From Cautious Saudi Arabia, as OPEC+ Mulls May Production Plans

The OPEC kingpin has been cutting its crude production by that much below its official quota the last two months, bolstering oil prices against the unsteady pandemic prognosis

—Read the full article from S&P Global Platts

Gas Deliveries to U.S. LNG Terminals to Flow Full Tilt Into Summer

Natural gas deliveries to the six major U.S. LNG export terminals have been flowing at full bore since mid-March as global gas prices continued to support shipments of the fuel.

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

China's Mill Margins Soar on Expectation of Output Cuts

China's steel mill margins have reached their highest level since last December, supported by soaring finished steel prices and a slight softening of raw material input prices, S&P Global Platts data showed.

—Read the full article from S&P Global Platts

China Alumina & Aluminum Outlook: Demand, Output Tipped to Rise Further In Q2

China's alumina and aluminum demand and output are expected to continue rising in the second quarter of 2021, while alumina price levels will likely remain unchanged amid strong domestic output, according to the latest S&P Global Platts China Alumina & Aluminum Outlook.

—Read the full article from S&P Global Platts

S Korea May Rekindle U.S. Crude Appetite Amid High Middle East Prices, Fuel Demand Recovery

South Korean refiners are looking to revive U.S. crude oil purchases over the coming trading cycles as major Middle Eastern suppliers maintain strong discipline over production levels and continue raising their official selling prices, while domestic transportation fuel demand is expected to improve following the launch of the mass vaccination program.

—Read the full article from S&P Global Platts

Suez Canal Traffic on The Move, More Port Congestions Likely

Southbound and northbound traffic on the Suez Canal has recommenced a day after the stricken Ever Given container ship was freed, market sources said March 30.

—Read the full article from S&P Global Platts

Oil Futures Turn Volatile as Market Unpacks Suez Canal Blockage; Guyana Producers Stay on Target

The oil futures market has been volatile on news that a large container ship was blocking the Suez Canal, a key artery for petroleum shipments, but do spot markets give a better indication of the impacts on global trade flows?

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.