Daily Update: October 1, 2021

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.

Despite the hope that the worst effects of the coronavirus crisis  are in the global economy’s rearview mirror, the road to recovery is paved with obstacles. The delta variant is leading to increases in infections for some regions despite COVID-19 vaccination rates rising worldwide. Inflation and supply chain pressures may force central banks to change monetary policy and could destabilize credit conditions.

Entering the final three months of this year—a quarter that was previously projected to be the beginning of closer-to-normal global growth—new outlooks spotlight the global economy’s stable yet strained state, and sensitivity to unprecedented events and volatile outcomes.

“While vaccination rates are up in many countries and the economic impact of mobility restrictions has lessened, we are not out of the woods yet. As delta has shown, especially in Southeast Asia, variants of COVID-19 can still have a measurable and even severe impact on economic activity. Higher vaccination rates, particularly in lower-income countries, will mitigate this risk,” S&P Global Ratings said in its fourth-quarter global economic outlook this week. “Inflation pressures appear to be peaking, with some emerging market central banks raising rates, the U.S. Federal Reserve moving up its tapering timeline, and the ECB firmly on hold for now. The risks to our baseline remain on the downside owing to uncertainties about the pandemic, elevated debt levels and a lack of policy space in some countries, and the growth path for China.”

Populations have adapted to COVID-19 containment measures and are learning to live and operate with the pandemic. S&P Global Ratings maintained its outlook for full-year global growth of 5.8%. Growth is likely to accelerate for several major emerging markets and Europe, which now is likely to grow by 5.1%, up from the previous projection of 4.4%.  S&P Global Ratings now expects the U.S. and China to grow more slowly than previously anticipated—by 5.7%, marking a full percentage point downward, and 8%, lowered by 0.3%, respectively. Global growth is likely to slow to 4.4% in 2022 and 3.2% in 2024, moving closer to pre-pandemic trends, according to the research.

“Rating upgrades are outpacing downgrades this year, although net upgrades so far represent only about 12% of the net COVID-induced downgrades in 2020. Credit outlooks in aggregate have stabilized and returned to pre-pandemic levels, while default rates have fallen sharply and are trending toward their long-term average,” S&P Global Ratings said in its fourth-quarter global credit conditions outlook this week. “However, a confluence of headwinds could challenge the credit environment as we reach an inflection point for monetary policy and central banks start their gradual path toward normalization at different paces around the world.”

If inflationary pressures and supply chain disruptions prolong past 2022, corporations may be burdened and central banks could be forced to tighten monetary policy sooner, according to S&P Global Ratings. Logistical and trade challenges have sent container and freight rates soaring, and semiconductor shortages with no end in sight have slowed the production of technological devices, vehicles, and other popular goods.

“Corporations will likely have different reactions to the high costs, congestion and uncertainty that the pandemic and subsequent recovery have added to supply chains,” Panjiva, part of S&P Global Market Intelligence, said in its fourth-quarter trade outlook. “Different supply chains interact with inflation at different speeds as companies pass costs to their customers and oppose price increases from their suppliers. This may hit consumers sooner if companies think their markets can bear higher prices during the upcoming holiday season.” 

Today is Friday, October 1, 2021, and here is today’s essential intelligence.

Uncertainty in the Global Economy

U.S. Chemical Companies' Post-Pandemic Rebound Has Sparked A Surge In M&A

M&A activity in the chemical sector has ramped up in 2021. The chemical industry has largely bounced back both from an earnings and ratings perspective following the pandemic. It appears that the M&A activity in the sector will continue for the rest of the year.

—Read the full report from S&P Global Ratings

The Credit Cycle

Listen: Current State of Latin America Structured Finance

Jose Coballasi and Antonio Zellek discuss the current state of structured finance in Latin America. They touch on Latin America's overall ongoing recovery from the COVID-19 pandemic; the most relevant asset classes in Brazil, Argentina, and Mexico; ratings performance; and the forward-looking views on issuance in the region.

—Listen and subscribe to Take Notes, a podcast from S&P Global Ratings

Market Dynamics

Top Chinese IPO Underwriters Set To Turn To Small Companies Amid Policy Push

Underwriting IPOs for small and medium-sized enterprises in China is set to become more competitive as Beijing pushes small companies to go public while increasing restrictions on listings for tech behemoths. Top investment banks and brokerages in China, which have been focusing on big-ticket IPOs due to lucrative fees and strong business relationships, are set to expand into the SME space more aggressively as the Beijing Stock Exchange — a new trading venue only for small businesses — will soon come online, analysts say.

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

Nordic IPO Boom To Continue Into 2022 As Investment Banks Fight For Market Share

The IPO market in the Nordic region has flourished in recent years due to a thriving startup scene, less cumbersome regulation and a deep pool of institutional and retail investors, which make it possible for smaller companies to seek capital through a stock market flotation.

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

Investing In Real Estate: Global Diversification Using A Quantitative Rules-Based Index Part I

One of the biggest diversification mistakes that investors make – across all asset classes – is concentrating their investments in their own home country.

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

Technology & Media

Lockdowns Impact European Linear Broadcast Performance

The COVID-19 pandemic and subsequent lockdowns positively impacted overall daily TV viewing times in Western Europe but not across all demographics. In countries such as the Netherlands, Germany and the United Kingdom, linear TV consumption by younger audiences continued to decline. News content featured prominently in the region's top-rated broadcasts as viewers sought reliable information on the pandemic.

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

ESG in the Time of COVID-19

Fit for 55: The Gains (And Pains) For European Utilities

The EU's Fit for 55 decarbonization plan is largely positive for the European utilities sector because it will provoke an investment supercycle to massively expand renewables generation fleet and upgrade energy networks. Yet, the energy transition will not be smooth. New, greener technologies, which still need to develop further to push down costs and boost efficiency, will only gradually replace conventional thermal and nuclear generation.

—Read the full report from S&P Global Ratings

Wildfires Are Becoming The New Normal In Western States; Their Unpredictable Nature Increases Long-Term Risk

Since 2018, wildfires have become increasingly common and are a credit risk for municipalities in high fire-risk areas across several western states such as California, Washington, Oregon, and Colorado. The ongoing drought, particularly in California, is a likely contributor to the reoccurrence of wildfires in areas with historically low rainfall. With the effects of climate change likely to stay, S&P Global Ratings believes wildfires will remain a common occurrence for the foreseeable future. However, despite the number of wildfires in the western states, S&P Global Ratings has not taken any negative rating actions to date.

—Read the full report from S&P Global Ratings

Spain's Plan To Claw Back Billions From Utilities Could Stunt Renewables Growth

Spain's power generation companies could lose about €3.2 billion in earnings in 2021-2022 due to legislation aiming to cap their profits to cushion the impact of rising power prices for about 40% of residential customers.

—Read the full report from S&P Global Ratings

ETC Maps Pathway To 1.5 C Ahead Of UN Climate Summit As Existing Pledges Fall Short

The Energy Transitions Commission has set out a "technically feasible" pathway to limiting global warming to 1.5 C, warning that current national commitments fall well short of giving even a 50% chance of meeting this target.

—Read the full article from S&P Global Platts

IEA Study: China Can Peak Emissions By Mid-2020s To Help Meet Global Paris Goal

China can exceed its global climate change commitments if it adopts a proposal to raise the consumption of non-fossil energy sources to 20% by 2025 and succeeds in efforts to cut carbon intensity by 18%, the International Energy Agency said. Asserting that "no pledge is as significant as China's" when it comes to slashing greenhouse gases, the IEA on Sept. 29 issued a roadmap detailing how the world's largest emitter can speed up its transition from fossil fuels.

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

'We Have A Humble Ask': Utility CEOs Craving Stable Policy For Energy Transition

While utilities and developers work to deliver Europe's renewable power targets, policymakers pushing for net-zero emissions ought to focus on providing regulatory certainty, energy executives said at the Aurora Spring Forum in London on Sept. 29.

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

Ford's Electrification Plan Set To Tighten Battery Metal Squeeze

U.S. automaker Ford Motor Co. sent battery markets buzzing when it announced plans to spend $11.4 billion on battery and electric vehicle manufacturing, but it left unanswered questions of where it will find supplies of critical metals.

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

Insight: Regionalization Of Battery Supply Chains Advances, But Challenges Persist

Increasing investment in so-called battery gigafactories in the West is a natural step towards regionalizing supply-chains, but it will take more than just funds to topple China's dominance in the battery industry.

—Read the full article from S&P Global Platts

The Future of Energy & Commodities

Infographic: Russia Holds Key To European Gas Prices As Tough Winter Looms

European gas markets enter winter at record highs after TTF prices soared 340% this summer. The rally was triggered by depleted EU gas stores and driven by global competition for LNG as well as Russia's reluctance to send additional gas volumes via Ukraine. A near term re-balancing looks an unlikely prospect with one potential supply-side savior an early approval and startup of the Nord Stream 2 pipeline.

—Read the full article from S&P Global Platts

World Proven Crude Reserves Rose 0.2% In 2020, Gas Reserves Fell 0.4%: OPEC Report

Global proven crude reserves increased 0.2% in 2020, OPEC said in its annual assessment of the oil market, despite the crash in prices that has stifled industry investment. Proven crude reserves stood at 1.549 trillion barrels at the end of 2020, up from 1.546 trillion barrels at the end of 2019, OPEC said in its Annual Statistical Bulletin released Sept. 30. OPEC's 13 members hold 1.237 trillion barrels of those reserves, or 80% of the world total, according to the study.

—Read the full article from S&P Global Platts

In Waiting For The Right Price, India Now Faces A Coal Crisis

India's coal stocks have hit dangerously low levels, and alarm bells are going off in the country's power sector. The country's thermal coal demand is re-emerging as it picks itself up from pandemic-related demand destruction in the first half of 2021. Power demand is on the rise as country hits the road to economic recovery following a surge in coronavirus early this year.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.