Daily Update: October 20, 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.

China looks set to introduce new and intensified reforms to credit markets with an eye to achieving more sustainable, longer-term growth. But the pace and volume of reform raises implementation challenges and market volatility.

In an article dated Oct. 13, a group of analysts from S&P Global Ratings pointed to recent policy reforms governing credit markets that appear to be aimed at restraining credit growth, reducing financial risk, reining in public enterprises, and diffusing social angst. Reviewing government actions in the past 12 months affecting credit markets, consolidation of State-Owned Enterprises (SOEs), and the technology sector, the analysts foresee potentially painful, but positive changes following a period of rapid growth.

“If China achieves the stated objectives of recent policy initiatives, it will likely be credit positive for the nation and for enterprises. It could see the country transition to a more sustainable model of economic growth,” the report from S&P Global Ratings concludes.

The Chinese government’s muted response to the financial challenges facing the China Evergrande Group — specifically, missed mid-September interest payments of one of its bonds — seems to suggest a new focus on reducing companies’ massive debt loads. Evergrande has long been viewed as a company committed to debt-fueled growth with a higher risk profile.

Share prices for other property developers have fallen sharply in recent weeks as the market weighs contagion risks. S&P Global Ratings has taken negative ratings actions on a number of property firms facing similar conditions.

Back in April, analysts at S&P Global Ratings noted that the slowdown in issuance from Chinese companies had already begun. Chinese government-led efforts to reduce leverage early in the year led to a drop of issuance in China, contrasting sharply with a rise in dollar bond issuance in other Asian countries as companies attempted to take advantage of low rates.

"China cares about high-quality growth rather than fast but low-quality growth," Iris Pang, chief China economist at Dutch bank ING Groep NV, said to S&P Global Market Intelligence. "We think that Beijing is starting to fine-tune policy to balance de-risking and stabilizing growth."

Today is Wednesday, October 20, 2021, and here is today’s essential intelligence.

Uncertainty in the Global Economy

Industries Most and Least Impacted by COVID-19: A Market-Implied Probability of Default Perspective

Credit Analytics’ Probability of Default (PD) Model Market Signals helps analyze industries that have experienced the greatest credit risk disruption in the last 18 months as well as those that have seen the largest recovery.

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

How Will China's Evolving Economic Model And Energy Strategy Affect Trade With Central Asia?

China's transition to a consumption-led from an investment-led growth model and its new climate goals will likely change Central Asia's export dynamics.

—Read the full report from S&P Global Ratings

How The Western States Plan Is Critical To Ratings As Colorado River Flows Slow To A Trickle

In August 2021, the U.S. Bureau of Reclamation declared its first-ever "tier one" Colorado River water shortage, after Lake Mead water levels fell to their lowest level since the 1930s, when it was first filled after the Hoover Dam's construction. 

—Read the full report from S&P Global Ratings

The Credit Cycle

Credit Trends: Can China Escape Its Corporate Debt Trap?

S&P Global Ratings believes that the troubles of Evergrande hints at credit strains simmering among Chinese corporates, and a strong resolve by the government to tackle this issue.

—Read the full report from S&P Global Ratings

Credit Trends: Why 'CCC' Rated Companies Have Risen And Default Rates Have Not

The severe impact of the pandemic caused downgrades of companies with relatively stronger businesses compared with those downgraded pre-pandemic, which means their recovery prospects may be greater as restrictions are lifted.

—Read the full report from S&P Global Ratings

Market Dynamics

China's First Offshore Subnational Bond Clears The Way For More Transparent Financing

China is set to issue its first-ever offshore subnational bond. S&P Global Ratings believes a successful transaction could forge new financing channels for other local and regional governments.

—Read the full report from S&P Global Ratings

Insurance M&A Activity Rises In Q3 As Asset Managers Make Major Deals

There were a total of 317 insurance deals announced during the third quarter, compared to 255 in the prior-year period.

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

Banking Industry Under Pressure

U.K. Banks May Slow Loan Loss Provision Releases As Economic Risks Mount

Uncertainty created by issues including supply chain bottlenecks, soaring energy prices, and the end of COVID-19 government support schemes means lenders are now likely to maintain more of the management adjustments designed to mitigate shortcomings in their loan loss models.

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

Top 100 Banks: Capital Ratios Show Resilience To The Pandemic

Bank capital around the world held up well during COVID-19, demonstrating the effectiveness of Basel rules for capital and strengthening of bank supervision in the past 10 years. 

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

Technology & Media

Listen: Episode 36: Guy Kawasaki On Innovation

Sorting out the roots of innovation is complex, and this special edition of Next in Tech brings in Guy Kawasaki, Apple veteran and inveterate innovator, to discuss its many aspects with host Eric Hanselman. 

—Listen and subscribe to Next in Tech, a podcast from S&P Market Intelligence

DISH Cites Massive Retrans Rate Hikes In FCC Complaint Against TEGNA

With their blackout now in its second week, DISH Network Corp. filed a complaint against TEGNA Inc. with the Federal Communications Commission. Filed Oct. 18, the complaint asserts that the station group operator has negotiated in bad faith and appears to be demanding that DISH pay for all subscribers in a local market whether they purchase local programming from the distributor or not. 

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

ESG in the Time of COVID-19

U.K. Backs Sustainable Aviation Fuel, Hydrogen, EVs, And New Nuclear In Net-Zero Strategy

The U.K. government has published its net-zero strategy document, outlining financing for developing sustainable aviation fuel, an industrial and hydrogen revenue support scheme, and new money for electric vehicles and nuclear.

—Read the full article from S&P Global Platts

South Korea Finalizes 2050 Carbon Neutrality Roadmaps

South Korea has finalized its policy roadmaps to achieve the goal of carbon neutrality by 2050, focusing on restricting consumption of coal and LNG for power generation and replacing internal combustion engine vehicles with hydrogen-powered and battery-based electric vehicles, government officials said Oct. 19.

—Read the full article from S&P Global Platts

The Future of Energy & Commodities

Listen: Legislative Wrangling Presents Make-Or-Break Moment For Asphalt Industry

Asphalt, the heaviest part of crude used in road and home construction, could see a surge in demand as the $1 trillion infrastructure bill would provide record amounts of funding for highway improvements. 

—Listen and subscribe to Capitol Crude, a podcast from S&P Global Platts

Fuel For Thought: North Sea Crude Quality Shift Shakes Up Customer Base

North Sea crude is getting heavier and more sulfurous. Medium sour crude will make up almost a third of the region's volumes by 2040 compared to just over 2% in 2010, according to a data analysis compiled by S&P Global Platts.

—Read the full article from S&P Global Platts

Carl Icahn Puts His Activist Record To The Test In Southwest Gas Battle

Southwest Gas Holdings Inc. faces a formidable adversary as activist investor Carl Icahn attempts a takeover of the gas utility operator. Still, some market observers questioned the billionaire's critiques in his latest energy sector campaign.

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

Sprott Fund Transforms Uranium Spot Market

Canadian investment fund Sprott Asset Management LP's new uranium trust has put its fingers on the scales of uranium prices once again. The trust, formed in July through Sprott's acquisition of Uranium Participation Corp., a uranium holding company, restarted a uranium bull run earlier this month when it began buying again on the spot market. 

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

Bahrain Still Hopeful Of Bringing Shale Oil Project Online By 2023, As It Seeks Investors

Bahrain remains on pace to bring online its offshore shale reserves by around 2023, despite not having moved beyond the test drilling phase, oil and gas minister Sheikh Mohammed bin Khalifa al-Khalifa said Oct. 19.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.