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In the Firing Line: Trump, Trade and EU Corporate Credit

Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Storm Tracker: More than 860,000 customers still in dark in Michael's wake

Factbox: Oil, Gas Production Declines Intensify as Hurricane Michael Approaches


In the Firing Line: Trump, Trade and EU Corporate Credit

The U.S. has given a “final” 30-day extension of the exemption granted to the EU for section 232 duties – those justified by the effect of imports on national security – of 25% on steel and 10% on aluminum. Should this final negotiation window pass without settlement there is a strong likelihood of WTO-based retaliation from the EU, which has already drawn up two target lists of U.S. goods that will be subject to higher tariffs in response. The broader risk of trade tensions spiraling from skirmish to conflict remains.

We lost $151 billion with the European Union last year. $151 billion.

U.S. President Donald J. Trump, April 16, 2018
Need to know

  • The U.S. has given the EU a “final” 30-day reprieve from steel and aluminum tariffs. Should this lapse, EU tariff retaliation is likely. The risk of trade conflict is growing.
  • The EU’s large trade surplus with the U.S. (dominated by Germany and its car industry) is likely to be targeted for concessions even if U.S.-based production makes this complex.
  • The stakes for the European rated sector are high, with some 23% of non-financial investment grade revenues coming from the U.S.

The EU’s initial response is likely to focus on its ‘Part A’ list which includes U.S. products worth around €2.8 billion, a reciprocal amount equivalent to the loss of metals exports to the U.S. from tariff imposition. The list includes foodstuffs (rice, sweetcorn, cranberries, orange juice, and whisky), clothing and metal products. The EU is likely to implement these within months of any exemption expiring, on the basis that, in its view, the U.S.’s justification for its tariffs on steel and aluminum is not a valid use of the General Agreement on Tariffs and Trade (GATT) Article XXI national security exception.

The Part B list – estimated to cover another €3.6 billion’s worth of goods – would come into play after three years or if a WTO Panel rule the U.S. tariff’s invalid and the Trump administration refused to amend them. It is important to understand that WTO rules on retaliation are about reciprocity, rather than retaliation – allowing countries to counter-balance the financial cost of tariffs imposed on them, but not to apply “punishment” – so these counter-measures should not in themselves be seen as an act of escalation in this dispute. That said, it remains to be seen whether the U.S. would accept that.

As the quote above from President Trump suggests, the broader issue is the view taken by the current administration that current trade agreements and practices are not beneficial for the U.S. A visible trade deficit of $823 billion over the last 12 months is taken as prima facie evidence of this. While the deficit with China is the largest single element of this trade imbalance, the U.S. deficit with the EU as a whole ranks second and is greater in value than the equally contentious deficit with Mexico (see chart 1). Within the EU, Germany (US$66 billion), Italy (US$33 billion) and France (US$15 billion) are the three largest deficit contributors. In contrast, the U.S. has a small visible trade surplus of US$4.3 billion with the U.K. (see chart 2).

Charts+-+Main+country+elements+of+US+visible+trade+deficit+and+EU+visible+trade+balance+with+US+by+country



Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Communications providers are working to restore services in areas impacted by Hurricane Michael, but storm debris, power outages and significant fiber damage are hindering progress in those counties most devastated by the storm.

As of Oct. 14, a number of counties along the Florida Panhandle had more than half of their cell sites down, including Bay County — home of Panama City and Mexico Beach, described as "ground zero" of the storm by U.S. Federal Emergency Management Agency administrator Brock Long — where 66.1% of cell sites were down. Similarly, neighboring Gulf County had 69.6% of cell sites down, according to data from the U.S. Federal Communications Commission.

Based on the amount of damage in the area and ongoing power outages, it could be weeks before services are restored. Long said Oct. 12 that after search and rescue, restoring communications in impacted counties is among FEMA's top priorities.

"You have to be able to communicate to appropriately respond and we are trying to do everything we can to get the private sector vendors, the Verizon [Communications Inc.]'s of the world, to get in to try to get their systems back up and running," he said.

Long added, however, that the process is not easy. "There was a tremendous amount of debris. When you look at the damage in Mexico Beach, that is where the ocean rose potentially 14 feet … and shoved buildings out of the way. When you have that type of damage, it takes time to get in and go through," he said.

Hurricane Michael made landfall Oct. 10 near Mexico Beach as a Category 4 hurricane with 155-mile-per-hour winds.

For its part, Verizon said the "vast majority" of Florida and Georgia service has been restored, with 99% of the company's network in Georgia in service and 97% of its network in Florida. But the company noted there are pockets, particularly near Panama City, where the damage is severe.

"The storm caused unprecedented damage to our fiber, which is essential for our network — including many of our temporary portable assets — to work. Our fiber crews are working around the clock to make repairs, and while they are making good progress, we still have work to do to get the fiber completely repaired," the company said Oct. 14.

Fiber is the connecting component of a network that carries data from point to point. It is necessary for Verizon's permanent and temporary cell sites to be operational. The company noted that while it has multiple fiber paths to carry data, "The severity and intensity of the storm caused damage to all duplicate routes in the Panama City and Panama City Beach area."

In terms of wireline services, the FCC said 291,300 subscribers remain out of service as of Oct. 14, including 205,643 subscribers in Florida. The figures were down from a day earlier, when a total of 337,223 subscribers were without service, including 233,843 in Florida.

The top residential video and broadband provider in Bay County is Comcast Corp., according to MediaCensus data from Kagan, a research group within S&P Global Market Intelligence. Comcast, the largest cable operator in the U.S., said in an Oct. 12 statement that it is working to get Xfinity services back online.

"As power returns … and it becomes safe for our technicians and restoration crews, we will work to repair any damages affecting our network," the company said.

As of Oct. 15, more than 162,000 customers in Florida remained without power, including all 27,275 customers served by Gulf Coast Electric Cooperative. The cooperative said in an Oct. 12 Facebook Inc. post that its distribution system "suffered catastrophic damage"

In Gulf County, the top residential video provider is AT&T Inc.'s satellite video service DIRECTV, according to MediaCensus data, while the top residential broadband provider is Mediacom Communications Corp., the fifth-largest cable operator in the U.S.

Mediacom said Oct. 14 that its recovery efforts are underway but its network in Florida has 14 miles of severely damaged fiber near Walton County, as well as 25 miles of damaged fiber east of Panama City that is obstructing video transmission from Gulf County to Walton County.

"Our current priority remains focusing on repairing damage to our high-speed data transport network and main transmission facilities and repairing downed lines where we have access to the area. We have outages from widespread loss of commercial power along with downed lines, and structural damage throughout our systems," the cable operator said.



Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Houston, Oct. 11 2018 — Hurricane Michael made landfall at the Florida panhandle as a Category 4 hurricane Wednesday with 155 mph winds, quickly destroying demand for power, natural gas and refined oil products. Shut-in oil production rose modestly from Tuesday to over 700,000 b/d, but the storm has stayed east of much of the region's production, which means supply should be back online quickly.

Meanwhile, the severity of the storm has surprised to the upside, which could a mean longer lasting and more severe impact on demand for power, natural gas, refined products and ultimately crude oil.

"We expect the impact on refined products demand to be below that of previous hurricanes in the Gulf Coast such as Harvey in 2017, as the region impacted by Michael has lower population density than Houston ... Nevertheless, the impacts are favoring the high side of our estimates given the sheer severity of the storm," said Claudio Giamberti, Head of Demand and Refining at S&P Global Platts Analytics.

As of 7 pm EDT, the eye of Michael was moving over southwestern Georgia with maximum sustained winds still at 100 mph, according to the National Hurricane Center. The storm is expected to move northeast across the Carolinas before heading back out to sea Friday morning.



Storm Tracker: More than 860,000 customers still in dark in Michael's wake

Highlights

Florida, Georgia, Carolinas hardest hit

Peakloads down about 20% on week

Houston, Oct. 11 2018 — As the remnants of Hurricane Michael churned through the South Thursday, it cut power to more than 870,000 customers, shaving large chunks off daily peakloads and, while more than 30,000 technicians began working to restore service.

The center of Tropical storm Michael was about 25 miles south of Greensboro, North Carolina, as of 2 pm EDT Thursday, the National Hurricane Center said. It still had maximum sustained winds of 50 mph, moving northeast at 23 mph with an expected move offshore from southeastern Virginia Thursday night.

Since it made landfall near Mexico Beach on the Florida Panhandle between 1 pm and 2 pm EDT Wednesday, the storm left more than 860,000 people without power, but some of those services have been restored.



Factbox: Oil, Gas Production Declines Intensify as Hurricane Michael Approaches

Houston, Oct. 09 2018 — With Hurricane Michael expected to make landfall Wednesday mid-day in the Florida panhandle as a Category 3 hurricane, oil and gas producers continued to shut in production Tuesday, leading to a drop in output and rise in prices.

Shut-in Gulf of Mexico oil production more than doubled from Monday to nearly 700,000 b/d Tuesday. That drop in output contributed to WTI rising to nearly $75/b, with Gulf Coast sour crude Mars rising concurrently.

Natural gas prices followed suit, with Henry Hub reaching its highest level since January. That strength could be short lived as power outages lead to falling demand for natural gas for generation.