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COVID-19 Daily Update: March 20, 2020

As major Asian economies are reporting few new COVID-19 cases, millions of Americans are being ordered to stay indoors. Europe is the epicenter of the pandemic. Death tolls in Spain and Italy are rising faster than China’s did at the same stage of the outbreak, and more than 150 countries have confirmed cases. There are 258,000 total confirmed cases worldwide—more than 11,200 people have died, and approximately 87,400 people have recovered, according to data from Johns Hopkins University. Real estate, energy, retail, auto, airline, and additional sectors continue to struggle under the economic constraints of the pandemic. Shelter-in-place and other lockdown orders are roiling markets and slowing operations to a standstill.

Saudi Arabia said it would suspend all domestic passenger flights, trains, buses, and taxi services for two weeks starting tomorrow morning to prevent the further spread of the coronavirus.

In the United States, California's stay-at-home order for the state’s 40 million residents will likely further weaken the state's demand for gasoline and diesel. This could send prices lower and open the possibility that refiners will start cutting capacity, according to market sources. Across the country, Pennsylvania forced all metallurgical and thermal coal mines, as well as major industries, to close operations effective Thursday, March 19 until further notice to slow the spread of the outbreak.

Trade operations at some of Argentina’s ports and terminals have been hit as workers talk with port authorities about safety measures to contain the spread of the coronavirus, according to a private shipping agency based in the country.

Crude prices and oil and gas indexes suffered their worst two-week performance on record, pummeled by an oil price war and expectations for lower fuel demand as efforts to mitigate the COVID-19 pandemic grind global commerce into low gear. Kremlin spokesman Dmitry Peskov said today that Russia and Saudi Arabia aren’t conducting a price war in the oil market.

On Wednesday, we reported that Société Générale believes it has enough capital to manage through the crisis should it need to dip into its reserves. Today, S&P Global Market Intelligence data shows that French banks have low levels of liquidity relative to other large European banks and their reliance on less "sticky" wholesale funding may exacerbate risk amid the coronavirus pandemic.

The intensity of the pandemic is pressuring healthcare systems in multiple ways. China has been a major supplier of pharmaceutical ingredients for a range of medicines, from painkillers to antibiotics, but the coronavirus outbreak could prompt overseas drugmakers to consider diversifying their source of supply. The emergence of COVID-19 introduced an unexpected obstacle into the established supply system.

President Donald Trump said the U.S. Food and Drug Administration had granted approval to a more than 80-year-old malaria medicine to treat the new coronavirus. The drug is not approved in the U.S. for COVID-19, and there are no approved therapies to treat COVID-19.

Today is Friday, March 20, and here is essential insight on COVID-19 and the markets.





LOOKING AT THE MARKET

29 Days Later

On February 19th, the S&P 500® closed at an all-time high of 3386; last night, exactly one month later it closed at 2409, a 29% decline from the high. We should first start by putting the decline into historical context. The peak-to-trough decline in the Dow Jones Industrial Average was 33%, comparable to its slide during the bursting of the Tech bubble from 2000 to 2001.  We are still off from the 54% decline in the Global Financial Crisis in 2008, and would need an even steeper drop to put this recent crisis on par with the Great Depression’s 89% market decline. The unusual aspect of the current selloff has been its speed; the previous declines happened over multiple months and years; this recent drop happened in less than a month, with some days of trading echoing the extraordinary events of 1987. Broadly, global equities have plummeted across the board. Almost every major market is down more than 20% over the period. China, which didn’t have quite the same run-up in early 2020 due to the coronavirus’ early spread there, offers a rare exception.

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



Some Sectors Are Slippery Slopes as Markets Head Downhill

While ski resorts in the Northern Hemisphere were hampered by a mild end of winter, the downhill we are all experiencing has introduced a level of uncertainty and volatility beyond the slopes. The week of March 9, 2020, will go down in history as a time of unprecedented challenge and change. The spread of the COVID-19 virus globally led the World Health Organization to declare a global pandemic. Across the globe, governments and businesses have postponed or cancelled business travel, conferences, flights, festivals, sporting events, and political gatherings. Couple the pandemic with an oil price war between Saudi Arabia and Russia, and you’ve got your hands full.

The total return of the S&P 500® was down 22.9% YTD on March 12, 2020, at a value of 5,051.97, but it bounced back by 9.32% on Friday, March 13, 2020, returning -15.73% YTD. When comparing the total return equity performance to debt, investment-grade corporate bonds as measured by the S&P U.S. Investment Grade Corporate Bond Index returned -1.16% YTD, while the lower-rated S&P U.S. High Yield Corporate Bond Index was down 8.88% YTD.

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



COVID-19: Coronavirus-Related Public Rating Actions On Non-Financial Corporations To Date

In response to investors' growing interest in the COVID-19 coronavirus and its credit effects on companies, S&P Global Ratings is publishing a regularly updated list of rating actions we have taken globally on nonfinancial corporations. These are public ratings where we mention the COVID-19 coronavirus as one factor or in combination with others.

—Read the full article from S&P Global Ratings



Ratings On European Airlines Lowered And Placed On CreditWatch Negative Due To Coronavirus Outbreak

The spread of COVID-19 cases across the globe has caused air traffic demand to plunge in recent weeks. Unprecedented government travel restrictions and quarantine orders, which are rapidly tightening across the world in response to the pandemic, have led many airlines to temporarily ground large portions of their fleets and announce drastic cost-cutting measures.

The pandemic materially threatens the credit quality of European airlines and poses serious challenges for the global airline industry as a whole. There is significant uncertainty regarding the severity and longevity of the coronavirus outbreak, and as such our base-case forecasts are susceptible to possible revisions in the near term. Nonetheless, following flight cancellations, capacity cutbacks, and aircraft groundings across the industry we expect the airlines' liquidity positions to deteriorate, and that lower revenues and cash flows will result in significantly weaker credit metrics in 2020 than our previous expectations.

—Read the full article from S&P Global Ratings



Default, Transition, and Recovery: The Global Recession Is Likely To Push The U.S. Default Rate To 10%

We expect the U.S. trailing-12-month speculative-grade corporate default rate to rise to 10% within the next 12 months, from 3.1% in December 2019, as a global recession is now here amid the coronavirus pandemic. Financial market turmoil in response to the pandemic is pressuring funding conditions while earnings for some sectors are expected to plummet under the strain of supply disruptions and tanking demand.

In our pessimistic scenario, a protracted period of fighting to contain the virus and reduced effectiveness of stimulus measures could lead to a longer recession, pushing the default rate to about 13%. The oil and gas sector is likely to be particularly hard hit during this time--oil prices have fallen below $30 per barrel amid expanding supply following the standoff between Saudi Arabia and Russia. A quick resolution between the two parties is not expected.

—Read the full article from S&P Global Ratings



VIDEO OF THE DAY

The oil market hasn’t recovered from the March 8 collapse of the OPEC+ negotiations. ICE Brent crude futures dropped March 16 to the lowest level in more than 16 years as global markets continued to respond to OPEC output concerns and the global coronavirus pandemic, but appear to be rebounding. Global oil demand continues to shrink and independent oil and gas producers are facing increased chances of default as stocks tank. Meanwhile, the U.S. State Department’s named on March 17 nine entities under new sanctions for continuing to trade petrochemicals with Iran.

—Read essential intelligence on oil markets in crisis from S&P Global



Worst on record: Crude prices, oil and gas indexes tank at unprecedented pace

Crude prices and oil and gas indexes recorded their worst two-week performance on record, pummeled by an oil price war and expectations for lower fuel demand as efforts to mitigate the COVID-19 pandemic grind global commerce into low gear.

U.S. West Texas Intermediate crude futures settled at $20.37 per barrel on March 18, tumbling 56.5% over the course of 10 consecutive trading days. The plunge marked the largest decline since the WTI contract started trading in March 1983, according to an analysis of S&P Capital IQ data.

—Read the full article from S&P Global Platts



CHART OF THE DAY

Tracking The Spread And Economic Impact of The Coronavirus

State Distribution of Confirmed U.S. Coronavirus COVID-19 Cases, Mar. 19, 2020

Source: John Hopkins CSSE, S&P Global Ratings.
Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

On March 11, the World Health Organization declared COVID-19 to be a global pandemic and the geographic spread has continued to widen to the extent that few parts of the world are untouched. The daily increase in confirmed cases outside China continues to grow rapidly. There are now six countries with more than 10,000 cases – Italy, Iran, Spain, Germany, the U.S. and France - and other countries are on trajectories likely to bring similar case counts soon. 62 countries already have in excess of 100 cases. Europe has now become the epicenter of the outbreak, with the U.S. on course to be similarly affected. If there is some good to be found, it is that the daily new case rate has fallen to near-zero in China, where the virus first took hold.

The social and economic consequences of COVID-19 have consequently become much more severe and we now forecast a global recession this year, with 2020 GDP rising just 1.0%-1.5%. Risks to this estimate remain firmly to the downside. Central banks have swung into action and are undertaking some combination of sharply reduced policy rates, resumed assets purchase and liquidity injections. Fiscal authorities have generally lagged but have begun to loosen the purse strings; we suspect that larger and more targeted spending to the most affected groups is forthcoming.

—Read the full article and engage with more interactive data visualizations from S&P Global Ratings



OIL, ENERGY, AND TRADE

Global oil demand could shrink over 3 mil b/d in 2020 due to virus: S&P Global

Global oil demand could collapse by over 3 million b/d this year due to growing social and economic lockdown measures aimed at slowing the spread of the coronavirus pandemic, according to S&P Global Platts Analytics.

World oil demand could fall by over 12 million b/d on the year in April and May and result in annualized fall of as much as 3.2 million b/d in 2020, the head of S&P Global Platts Analytics Chris Midgley said. The estimate for the potential demand impact from coronavirus is one of the most bearish by forecasters to date. It also marks a major revision to S&P Global Analytics' March 11 estimate of a 960,000 b/d contraction in oil demand this year due to coronavirus.

—Read the full article from S&P Global Platts



Kremlin says there is no price war with Saudis

Russia and Saudi Arabia are not conducting a price war in the oil market, Kremlin spokesman Dmitry Peskov said Friday, according to the Prime news agency. "There are no price wars between Russia and Saudi Arabia. There is a very unfavorable price environment for many countries... We have good relations with Saudi Arabia, we are partners, and we don't think that anyone should intervene in this relationship," Peskov said. He added that current oil prices are not catastrophic for Russia, which can cope with low oil prices in the short to medium term.

—Read the full article from S&P Global Platts



Texas Railroad Commission chairman opposes OPEC-style oil production cuts

The chairman of the Texas Railroad Commission said Friday that he was opposed to imposing government-mandated oil production cuts as some US shale producers, struggling with a historic collapse in prices, have been requesting to prevent a market glut. Requiring operators in the prolific Permian Basin to throttle back output to prop up prices would be a failing strategy, allowing other producers to fill the void and take Texas' market share, Wayne Christian said in a statement. His comments come as another commissioner, Ryan Sitton, whose term expires at the end of the year, said he spoke Friday with OPEC Secretary General Mohammed Barkindo on the prospects of an internationally coordinated production cut.

"Texas does not operate in a vacuum," Christian said, describing himself as a "free-market conservative" opposed to government controls. "If we prorate our oil, there is no guarantee other nations, or even states, will follow suit."

The Texas Railroad Commission has not imposed supply curbs on its producers since 1972, and Christian said he doubted whether staff at the agency would have the experience and technical know-how to implement another one properly.

—Read the full article from S&P Global Platts



Interview: First Texas oil limits in decades look more likely as prices drop

Struggling with a collapse in oil prices, some oil producers have requested the Texas Railroad Commission impose statewide production limits for the first time in decades.

S&P Global Platts conducted a brief interview with Bob McNally, president of Rapidan Energy Group, on the probability of government-mandated production cuts in Texas, how such cuts may be structured and the legal standing behind them. McNally, a former energy adviser to President George W. Bush, is the author of 'Crude Volatility: The History and the Future of Boom-Bust Oil Prices,' which details the history of government-mandated production cuts in Texas.

—Read the full article from S&P Global Platts



Access to capital limited for oilfield services, drillers facing wall of debt

The road ahead will become increasingly difficult for severely stressed oilfield services and drilling companies that are facing the challenge of refinancing billions in debt maturing over the next four years. The probability of defaulting on that debt is at new highs.

With crude oil prices cratering and producers slashing capital spending, the financial strain in the oilfield services and drilling sector continues to amplify. Many companies have seen their chances of default spike in recent weeks, according to the S&P Global Market Intelligence perception of default signal model that calculates the likelihood of a company defaulting on its debt or entering bankruptcy protection over a one- to five-year horizon.

—Read the full article from S&P Global Platts



California's stay-at-home order to further dampen demand for state refiners, run cuts loom

California's stay-at-home order from Governor Gavin Newsome to its 40 million residents took effect midnight Thursday and is expected to further weaken the state's demand for gasoline and diesel, sending prices lower and opening the possibility refiners will start cutting runs, market sources said Friday. Several of the state's refinery operators said they continue to monitor the situation and their plants continue to operate. While they did not discuss current refinery utilization rates, they left the door open for rate changes if necessary.

—Read the full article from S&P Global Platts



Pennsylvania coal mines forced to shut due to COVID-19 risk, natural gas unaffected

The U.S. state of Pennsylvania has forced all metallurgical and thermal coal mines, as well as major industries, to close operations effective Thursday 8 pm ET (0000 GMT Friday) until further notice to slow the spread of the coronavirus outbreak. Businesses in the state related to oil and natural gas extraction and primary steel and metal production can remain open, according to a notice from the governor's office.

Chevron, Rice Energy, CNX Resources and others operate gas wells in the Marcellus Shale, which stretches across Pennsylvania. All coal mining, metal ore mining and nonmetallic mineral mining and quarrying in the state will be shut down. Governor Tom Wolf on Thursday ordered all "non-life-sustaining" businesses in Pennsylvania to close, with enforcement actions against businesses that do not close physical locations to begin at12:01 am ET Saturday, March 21.

—Read the full article from S&P Global Platts



Coronavirus concerns unsettle power project finance markets

As the coronavirus crisis ripples through the U.S. economy, developers of power generation assets are bracing for a choppy project finance outlook, including potential project delays and tax equity troubles. Michael Garland, CEO of Pattern Energy Group Inc., speaking on a March 20 webinar hosted by Norton Rose Fulbright, said he expects many renewable energy projects will be delayed, "and that means you're going to have to manage your development capital differently." Project finance markets are already softening as lenders and tax equity investors adopt a wait-and-see approach, said Garland.

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



Trade operations at some ports in Argentina hit on COVID-19 measures

Trade operations at some of the ports and terminals in Argentina have been hit as workers are in talks with the port authorities regarding the safety measures to be followed to contain the spread of COVID-19, according to a private shipping agency based in the country. Argentina's President Alberto Fernandez made social isolation compulsory for the whole country starting Friday till March 31. Urgent activities of foreign trade are exempted from the decree, the shipping company said. However, it is yet to be seen how different parties will interpret the order and how this will affect operations at Argentinian ports, the agency said.

—Read the full article from S&P Global Platts



PODCAST OF THE DAY

Listen: Steel market adapts to rapid changes as coronavirus spreads across US

Unlike other commodities sectors, the domestic steel market seemed to be largely immune during the first few weeks of Covid-19's spread across the US. Prices held relatively steady and mill production was fairly constant, with most participants basically in wait-and-see mode, but concern was limited. The scenario has shifted dramatically in recent days. The Big 3 automakers of GM, Ford and Fiat-Chrysler, as well as Honda and Toyota, announced temporary production stoppages in North America. That got the attention of flat-rolled steel producers, distributors, and even scrap processors.

Christopher Davis, S&P Global Platts regional pricing director for metals in the Americas, examines the market with Mike Fitzgerald, US ferrous metals managing editor, and and Nick Ruggiero, regional metals derivatives manager.

—Listen to the Commodities Focus podcast from S&P Global Platts



AUTO SECTOR

Coronavirus pain for US automakers likely to worsen in near future, experts say

U.S. automakers are just starting to feel impacts from the coronavirus pandemic, but experts say the worst days for consumer vehicle demand and supply chains lie ahead.

Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles NV announced March 18 that they are temporarily halting production in North America to combat the spread of the virus after the United Auto Workers Union urged the three automakers to suspend operations. Tesla Inc. announced March 19 that it would suspend production at its Fremont, Calif., factory beginning at the end of day March 23. Experts say it could take months to ramp back up to normal production.

Meanwhile, supply chain disruptions from plant closures in China, Europe and domestically will soon hit U.S. automakers as they burn through any lingering materials. And the widespread consumer pullback from business closures and government pleas to stay home will curtail demand for new vehicles, though it is unclear just how bad the drop will be, experts said.

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



Brazil auto sector braces for massive shutdown due to coronavirus

The Brazilian automotive sector is preparing to stop activities over the next few weeks due to the economic crisis generated by the coronavirus, Brazil's National Association of Motor Vehicle Manufacturers, Anfavea, said Friday. In addition to the 65 factories for automobiles, light commercial vehicles, trucks, buses, agricultural machinery and engines, which employ 125,000 workers in 43 cities in Brazil, the measure should also hit auto parts suppliers -- with some already announcing temporary halts and financial issues.

At least Volkswagen, Volvo, General Motors, Mercedes-Benz, Ford and Toyota have already announced plans to suspend operations and give collective vacations to their almost total 50,000 workers. Volkswagen has announced it will suspend activities from all its plants in the country starting March 23 for three weeks, while Volvo said its employees will be away from their activities for four weeks, starting March 30. GM's five plants will be halted from March 30 to April 12, while Mercedes-Benz will shut down from March 30 to April 21 and Toyota will halt activities from March 23 to April 6. Ford will suspend operations at its three plants in Brazil from March 23, with restart planned for April 13, and is also suspending operations at its plant in Argentina, from March 25 to April 6.

—Read the full article from S&P Global Platts



INCREASING RISK ON BUSINESS

Coronavirus pandemic roils real estate; WeWork sells NYC property to Amazon

Distress from the coronavirus pandemic played out across U.S. real estate sectors in the trading week ending March 20, with no property type left untouched — even those that investors considered safe in normal times.

In a March 16 research note, Compass Point analyst Merrill Ross argued that widespread restaurant shutdowns would hurt hourly employees, and the damage to those workers' livelihoods would filter through to apartment owners. The SNL US REIT Multifamily index fell by roughly one-third in the month ended March 18, slightly outperforming the broader real estate investment trust space.

In triple-net REITs, too, "This wasn't supposed to happen," BTIG analysts Michael Gorman and James Sullivan wrote in a March 18 note, observing that the sector was down 47% so far in 2020 and 45% in March alone. With key tenants such as restaurants, theaters and fitness clubs shut down, the normally defensive sector was looking uncharacteristically vulnerable.

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



Gucci, Prada, Hermès and other fashion brands face double virus punch

Luxury and fashion companies already reeling from coronavirus-related store closures and slumping sales in Hong Kong, mainland China and now large swaths of their European home market are grappling with a separate domestic problem: disruption to production lines.

Most of Europe's big fashion and luxury brands, including Kering SA, LVMH Moët Hennessy - Louis Vuitton Société Européenne, Prada SpA, Salvatore Ferragamo SpA, Hermès International Société en commandite par actions and Tod's SpA, manufacture a large portion of their clothing, footwear, handbags and suitcases in Italy and France — two countries that are in lockdown as part of their governments' efforts to stem the spread of COVID-19 infections.

As a result, many factories run by fashion brands are closed or operating at reduced capacity. Those that remain open have been forced to enact strict measures to prevent infections spreading among co-workers, especially those working in close quarters.

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



Why SocGen, BNP, other French banks are particularly exposed to liquidity risk

French banks have low levels of liquidity relative to other large European banks, according to S&P Global Market Intelligence data, and their reliance on less "sticky" wholesale funding may exacerbate risk amid the coronavirus pandemic.

In a sample of European banks with assets of more than €100 billion, Paris-based Groupe BPCE, which owns retail networks Banque Populaire SA and Caisse d'Epargne, and investment bank Natixis, had the lowest liquidity coverage ratio, or LCR, at the end of 2019. It stood at 110.0%, while the ratios of French behemoths Société Générale SA, BNP Paribas SA and Crédit Agricole SA were also all in the bottom five. Those of Crédit Agricole, Société Générale and BPCE had declined year over year. The liquidity coverage ratio measures banks' ability to withstand cash outflows. It is calculated by dividing a firm's stock of high-quality liquid assets by total net cash outflows over a 30-day period.

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



Coronavirus outbreak drives drugmakers to weigh more diverse supply chains

China has been a major supplier of pharmaceutical ingredients for a range of medicines, from painkillers to antibiotics. However, experts said the novel coronavirus outbreak could prompt overseas drugmakers to consider diversifying their source of supply. As one of China's key items of healthcare export, the country has more than 1,500 manufacturers producing over 1,600 active pharmaceutical ingredients, or APIs — the basic ingredients used to make drugs — the Ministry of Industry and Information Technology posted on its website in October 2019.

The value of China's API export totaled $30.05 billion in 2018, a 3.2% increase from 2017, according to the China Chamber of Commerce for Import and Export of Medicines and Health Products. The emergence of COVID-19 — which originated in Wuhan, Hubei province, at the end of 2019 before spreading to other parts of China and over 150 countries — introduced an unexpected obstacle into this established supply system.

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



Trump stirs confusion over malaria drug's availability for coronavirus

President Donald Trump created confusion during a White House briefing when he mistakenly said the U.S. Food and Drug Administration had granted approval to a more than 80-year-old malaria medicine to treat the new coronavirus. The medicine, chloroquine, also available in another form as hydroxychloroquine, is approved in the U.S. to treat malaria, lupus erythematosus and rheumatoid arthritis. Teva Pharmaceutical Industries Ltd. and Mylan NV are among the companies that manufacture the medicine. Neither form of the drug is approved in the U.S. for COVID-19, the disease caused by the novel coronavirus. But at his March 19 briefing, Trump incorrectly said the FDA had cleared the use of hydroxychloroquine and chloroquine for COVID-19.

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



Written and compiled by Molly Mintz.