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Daily Update: August 5, 2020

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Daily Update: September 25, 2020

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Daily Update: September 23, 2020

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Daily Update: September 22, 2020

Daily Update: August 5, 2020

Will Microsoft purchase TikTok, the China-based video-sharing app? If so, will the U.S. receive a cut of the proceeds? Or will Washington ban the Beijing-based company’s U.S. operations entirely, wiping out 100 million American users from the platform?

“As far as TikTok is concerned, we’re banning them from the United States,” President Trump said on Friday. By Monday, the situation had changed.

The president warned Aug. 3 that the app would be banned on the basis of national security concerns if TikTok doesn’t find an American buyer by Sept. 15. As U.S.-China tensions escalate, the White House and the Committee on Foreign Investment, which has conducted a nine-month national security investigation into the app, have expressed concerns that the app’s data on U.S. users could be exploited by the Chinese government. A class action lawsuit filed by families in California and Illinois alleges TikTok quietly collects personal data on users’ characteristics, locations, and contacts to send to Chinese servers. Some federal agencies, including the U.S. Navy and the Transportation Security Administration, have advised their personnel to uninstall the app from their devices.

TikTok has denied the claims. In June, according to the data analytics firm SensorTower, the app become the most-downloaded non-gaming app worldwide.

In an unprecedented move, voicing support of an American company taking the app over from ByteDance Telecommunications, TikTok’s parent company, President Trump told reporters that the U.S. “should get a very large percentage of that price because we’re making it possible” and that “we want and we think we deserve to have a big percentage of that price coming to America, coming to the Treasury.”

Although White House economic advisor Larry Kudlow told Fox Business News in an Aug. 4 interview that he is unsure whether President Trump’s proposal is “a key stipulation” of the potential deal, questions regarding the future of the popular social media platform remain.

“Microsoft is prepared to continue discussions to explore a purchase of TikTok,” the Washington State-based tech giant said in an Aug. 2 blog post, the day prior to the president’s remarks, that expressed Microsoft’s interest in purchasing TikTok’s business in the U.S., Canada, Australia, and New Zealand after a meeting between the company’s CEO Satya Nadella and President Trump. “Microsoft fully appreciates the importance of addressing the president’s concerns. It is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the United States, including the United States Treasury.”

The Chinese government said in an Aug. 4 state media China Daily editorial that the country “will by no means accept the 'theft' of a Chinese technology company and it has plenty of ways to respond if the [Trump] Administration carries out its planned smash and grab.”

ByteDance CEO Zhang Yiming told employees on Aug. 4 that although the company has “no choice” but to abide by U.S. laws, “the real objective” of the U.S.’s efforts “is to achieve a comprehensive ban” on the Chinese-owned app that is extremely popular with young Americans, according to Bloomberg.

Analysts largely expect the Microsoft deal to gain regulatory approval, believing that the acquisition would benefit both companies. TikTok would capitalize on Microsoft's software expertise, while boosting Microsoft's social-networking offerings, according to S&P Global Market Intelligence.

TikTok’s primary U.S. users span the ages of 16 to 24, many of which consider Microsoft to be an uncool or unhip company. Considering how Microsoft appears to allow companies it has acquired to operate independently while improving their financial and technological resources, younger audiences may not need to worry that the potential merger could cramp their social media style.

Microsoft has "a tremendous amount of information on their users, particularly on the business side, and they certainly get a lot of data from the game side," Michael Goodman, director of television and media strategies at Strategy Analytics, said in a Market Intelligence interview on the deal’s potential to boost Microsoft’s consumer strategy. “But in the bigger picture of gaming, and particularly millennials and social networks and the consumer side, they've got a bit of a black hole there. TikTok will provide them with an awful lot of information on a generation that they are not that well connected to."

The Trump Administration’s support of the merger comes just one week after the chief executives of the four largest U.S. technology firms testified in a congressional antitrust hearing on competition and content moderation in the marketplace.

Today is Wednesday, August 5, 2020, and here is today’s essential intelligence.

Uncertainty in the Global Economy

COVID-19 May Accelerate Disruption In The Global Vaccine Market

Vaccines stimulate a person's immune system to protect them from a specific disease, exemplifying the expression: "An ounce of prevention is worth a pound of cure." Indeed, according to the World Health Organization (WHO), vaccines prevent two million to three million global deaths annually, and could prevent an additional 1.5 million deaths each year with improved access. S&P Global Ratings believes the worldwide vaccine market currently provides industry participants steady and healthy revenue growth of about 5%-7% annually, and good profitability supported by significant barriers to entry.

—Read the full report from S&P Global Ratings

Economic Research: U.S. Real-Time Economic Data Signals A Faltering Recovery

News that the U.S. economy plunged by an annualized 32.9% in the second quarter was painful, but not a surprise (S&P Global Economics forecast 33.6%). That huge nosedive brought the annualized inflation-adjusted dollar amount of GDP down to levels not seen in nearly six years, leaving the U.S. at the bottom of a big economic hole. And while the traditional economic data (which are published with varying degrees of time lag) through late-June showed economic activity picking up at an above-consensus pace following a sharp decline in March and April was good news, it is backward looking. The more-recent rise in COVID-19 cases across large swaths of the country in July has begun to test the sustainability of June's recovery momentum.

—Read the full report from S&P Global Ratings

The Future of Credit

Market indicator of oil and gas bankruptcy risk falls by half

Despite the second quarter's string of bankruptcies, stock market investors' assessment of default risk in the oil and gas sector has been cut roughly in half, according to S&P Global Market Intelligence's market signal of default metric. The probability of default metric — which combines stock market performance and finance fundamentals and functions under the logic that investors do not put money into failing companies — had spiked higher in March and April after oil prices plunged to record lows as coronavirus lockdowns destroyed demand.

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

Q&A Credit Risk Perspectives Series: COVID-19 Credit Risks and Recovery for Supply Chains

The impact of COVID-19 on the global economy is unique, as it has not only affected demand like many crises of the past, but has also severely restricted cross-border supply chains. Sidiq Dawuda, Director of Credit Risk Solutions speaks about how global supply chains will be a critical factor that will weigh on the creditworthiness of some sectors.

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

LCD Middle Market Review: Conditions Improve For Lenders Amid COVID-19 Disruption In Q2

The coronavirus pandemic halted issuance of syndicated middle market loans in the second quarter, mirroring a plunge in activity for large-cap counterparts. Uncertainty and extreme volatility froze activity, closing the curtain on buoyant conditions in the syndicated market at the start of 2020. LCD data of new syndicated loan volume from borrowers with $350 million or less of debt reflected the stoppage. The upheaval left some transactions in limbo, but a raft of government stimulus restored confidence. Among other things, the federal programs fueled a jump in secondary loan prices, key to restarting primary credit markets. A turnaround in new credit issuance occurred around the start of May, sources say. New deals gradually emerged, including transactions negotiated before and after the COVID-19 sell-off.

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

Banking Sector Under Pressure

Singapore's bank dividend cap to free up capital for lending

Dividend payouts of Singaporean banks are set to fall by at least S$2.55 billion this year, after the central bank asked lenders to conserve capital and free up cash to boost lending to aid a recovery from recession. The Monetary Authority of Singapore on July 29 directed banks to limit their dividend per share for this year at 60% of the amount paid last year. The new cap means DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. Ltd. and United Overseas Bank Ltd. will be paying per-share dividend of no more than S$0.74, S$0.32 and S$0.66, respectively, for 2020.

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

Hang Seng Bank sees net interest margin to fall further as local rates squeeze

Hang Seng Bank Ltd., 62.14%-owned by HSBC Holdings PLC, said its net interest margin may shrink further in the second half of 2020, as local interest rates continue to fall and loan repricing opportunities are limited. In the second quarter ended June 30, the Hong Kong lender's net interest margin stood at 1.80%, down from 2.13% in the first quarter, CFO Andrew Leung said in an Aug. 3 earnings teleconference after reporting a 33% year-over-year drop in first-half net profit.

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

Technology & Innovation

Scrambled holiday sales calendar, e-commerce boom await retailers

The holidays are nearly four months away, but it is already clear that the coronavirus is forcing retailers to plan for a holiday season ruled by e-commerce, a shifted sales timeline and more conservative spending habits among consumers. Retailer decisions to keep stores closed on Thanksgiving, uncertainty about the timing of Inc.'s Prime Day and a historically wide opportunity for e-commerce sales not only stand to change how shoppers buy gifts for themselves and others, experts say — they also could scramble the traditional holiday shopping calendar, pulling some sales forward and diminishing the role of big in-store sales at the end of November that have traditionally marked the official beginning of the holiday shopping season.

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

Tencent targets China's 'live shopping' trend with platform changes

As livestream shopping gains popularity in China, local internet company Tencent Holdings Ltd. is looking to take a larger slice of the action by integrating its video and e-commerce platforms. Similar to TV shopping channels but with a faster route to checkout, "live shopping" was popularized by Alibaba Group Holding Ltd.'s Taobao, China's largest e-commerce platform. Almost a third of internet users in the country have purchased goods via live broadcasts that link directly to product webpages, data from the Cyberspace Administration of China shows.

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

ESG in the Time of COVID-19

Growing supply chain focus prompts interest in nascent form of ESG finance

As the coronavirus pandemic exposed the fragility of global supply chains, it prompted a renewed focus among brands and corporations on how to rebuild them in a more resilient and sustainable way. As a result, banks are now seeing a growing interest in what is still a nascent funding tool: sustainable supply chain finance.

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

Dive Deeper into the S&P/BMV Total Mexico ESG Index

S&P Dow Jones Indices (S&P DJI) and BMV recently launched the long-awaited S&P/BMV Total Mexico ESG Index to great fanfare. The Mexican equities market is in the early stages of exploring ESG-related concepts, from sustainable assessments at the issuers’ level to sustainable investments for asset owners, asset managers, and regulators. The S&P/BMV Total Mexico ESG Index, which uses the world-renowned Corporate Sustainability Assessment (CSA) from SAM (part of S&P Global), is a local index that employs the latest international standards and best practices

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

The Future of Energy & Commodities

Market Movers Americas, Aug 3-7: Brent-WTI spread at widest since May

In this week's Market Movers: Brent-WTI spread hits 2-month high as US economic recovery stumbles, earnings season to offer oil production forecast insight, August cargo cancellations go into effect as biggest US LNG exporter gives outlook, quarterly coal production likely to fall, Brazilian steelmakers start bringing capacity back online

—Watch the full video from S&P Global Platts

Blocked: Brutal month for pipelines shows a friendly White House is not enough

If there remained any doubt, three major setbacks for oil and gas pipelines in July demonstrated that environmental attorneys have cracked the code for stopping major pipeline projects. A month that upended billions of dollars in project spending showed the U.S. midstream sector that its path is fraught with legal and political risks. These hurdles are likely to deter major investments in new interstate pipeline projects for the foreseeable future, according to several experts who spoke with S&P Global Market Intelligence.

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

BP exits Alaska but leaves behind long Arctic oil legacy: Fuel for Thought

Dwindling prospects, in its view at least, changes in corporate strategy, the failure to commercialize large stranded gas reserves and Alaska’s volatile politics and frequent changes in taxes all appear to have played a role in the company’s decision to sell its legacy North Slope holdings. BP left a long legacy in Alaska, spearheading the exploration in the early 1960s that ultimately led to the discovery of Prudhoe Bay, North America’s largest oilfield.

—Read the full article from S&P Global Platts

Warm weather, residential power sales help utilities offset demand declines

As the COVID-19 pandemic prompts fresh concerns about a prolonged economic recovery, electric utilities have thus far been able to mitigate related sales declines. An S&P Global Market Intelligence analysis of second-quarter 2020 earnings calls shows utilities experiencing hits to power demand by the commercial and industrial customer segments have largely managed to offset declines in the early months of the coronavirus pandemic through higher residential retail electric sales and warmer weather. While major questions about public health and the strength of the economy loom over the second half of 2020, even those utilities that experienced large demand declines in April saw power sales improve in subsequent months.

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

Written and compiled by Molly Mintz.