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Daily Update: January 28, 2022

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Daily Update November 29, 2022

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Daily Update: November 28, 2022

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Daily Update: January 28, 2022

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.

Australia’s comparatively aggressive approach to controlling the coronavirus hasn’t hampered the economy’s resilience. But an uneven recovery across sectors and the potential for inflationary pressures could slow a transition to more positive conditions in the country.

Propelled by a robust labor market, a likely pick-up in consumption, and record infrastructure spending, Australia’s economy is likely to grow 3.3% this year, according to S&P Global Ratings. Net general government debt is expected to decline from 2021’s peak at 9.5% of GDP, to approximately 3.5% in fiscal years 2022-2025. Through this year and into 2023, Australian banks’ credit losses are likely to stay close to pre-pandemic levels. Exports of commodities like rice and liquefied natural gas are expected to resurge. Operating activity and market conditions are likely to be buoyed by continued low interest rates, as S&P Global Economics doesn’t expect the Reserve Bank of Australia to enact its first policy rate hike until the first quarter of next year. 

The recovery in the Asia-Pacific economy has been supported by “Australia's strong institutions, which are conducive to swift and decisive policy making, credible monetary policy, and a floating exchange-rate regime,” S&P Global Ratings said in research published this week. “These strengths have ensured Australia's economy and external vulnerabilities, while high and susceptible to commodity demand, remained resilient throughout the pandemic.” 

But the spread of the omicron variant could delay a broad rebound. The more-infectious strain has already further pushed out the recovery in Australia’s international flight traffic—with containment measures affecting airlines’ capacity and diminished activity sending jet fuel demand tumbling.  

Notably, Australia could soon suffer from rising costs after being partially protected from inflationary pressures arising from overheated commodities prices and supply-chain disruptions. 

“The economy's resilience to lockdowns and other COVID-related pressure is one key factor underpinning the 'AAA' rating on Australia. So too is the swift fiscal recovery we expect, with deficits forecast to narrow materially by 2023,” S&P Global Ratings said in its 2022 outlook for Asia-Pacific economy. Still, “we expect many parts of the economy to experience further COVID-related bumps in 2022, producing uneven performance across sectors.” 

The Australian economy that emerges from the pandemic will be forced to reconcile with its sustainability commitments. As the COVID crisis continue, many companies will need to address pressing environmental, social, and governance (ESG) issues. The natural resources-rich economy is investing in clean hydrogen, expanding its carbon market, working to reduce the greenhouse-gas emissions from its mining industry, exploring how to best supply the energy transition with critical minerals, and striving to establish carbon accounting across its entire supply chain for goods. But a recent Deloitte survey of top Australian corporate executives found that companies in the country have struggled to entirely embrace sustainability as a core business strategy despite being more concerned about climate change than their global peers. 

"There is a disconnect between the recognition of the need to act, and the actions that must follow," Will Symons, Deloitte's Asia-Pacific climate and sustainability leader, told S&P Global Market Intelligence. "[Executives] are not yet convinced on the relationship between climate action and the core drivers of value creation—long-term revenue, margin, and asset values."

Today is Friday, January 28, 2022, and here is today’s essential intelligence.



Economy


Economic Research: How Prepared Are Emerging Markets For The Upcoming Fed Policy Normalization?

S&P Global Ratings’ baseline macroeconomic forecasts broadly anticipate orderly adjustments in interest rates across major emerging markets (EM) in response to the upcoming normalization of U.S. monetary policy. Domestic interest rates and exchange rates in EMs have been adjusting to the expected rise in rates over the last year--much of the action may already be behind us. By most metrics, except fiscal and debt dynamics, EMs tend to be equally or better positioned to face the upcoming Fed tightening cycle than in 2015.

—Read the full report from S&P Global Ratings




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Capital Markets


Global Actions On Corporations, Sovereigns, International Public Finance, And Project Finance In 2022

So far this year, upgrades (19) continue to outpace downgrades (17), though there are signs that trend is beginning to reverse. The health care and real estate sectors have led negative rating actions so far in January with six and four, respectively. However, most negative rating actions in these sectors have been limited to speculative-grade issuers. In more positive news, the media and entertainment sector has had the most positive rating actions to date in 2022 with five, three of which were upgrades, as the sector continues to see signs of recovery from a very low base.

—Read the full article from S&P Global Ratings




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Global Trade


6 Key Drivers Shaping China’s Steel Sector In 2022

China's steel prices saw a rollercoaster ride in 2021 owing to mandatory steel output cuts aimed at reducing the sector's carbon emissions. Markets are expected to see less volatility in 2022 as similar tough output cuts are unlikely this year. China's crude steel output is expected to rise in the first half of 2022 and then decline in the second half, with full-year production remaining within 2021 levels, industry sources and market participants told S&P Global Platts.

—Read the full article from S&P Global Platts




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ESG


Listen: Next In Tech | Episode 49: Carbon Reduction In Cloud

While cloud datacenters consume significant amounts of energy, they are much more efficient than the typical enterprise environment. Kelly Morgan and Dan Thompson return to Next in Tech to discuss the carbon reduction potential of shifting workloads to cloud with host Eric Hanselman. Power reduction in more recent generations of server technology make a big difference. It’s compelling when coupled with datacenter efficiency improvements and better access to green energy grids.

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




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Energy & Commodities


Listen: The Good, Bad And The Ugly For Asian Oil Markets In 2022

There is growing optimism that 2022 will turn out to be the strongest year for Asian oil demand since the outbreak of COVID-19 more than two years ago. With consumption patterns looking increasingly resilient in top consumers China and India, demand may finally be on a sustained upward trend after a long period of uneven growth. In a wide-ranging discussion with S&P Global Platts Asia Energy Editor Sambit Mohanty, Global Head of Oil Markets Vera Blei and Asia Head of Content Calvin Lee share their insights on some of the top themes for Asian oil markets in 2022.

—Listen and subscribe to Oil Markets, a podcast from S&P Global Platts




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Technology & Media


Tech Deal Advisers, Executives Expect 2022 M&A To Match Or Exceed 2021 Glut

Technology deal volumes and values hit astronomical records in 2021, and the break-neck activity is only set to continue in 2022. The first three weeks of January saw nearly $100 billion in deals, maintaining the unprecedented pace that drove 2021 above $1 trillion in sector M&A. The month also saw Microsoft Corp. agree to pay more than any buyer in 2021 with its $77.96 billion acquisition of Activision Blizzard Inc.

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




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Written by Molly Mintz.