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Daily Update: July 31, 2020

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Daily Update: July 31, 2020

The world’s largest economy contracted by an annualized 32.9% in the second quarter, or a 9.5% quarter-over-quarter decline—marking the sharpest U.S. GDP decline in history.

Although the U.S. Department of Commerce’s latest estimate crystalizes just how deep the coronavirus-caused downturn has been, economists expected the backward-looking data to be devastating. After many states lifted their lockdown orders in April and May, coronavirus cases began a precipitous climb in June. Recently rebounding economic activity sputtered as infections rose. S&P Global Ratings Chief U.S. Economist Beth Ann Bovino projected in a forecast earlier this month that second quarter GDP would shrink 33.6%.

“News that the U.S. economy plunged by an annualized 32.9% in the second quarter was painful, but not a surprise,” Ms. Bovino said in a report today. “That huge nosedive brought the annualized 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.”

“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,” Ms. Bovino said. “The more recent rise in COVID-19 cases across large swaths of the country in July has begun to test the sustainability of current economic momentum.”

What came as more of a surprise on Thursday was the week-over-week unemployment figure.

In the week ended July 25, 1.43 million Americans filed for initial jobless benefits, according to the U.S. Labor Department. While unemployment peaked in March, when a historic 6.9 million initial claims were filed, the 12,000-person increase indicates the first rise in jobless claims in approximately four months. 

“As the recent COVID-19 surge leads to more workers laid off or on furlough, we expect[ed] 1.5 million initial jobless claims for the week ended July 25. This news comes at an ominous time as unemployment insurance is set to expire [today],” Ms. Bovino said in an interview with Politico.

Today is Friday, July 31, 2020, and here is today’s essential intelligence.





Uncertainty in the Global Economy 


Deglobalization trend gains pace in lithium battery supply chain

The COVID-19 crisis has exacerbated concerns across the lithium-ion battery industry about China’s dominance of the supply chain. The pandemic has also highlighted the need for local supply chains, in order to improve sustainability and work towards net zero targets. Despite some momentum, however, the development of regional supply chains still faces challenges that go beyond simply raising equity.

—Read the full article from S&P Global Platts



Global trade at a crossroads: U.S. firms face calls to cut Chinese supply chains, but see few options

As the trade dispute between Washington and Beijing threatens to boil over, talk of cutting China out of U.S. manufacturing supply chains has intensified. But the idea that American firms can simply shift to suppliers in other Asian countries (or to those at home) may be just that—an idea, rather than an implementable initiative.

—Read the full report from S&P Global Ratings 





The Future of Credit


COVID-19 Activity In Global Structured Finance As of July 24, 2020

S&P Global Ratings took rating actions on 364 rated tranches--181 of which were resolutions of previous CreditWatch placements--across various structured finance sectors globally between July 6 and July 24, 2020, as a result of the COVID-19 pandemic. In addition, S&P Global Ratings extended existing CreditWatch placements on 271 rated tranches, for a total of 635 actions during the aforementioned time period. 

—Read the full report from S&P Global Ratings 



Fridson on Finance: ESG vs. broader high yield – assessing profiles & returns 

How do three recently launched high-yield environmental, social and governance indexes diverge from the standard high-yield benchmark in ratings mix, term risk, spread and energy concentration? S&P Global Market Intelligence examines these divergences and consider them as they conduct a relative return analysis, looking at ESG versus the overall high-yield sector.

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





Banking Sector Under Pressure


Bank of America, JPMorgan dominate financial advising for energy megadeals

Bank of America Corp. and JPMorgan Chase & Co. were the financial advisers of choice for energy sector companies engaging in large-scale mergers and acquisitions worldwide since the beginning of 2019, according to S&P Global Market Intelligence data. Both banks provided advisory services to companies on either side of four transactions whose gross value each exceeded $5 billion at the time of announcement, including deals involving oil and gas drillers, oil storage and refining companies, utilities and renewable energy producers.

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



Technology & Innovation


U.S. Actions Against Huawei Reverberate Across Asian Tech

The effects of the U.S.-China strategic confrontation are spreading. The U.S. Department of Commerce (USDC) in May cut Huawei Technologies Co. Ltd.'s access to U.S. technology to make semiconductors offshore. S&P Global Ratings expects the act will reverberate across Asian tech firms that trade with Huawei, the world's biggest telecoms equipment maker. While we anticipate operational upheaval as firms adjust to this new reality, the ultimate revenue and ratings effect may be moderate.

—Read the full report from S&P Global Ratings



COVID-19 driving more investment in digitization, fintech, PE firm says

Founded in 1998, private equity firm FTV Capital pursues a theme-based growth strategy, focusing on high-growth companies in the enterprise technology, financial services, and payments and transaction processing space. It has also cultivated a Global Partner Network, a range of large financial services companies and individual investors, that can connect with FTV's portfolio companies to solve potential problems or fill outstanding needs.

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





The Future of Energy & Commodities


Japan's July motor fuel demand lowest in decades on weather, coronavirus

Stormy weather and a resurgence of the coronavirus pandemic limited the recovery in Japanese gasoline and gasoil consumption in July, with demand at its lowest in decades, making refiners wary of raising run rates sharply heading into the usual peak summer demand season in August. Japan's July gasoline demand is estimated at 3.96 million kiloliters, or 803,471 b/d, down 8% year on year, while gasoil demand is estimated to have dropped 9% to 2.64 million kl, or 535,647 b/d, the country's largest refiner ENEOS said July 30.

—Read the full article from S&P Global Platts



OPEC+ readies to pump more crude into a market wary of a resurgence in the pandemic

OPEC and its allies on August 1 will officially begin easing off their record production cuts, hopeful that recent bearish economic and pandemic data will not seriously erode the oil demand growth they are expecting. After having slashed their crude output by about 9.7 million b/d since May, the OPEC+ alliance is scheduled to relax its quotas by 2 million b/d from August through the rest of the year, betting on a pick-up in global fuel consumption and better preparedness by governments to prevent another spike in positive novel coronavirus tests.

—Read the full article from S&P Global Platts



South African miners depending on stockpiles amid site disruptions from COVID-19

 South African mining companies are dipping into their stockpiles to maintain production during the pandemic as social distancing requirements limit the number of on-site employees, according to mining industry expert Roger Dixon. "The South African mines are painting a bright picture, but they are using their inventories to keep up production at the moment," Dixon told S&P Global Market Intelligence. Dixon said it was not clear how mines would reach full capacity under the circumstances, particularly the deep-level operations common to the country.

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



Pandemic crimps H1 gold demand, down 6% on year: WGC

Coronavirus dented physical gold demand in the first half of 2020, with overall demand down 6% on year, as the price hit fresh all-time highs, according to latest research from industry lobby group the World Gold Council July 30. In its latest Gold Demand Trends report WGC said the pandemic affected physical consumer sectors as disposable income dried up and countries went into lockdown, with total demand dropping to 2,076 mt.

 —Read the full article from S&P Global Platts





Written and compiled by Molly Mintz.