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.
Markets Flash Warning Signs At End Of First Half
A chaotic cocktail of converging conditions—increasing inflation, slowing growth, rising recession risks, tightening financing conditions, destabilizing energy security, and continuing geopolitical shocks—are putting extraordinary pressure on global markets. After a tumultuous first half of the year, investors are seeking refuge from an equity market correction and the prospect of deteriorating credit conditions. But there may be few places to weather the storm.
“Amid the lingering implications of COVID-19 and intensifying inflationary pressures, worldwide services and construction [Purchasing Mangers’ Index data] PMIs will be watched intently this week for indications of how the global economy has fared at the end of the second quarter. In recent months, the service sector has been outperforming the goods sector, with the latter hampered by material and staff shortages,” S&P Global Market Intelligence said in its economic preview this week. “However, June's PMI data will be eagerly assessed for any signs of weakening demand spreading to services as the pandemic rebound fades amid the cost-of-living crisis and tighter financial conditions, with the feed-through of higher price to wages also a key area of concern.”
The first six months of 2021 saw the S&P 500 suffer its worst first half in more than 50 years, according to S&P Dow Jones Indices. The benchmark equities index entered its 15th bear market since 1928 on June 13. Institutional investors pulled nearly $183.2 billion from U.S. equity markets year-to-date through June 22, according to S&P Global Market Intelligence data. Other asset classes have also declined in value at the end of the first half, with the S&P GSCI broad commodities benchmark ending June down 7.6% (yet still experiencing its best year-to-date performance since 2008, up 35.8%) and U.S. bank stock returns falling into negative territory in the month. Overall, equity analysts interviewed by S&P Global Market Intelligence believe that whether the Federal Reserve can gain control over inflation and the severity of a potential recession will determine future market conditions.
“Last Fourth of July, investors were opening their half-year statements with a 14.41% gain; now it’s a 20.58% decline,” Howard Silverblatt, a senior index analyst of product management at S&P Dow Jones Indices, said in a report yesterday. “At this point, inflation is being placed squarely as the fall guy for the market declines, as the market’s ‘expert’ historians cite the Fed’s ‘excess’ stimulus programs as the reason for the 40- year high inflation rate, and then the Fed’s attempts to Volker its way out of inflation and avoid a recession, with the market still split on if they can avoid one (but more seeing it than not).”
As equities markets tumble, the credit markets that have thus far this year shown resilience are enduring intensifying headwinds that will likely see the next six months characterized by a limited access to and higher cost of credit worldwide, according to S&P Global Ratings. Lower-rated issuers will be the most vulnerable if access to capital markets becomes restricted, particularly as the amount of distressed debt expands. S&P Global Ratings’ proprietary Credit Cycle Indicator, developed to be a leading indicator for potential credit stress, indicates in a preliminary analysis that heightened credit stress is likely to develop in late 2022 or early 2023. And 56% of the buy-side, sell-side and advisory professionals surveyed in June by Leveraged Commentary & Data, part of S&P Global Market Intelligence, believe that the worst volatility is still to come.
“In the first half of the year, rating actions proved far less volatile than markets, with upgrades and downgrades broadly neutral and the negative bias for most sectors well below five-year averages,” S&P Global Ratings said in its latest edition of This Week In Credit research. “However, inflation, energy security, geopolitical uncertainty, and rapidly tightening financing conditions are increasingly putting pressure on issuers.”
Today is Wednesday, July 6, 2022, and here is today’s essential intelligence.
Written by Molly Mintz.
Exploring Crypto And DeFi Risks In Credit Ratings
The crypto ecosystem is evolving rapidly and throwing up novel risks for the entities operating within it, whether it be relatively new companies whose primary business is crypto, or traditional firms dipping their toes in the water. These risks can weigh heavily on ratings on entities exposed to crypto, and may be crucial to their success or failure.
—Read the report from S&P Global Ratings
Private Equity Spurs Wealth Management M&A; Clearlake To Exit Brightly Software
The wealth management industry has changed its tune on private equity, which is now one of the dominant forces driving the industry's fast-paced consolidation. Up until recently, the widely held perception was that private equity's value creation strategies were out of step with the goals of wealth managers and their clients, said Guy McGlashan, CEO of U.K.-based wealth manager London & Capital Group Ltd. That has changed, and now some wealth managers view an infusion of private equity capital as preferable to acquisition by a strategic buyer.
—Read the report from S&P Global Market Intelligence
Listen: Canadian Wheat Emerges As Key Supply Market Amid Global Turmoil
Amid geopolitical risks threatening the key wheat-growing Black Sea region, Canadian wheat is taking on a bigger role in the global spotlight for this key food crop as recently launched CME futures give additional tools for those looking at FOB Vancouver wheat. Join agriculture managing editor Josh Pedrick and senior pricing specialists Luke Lundgren and Alexandre Bobylov as they talk through the current market dynamics in global wheat, while head of grain analytics Pete Meyer discusses the supply and demand picture.
—Listen and subscribe to Commodities Focus, a podcast from S&P Global Commodity Insights
Infographic: China's Explosive EV Growth To Stay On Track
China has made adoption of electric vehicles a cornerstone of decarbonizing its transport sector. Despite headwinds such as removal of EV subsidies by year end and rising battery raw material prices, China's EV adoption rate is seen undented. An end to subsidies will not slow sales down as there are a broad range of models available at multiple price points supporting a wider adoption of EVs in the country, according to S&P Global Commodity Insights.
—Read the article from S&P Global Commodity Insights
Energy & Commodities
Russia Set To Meet Just 25% Of EU Gas Demand In 2022: IEA
Russia is expected to meet just 25% of EU gas demand this year, its lowest level in more than two decades, the International Energy Agency said July 5. In its latest quarterly gas market report, the IEA said that—assuming current flow patterns remain unchanged—EU imports of Russian pipeline gas were set to decline by over 45% this year to below 80 Bcm. In the medium term, the IEA said Russian gas was set to cover 20% of EU gas demand in 2025, with a total halt in Russian imports possible by 2027.
—Read the article from S&P Global Commodity Insights
Technology & Media
Listen: Next in Tech | Episode 72: Midyear Madness: A Look At The Chaotic Path And Where It’s Headed
The year has been full of contradictory signals in technology markets, with some areas accelerating and others pulling back. Simon Robinson, head of TMT research, returns to identify, if not make sense, of the forces at play with host Eric Hanselman. The winds of inflation, M&A, and maturing expectations for ESG are beating across tech companies as they look to navigate a path through these choppy waters. Fintech advances in spite of the crypto winter and blockchain might actually get real.
—Listen and subscribe to Next in Tech, a podcast from S&P Global Market Intelligence