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S&P Global

Daily Update: September 16, 2020

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Daily Update: September 17, 2020

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China makes oil market wary of demand false dawns: Fuel for Thought

S&P Dow Jones Indices

Not Your Father's Tech Sector

S&P Global

Daily Update: September 15, 2020

Daily Update: September 16, 2020

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In the Western U.S., wildfires have destroyed more than 5 million acres across 10 states, created some of the poorest air quality in the world, and pushed tens of thousands of Americans to evacuate their homes. The fires are forcing communities and policymakers to confront the immediate physical risks of climate change.

"The COVID crisis has taken up so much space,” Adrienne Alvord, the Western states director at the nonprofit organization Union of Concerned Scientists, told S&P Global Market Intelligence in a Sept. 15 interview. “It's taken pretty much a month of extreme conditions and these catastrophic fires and smoke conditions to remind people that we can't just solve one crisis at a time."

A mixture of historically high temperatures, hurricane-strength winds, and drier conditions have created one of the worst fire seasons on record in the U.S. Uncontained wildfires are raging in Arizona, California, Colorado, Idaho, Montana, Nevada, Oregon, Washington, Wyoming, and Utah. The smoke from the wildfires has traveled from these states to the East Coast, creating a milky haze in the sky nationwide, according to the Wakefield, Va. division of the National Weather Service.

"Now, in the 21st century, we have much more extreme weather that is being driven by climate change," Mark Dyson, an expert in renewable energy, distributed power systems, demand response, and energy storage at the think tank Rocky Mountain Institute in Colorado, told Market Intelligence.

The fires are threatening the power grids in California and Oregon, where the largest and most devastating blazes are burning.

"It's very important that the utilities take this very seriously," Ms. Alvord told Market Intelligence, adding that increasingly frequent natural disasters are "a sign that we have to really invest seriously and quickly into a much more resilient system that takes into account more storage, better demand response, greater flexibility, [and] more renewables.”

In response to the extreme weather, Oregon’s largest investor-owned utility, Portland General Electric Co., has de-energized some of its power lines. California’s regulated utilities—including PG&E Corp.'s Pacific Gas and Electric Co., Edison International subsidiary Southern California Edison Co., and Sempra Energy subsidiaries San Diego Gas & Electric Co. and Southern California Gas Co.—have followed the lead of the state’s grid operator, the California Independent System Operator, in participating in rolling blackouts to preserve the energy grid.

"Weather is dynamic and always changing. PG&E has done a variety of things from undergrounding lines to system hardening to reduce wildfire potential," Jeff Smith, PG&E’s external communications manager, told S&P Global Platts on Sept. 10. "We also will implement Public Safety Power Shutoffs when necessary, with the commitment that these shutoffs are expected to be shorter, smaller and smarter—providing more accurate timely information—for our customers."

The rotating blackouts in California showcase electric utilities’ potential to face operational and financial challenges in that state and elsewhere as they embrace intermittent renewable resources, according to S&P Global Ratings.

“Two types of rolling blackouts have plagued California electricity consumers in 2019-2020: those resulting from utilities prophylactically de-energizing power lines to reduce the risk of igniting wildfires during high wind events, and rolling blackouts attributable to insufficient energy supply during periods of high customer usage. August's rolling blackouts fell into the latter group and highlight the operational challenges utilities in California and elsewhere could face as they become increasingly dependent on renewable resources,” Ratings said in a Sept. 10 report.

Governments’ efforts to meet the targets outlined in the Paris Agreement, signed in 2015 by nearly 200 countries that agreed to limit global warming to no more than 2 degrees Celsius, may be limited by political, practical, and corporate considerations. This limits foresight to, at best, a decade. But while the future is likely to bring a range of additional extreme weather events, the current moment shows that the world’s planning cycles are out of sync with the systemic implications of global climate change.

“The rules of fighting wildfires are changing because our climate is changing. There is no fire-suppression plan on this planet that does anyone any good if it doesn’t even acknowledge the role of climate change,” Washington Gov. Jay Inslee wrote in a Sept. 14 open letter to U.S. President Donald Trump. “Deliberate and decisive action must be taken on a global scale, with the United States in the lead.”

Gov. Inslee’s letter was in direct response to President Trump’s comments on climate change made during a visit to California to address the wildfires on Sept. 14. “It’ll start getting cooler, you just watch,” the president told a group of state lawmakers at the meeting. “I don’t think science knows, actually” what is happening with the climate, he added.

“If we have four more years of Trump’s climate denial, how many suburbs will be burned in wildfires?” Joe Biden, the Democratic contender for presidency, said on Sept. 14 following President Trump’s remarks. “If you give a climate arsonist four more years in the White House, why would anyone be surprised if we have more of America ablaze?”

Today is Wednesday, September 16, 2020, and here is today’s essential intelligence.

Market Volatility

The Impact of the COVID-19 Pandemic on the Private Equity Market

COVID-19 continues to adversely affect economies globally. With the full extent of its impact still uncertain, S&P Global Market Intelligence reached out to the PE community to learn more about their perspectives on the impact of the pandemic on PE markets in their respective regions. The survey results showed that the pandemic has had, and will continue to have, serious repercussions on PE activity, but the sentiment of PE players varies significantly across regions.

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

Why S&P 500 and DJIA Futures Could be Useful for Asian Investors During the COVID-19 Selloff

The co-movement of returns that emerged from the interconnection of global markets has important consequences in terms of portfolio hedging and risk management. S&P Dow Jones Indices highlighted three characteristics of S&P 500 and Dow Jones Industrial Average (DJIA®) futures that could potentially be beneficial for Asian investors: high liquidity during Asian trading hours, high correlation with Asian markets, and high flexibility in trading.

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

The Future of Credit

China's $420 Billion Small-Loan Push Puts Policy Before Profit

S&P Global Ratings sees China's efforts to boost lending to micro and small enterprises as a tactical tradeoff between stabilizing employment and maintaining social stability, and bank profitability. Chinese lenders may extend the equivalent of US$420 billion in new loans--about 17% of all new commercial lending in the country--to micro and small enterprises in 2020.

—Read the full report from S&P Global Ratings

Outlook for European CLO Supply has Improved, but it Remains a Concern

While it's not out the woods yet, the resilience of the European CLO market is clear to see, with participants adapting to find pragmatic ways to clear out pre-COVID warehouses since the onset of the pandemic. What’s more, market players are cautiously optimistic for the last four months of the year, with liabilities having tightened, and outstanding vintages also holding up fairly well. A key hurdle for the remainder of the year though could be loan supply, with concerns that soft issuance levels will hamper CLO creation, while selling CLO equity remains challenging.

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

Banking Sector Under Pressure

Listen: Street Talk Episode 68 - As Many Investors Zig Away from Bank Stocks, 2 Vets in the Space Zag Toward Them

While many investors have soured on bank stocks, Johnny Guerry, former managing partner and portfolio manager at Clover Partners, and Brad Rinschler, former director of institutional equities at Boenning & Scattergood, are launching a new fund to capitalize on the group's underperformance. In the episode, Guerry and Rinschler talk about the strategy for the new fund – Down Range Capital Management – and the investment opportunity they see as superior to the one that was available at the bottom of the Great Recession.

—Listen and subscribe to Street Talk, a podcast from S&P Global Market Intelligence

U.S. Community Bank Assets Ballooned in Q2 Amid PPP Loans, Flood of Liquidity

In addition to the economic uncertainty created by the COVID-19 pandemic, some U.S. community banks are facing the possibility of crossing the critical $10 billion threshold. Some community banks approached or surpassed $10 billion in total assets due to participation in the Small Business Administration's Paycheck Protection Program and excess liquidity in the market. Once banks cross the asset threshold, they become subject to increased regulations and interchange fee income can drop by half.

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

Rival Providers of Libor Alternatives Given Until Next Year to Prove Their Worth

Rival financial data companies competing to become the dominant provider of alternatives benchmark interest rates to Libor are working on the assumption that the Bank of England is expecting operational versions of their forward-looking risk-free rates to be available by the first quarter of next year. Several providers launched their prototype alternatives to the London Interbank Offered Rate, or Libor, in the summer, and the BoE has advised that these new rates be tested for six months.

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

Japan's Suga to Zero in on Ailing Regional Banks if Elected Prime Minister

Speeding up the consolidation of struggling Japan's regional banks is likely high on the agenda of Yoshihide Suga, who is widely expected to officially succeed Shinzo Abe as prime minister later this week, analysts said. Revitalizing small towns and rural areas, which have been for years hit by declining and aging population and thus low economic growth, will be one of the policy focus of the Suga administration, he told a press conference previously.

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

Philippine Banks on the Cusp of a Digital Revolution

Virtual banks have a huge opportunity in the Philippines, where most of the country is young, online, and without access to any banking services. The transaction value of PESONet and InstaPay have doubled and tripled, respectively, since the onset of COVID-19, encouraging incumbents to step up their digital efforts. Digital banks could carve a niche in small-ticket loans. Displacing incumbents in the mass-affluent market will require superior, and cheaper, products and services.

—Read the full report from S&P Global Ratings

Technology & Innovation

U.S. Tech Candidates for a Rating Change in the Next 12 Months

Information technology (IT) is one of the most consistently watched industries in the U.S., and it has become one of the largest. Despite S&P Global Ratings revising its IT spending forecast down due to the COVID-19 pandemic, companies within the technology sector have remained resilient. As of Sept. 14, 2020, S&P Global Ratings has assigned non-stable outlooks to 39 of the roughly 200 rated U.S. technology companies.

—Read the full report from S&P Global Ratings

Changing Work and Education Trends will Deepen the Divide Between Winners and Losers in U.S. Software, but Long-Term Fundamentals Remain Strong

S&P Global Ratings believes that the U.S. software industry is well-positioned to weather and recover from the pandemic-related macroeconomic slowdown and that the recent acceleration of ongoing trends toward cloud-based computing and remote work will provide opportunities to many issuers. Despite S&P Global Ratings’ generally positive view of the sector, S&P Global Ratings expects that the impact of the COVID-19 pandemic will sharpen the divergence in fortunes between software firms capable of providing cloud-based, remotely serviced offerings and those with already lagging legacy solutions.

—Read the full report from S&P Global Ratings

U.S. Broadband Households Shift into Higher Gear in H1'20, 1-Gig Adoption Soars

U.S. households felt the need for broadband speed amid COVID-19-related confinement measures in the first half of 2020, resulting in a 5.5% jump in residential wireline subscribers taking 100Mbps or higher compared to year-end 2019. As of June 30, S&P Global Market Intelligence estimates that 78.4% of residential wireline subscribers took download speeds of 100Mbps and above. With speed and bandwidth at the forefront of consumers' minds, the 1Gbps tier logged the largest increase.

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

Cable Business Services Weather Q2 Storm, Growing Revenues, Limiting Sub Losses

The closure of business offices, bars, and restaurants resulted in the loss of 27,000 customer relationships at leading cable operators' commercial segments during the second quarter. Revenues, meanwhile, grew 1.8% annually to $4.11 billion. The segment's contribution to these operators' subscription receipts remained steady at 14.1% during the latest quarter.

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

Biden-Harris Ticket Could Benefit Amazon, Big Tech on Antitrust, Immigration Inc. and other Big Tech companies could face moderate antitrust scrutiny and more friendly, pro-immigrant hiring policies from a potential U.S. administration led by Democratic presidential nominee Joe Biden and U.S. Sen. Kamala Harris, according to policy analysts. Harris, D-Calif., cultivated relationships with the tech industry during her past tenure as district attorney of San Francisco and attorney general in California.

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

Nvidia's Soaring Shares Make $40B ARM Buy Easier to Digest

NVIDIA Corp.'s acquisition of ARM Ltd. will be the largest semiconductor-industry acquisition of the year — and one of the largest in history — but the terms and timing of the transaction still make it a relatively cheap buy for Nvidia, analysts said. Nvidia agreed to pay ARM's current owner SoftBank Group Corp. $2 billion in upfront cash at the deal's signing, followed by $10 billion in cash and $21.5 billion in common stock. Another $5 billion could be added to the deal price if ARM meets certain financial targets, pushing the gross transaction value to about $38.59 billion.

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

ESG in the Time of COVID-19

U.S. West Confronts New Era of Climate-Driven Disasters, Grid Instability

Widespread power outages rolled across the western United States in early September as another unprecedented heatwave scorched California, hurricane-strength winds scoured the Mountain West, and catastrophic wildfires raged up and down the West Coast. Coming on top of the COVID-19 pandemic, the fires and the blackouts added to the sense of 2020 as a uniquely calamitous year. One thing, however, seemed certain: Things are liable to get much worse in the coming years.

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

Natural Disasters May Have Caused Big Changes in FTR Volumes, Values

Natural disasters – hurricanes, fires, the coronavirus pandemic – may have influenced substantial changes in financial transmission rights contract volume and value traded this August for use this September in various power markets around the US, an S&P Global Platts analysis shows. Summarizing all seven organized markets, the contract capacity volume and value for FTRs traded this August for use in September was up in comparison with both this July's trading and with August 2019's trading.

—Read the full article from S&P Global Platts

Energy Transition to be Shaped by Policies like Emissions Pricing: Reports

A pair of reports released Sept. 14 consider energy transition scenarios globally and for the US that both see significant renewable energy capacity growth at the expense of fossil fuel-fired power generation, while discussing policies that could accelerate or decelerate the trend. "Even as the pandemic has dramatically reduced global carbon emissions, the world remains on an unsustainable path," Bernard Looney, CEO of UK-based oil major BP, said in a statement about the company's Energy Outlook.

—Read the full article from S&P Global Platts

Wholesale Power Sales in Q2 Fall 4.5% on Year; Wind and Solar Make Up 7.1% of Total

April, May, and June of 2020 will likely stand for some time as the landmark for depressed quarterly wholesale power sales, according to data filed with the Federal Energy Regulatory Commission and compiled by S&P Global Platts. The brunt of the coronavirus pandemic and attendant stay-at-home policies hit power demand hard in the second quarter of 2020, with sales of wholesale power off 4.5% compared with the same period last year, and totaling 1.27 billion MWh. In Q2 2019, wholesale power sales totaled 1.33 billion MWh. The Q2 2020 sales total was the lowest since Q1 2017.

—Read the full article from S&P Global Platts

#100BlackInterns to Address ‘Shockingly Low’ Representation in PE, IM

Public and private U.K. investment managers signed up to #100BlackInterns will offer at least one internship to a Black graduate, for a minimum six weeks, paid at the London living wage or higher, in summer 2021. The program is open to graduates from a range of universities and academic disciplines and had received over 900 CVs by Sept. 10. The program will also hold an advisory call in September, which will help with resumes. The program has received significant interest from firms, and it announced Sept. 9 that it would cap the number of participating companies at 200.

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

Battered Schlumberger Reported Largest CEO-to-Median Employee Pay Ratio in 2019

Schlumberger Ltd. reported the highest CEO-to-median employee pay ratio and lowest median employee compensation in the oil and gas sector in 2019 as the struggling oilfield services giant faced steep financial losses. CEO Olivier Le Peuch was paid 313 times the median annual total compensation of $71,021, the company reported in a mandated proxy statement. Le Peuch was the seventh-highest paid oil and gas executive in 2019, raking in a total adjusted compensation of $18.1 million — a 317% increase over his 2018 package of $4.3 million. Le Peuch was promoted to CEO in August 2019.

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

Listen: Agriculture Focus: Seeds of the Future: Veg Oils Soar while Next Generation Biofuels Emerge

Amid a rally in the global vegetable oils markets, Robert Beaman talks to vegetable oils editor George Duke and biodiesel editor Huw Shortland about the latest developments in the market for virgin and used vegetable oils. As supply and demand in these markets changes, the team also look at the impact on biodiesel and the emerging markets for renewable diesel (HVO) and sustainable aviation fuel (SAF).

—Listen and subscribe to Agriculture Focus, a podcast from S&P Global Platts

The Future of Energy & Commodities

Watch: Market Movers Europe, Sep 14-18: Demand in Focus for Oil, Tanker and Sugar Markets

In this week's highlights: Major conferences will be watched for key corporations' views on the oil market. The European Commission is expected to propose tougher carbon target for 2030; and all eyes will be on who has a sweet tooth at the London white sugar futures expiry.

—Watch and share this video from S&P Global Platts

EIA Projects Slight Decline in Unconventional Oil, Gas Production in October

U.S. unconventional oil and gas production will likely continue to increase in September but decline slightly in October, the Energy Information Administration said in its monthly Drilling Productivity Report released Sept. 14. The EIA estimates that shale oil production will increase to 7.71 million barrels per day in September—a very small increase over August—but will slide back to 7.64 million bbl/d in October. That would snap a four-month streak of increasing unconventional oil growth but remains well below March's 9.14 million bbl/d.

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

More Than 25% of U.S. Gulf Oil, Gas Production Offline Ahead of Hurricane Sally

US Gulf of Mexico producers have shut in roughly 27% of offshore oil and natural gas output ahead of the landfall of Hurricane Sally, which was slowly heading towards the Alabama coast Sept. 15, according to the US Bureau of Safety and Environmental Enforcement. Producers have shut in 497,072 b/d of crude and 760 MMcf/d of gas output, 26.87% and 28.03% of total offshore US Gulf output, respectively. A total of 152 platforms and rigs were evacuated, according to BSEE.

—Read the full article from S&P Global Platts

US Election to Shape LNG Exporters' Options, Especially Chinese Market Access

Democratic presidential nominee Joe Biden could end the tit-for-tat tariffs between Washington and Beijing that have restrained U.S. LNG exports to China and made new commercial development more challenging. Alternatively, President Donald Trump could make it easier to drill for shale gas that feeds terminals and further speed up project permitting. Whichever candidate wins the Nov. 3 election, the LNG industry will feel the impact heading into 2021 — a pivotal year in which new capacity may be sanctioned or fall off the board altogether.

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

Middle East Could Take More Asia Share From US Oil

The outcome of US presidential election in November is not expected to have an immediate impact on global oil flows, but Middle East producers will be closely watching the results, in the hopes of gaining more market share in Asia. US oil production is returning from peak shut-ins of 2.8 million b/d during the oil price crash in spring 2020, but drillers' severe capital expenditure cuts and slowing drilling activity will constrict output through 2021. S&P Global Platts Analytics expects US oil production to decline about 880,000 b/d year on year in 2020 and more than 1 million b/d in 2021.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.