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Daily Update September 29, 2020

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Daily Update September 29, 2020

Subscribe on LinkedIn to be notified of each new Daily Update—a curated selection of essential intelligence on financial markets and the global economy from S&P Global.

When director Christopher Nolan was conceiving the idea for a movie about a secret agent who embarks on a time-traveling mission to prevent World War III, he couldn’t have anticipated that his film “Tenet” would open on a limited number of screens across minimal major markets in the middle of a global health crisis. Thus, when the world’s largest theatre operator AMC reopened 70% of its theatres in the U.S. on Sept. 4, it was timed to coincide with the release of Nolan’s much-anticipated blockbuster.

In reality, the blocks failed to bust. After Tenet debuted to $20.2 million in proceeds across the U.S. market—paltry compared to the movie’s $205 million budget—major studios chose to delay releasing other big-budget titles beyond the end of October in hopes that the public will eventually choose to return to theaters. But the absence of premium content puts theater owners in a bind. Without notable names and expansive budgets to draw in the moviegoing public, theaters have little opportunity to demonstrate that their business model is viable.

"This is a chicken-and-egg problem," Wedbush Securities analyst Michael Pachter said in an interview with S&P Global Market Intelligence. "If box office is going to be $20 million for films like 'Tenet,' it's unlikely that the studios will release movies like 'Bill & Ted' or 'Mulan' [in theaters]. If movies keep going direct to video-on-demand, it will be hard to return to normal for the exhibitors."

The effects of the pandemic may be disguising negative long-term trends for the movie industry.

Movie attendance has been flat or declining for a long time, according to the World Economic Forum, which said in a recent report that ticket sales have remained nearly unchanged in North America since 1995 and in the U.K. since 2005. “In both places, population increases mean yearly per capita admissions have in fact decreased,” the WEF said.

The blame for stagnant movie theater attendance falls on digital and streaming services. The use of these services has accelerated during the pandemic and its associated lockdowns as non-essential services, like theatres, shut down and people stayed at home. Look no further than Netflix to see evidence of such usage growth. During the first half of this year, the streaming service leader added 25.9 million members, more than double the additions for the first half of 2019, according to S&P Global Market Intelligence.

Entertainment industry insiders agree. "People have now been acculturated to streaming and watching movies at home in ways they weren't before, which probably accelerated a trend that was already taking place,” the actor and director Ben Affleck said in a recent Entertainment Weekly  interview.

The pandemic presents additional challenges for movie studios. The production company behind Mr. Affleck’s latest movie, Hoosegow Productions, sued its insurer, Chubb National Insurance, after the company refused to extend coverage without excluding losses linked to the coronavirus crisis. The movie industry is dependent on insurance for to cover the vagaries of movie production. An estimated $400 million in premiums was spent last year, according to Allianz Global Corporate & Specialty.

Streaming giants like Netflix aren’t immune to the pressures of pandemic-related production shutdowns. "Everyone has a problem creating new content, but the others have deeper libraries of proven content. Eighty years of Disney and Fox content is tough to compete with,” Wedbush’s Mr. Pachter said.

And even for the movie business, which loves a happy ending, there isn’t much good news on the immediate horizon.

"I don't think we can fully get back to the old normal until 2022," Eric Handler, a senior media and entertainment research analyst at MKM Partners, told S&P Global Market Intelligence.

Today is Tuesday, September 29, 2020 , and here is today’s essential intelligence.

Banking Sector Under Pressure

Managing Through The Crisis, Europe’s Banks Look To The Future

Economic recovery is underway, but will likely stutter, and the path could yet diverge significantly between countries. The adverse scenario--of a widespread reimposition of social distancing measures and setbacks in economic activity--remains more than theoretical, and is still the primary factor behind most negative outlooks in the sector. Even under Ratings’ base-case forecast, S&P Global Ratings does not rule out that fiscal support could prove to be less effective than S&P Global Ratings currently expect, or that some banks' asset quality proves to be much weaker than at close peers.

—Read the full article from S&P Global Ratings

European Bank Asset Quality: Half Year Results Tell Only Half The Story

Much is still unknown about the impact of the COVID-19 pandemic on European banks' asset quality. Governments have provided a significant amount of financial resources to counteract the economic impact of the pandemic. In addition, debt payment moratoria and other borrower-friendly measures have helped lessen the impact of lockdowns and other measures on household and corporate borrowers. These measures therefore also support loan asset quality. Therefore, it's no surprise that banks' half-year reports do not yet reveal the full picture, and their third-quarter reports are unlikely to do so either.

—Read the full article from S&P Global Ratings

European Investment Banks Face A Continued Fight To Remain Competitive

Booming trading volumes triggered by the COVID-19 pandemic provided a welcome boost to most European investment banks' earnings for the first half of 2020. Buoyant capital market revenues showed the strength of their diversified business models by mitigating increased credit losses on retail and corporate lending. However, structured equity derivatives were a weak spot as companies suddenly cut dividends, causing pain for French banks that specialize in these products.

—Read the full article from S&P Global Ratings

The Resolution Story For Europe's Banks: More Flexibility For Now, More Resilience Eventually

The economic disruption arising from the COVID-19 pandemic has taken center stage as a driver of European bank ratings in 2020. It also provoked a strong response from policymakers eager to avoid any unnecessary constraint on banks' ability to extend credit to the real economy. This reflects two main factors: the previous years of strengthening has given some space to ease; and the depth of the crisis and its impact on the banking sector is hard to predict.

—Read the full article from S&P Global Ratings

French Bank Socgen Playing Catch-Up As BNP Paribas Outshines

Despite their many similarities, French lender BNP Paribas SA is outshining its rival Société Générale SA, a trend that is likely to continue unless SocGen nails down a clear strategy, analysts say. The fortunes of SocGen's flagship equities derivatives business — a source of profit in the good times, but a risk in the bad — are particularly hurting the bank as is uncertainty about its future direction. Both institutions operate in similar markets, including French retail and investment banking. They nearly ended up as part of the same group in 1999 when the then-Banque Nationale de Paris attempted to take over both SocGen and investment bank Paribas, spoiling an attempt by SocGen and Paribas to merge. BNP ended up with Paribas, forming today's BNP Paribas.

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

In Japan, Merger Hopes Rise For Allied Regional Banks With Overlapping Networks

Japanese regional banks that are already in operational alliances and serving the same neighborhoods are more likely to merge, analysts said, as the new prime minister could push more struggling lenders to consolidate in a move aimed at revitalizing the local economy. There has been market chatter about, as well as share-price gains in, some regional banks since early September after Yoshihide Suga, who was officially elected Japan's prime minister Sept. 16, on several occasions publicly suggested regional lenders consider "reorganization" as there are "too many" of them.

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

Technology & Innovation

COVID-19 Lockdown Boosted Growth Of Digital Platforms

With India being under lockdown since late March, speakers at this year's Future of Video India virtual seminar held Sept. 10 discussed how the video industry has evolved during the COVID-19 pandemic. It was the general consensus that the pandemic has accelerated the growth of digital platforms, which would have otherwise taken years to achieve. Discovery Communications India and Disney Broadcasting (India) Ltd. had timely launches of their streaming services Discovery+ and Disney+ Hotstar in India in March and April, respectively. As of June 2020, the Disney+ Hotstar service was reported to have served 8.6 million subscribers.

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

Experts Say Biden's FCC Would Restore Net Neutrality, Avoid Price Regulation

With the U.S. presidential election inching closer, policy experts say a change in administrations would start another new chapter in the long debate over net neutrality. If Joe Biden, the Democratic nominee for president, gets elected, policy experts expect him to choose a new agency chairman that is well known within the Beltway. The term of the current Federal Communications Commission Chairman, Republican Ajit Pai, does not end until January 2023, but FCC chairmen typically exit the commission before a new president takes office.

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

What FCC Might Look Like Under 2nd Trump Term

The U.S. Federal Communications Commission could look very different next year, even if President Donald Trump is reelected. If Trump wins a second term, industry observers believe the agency will push ahead with the administration's desire to reform a prized legal shield for content moderation on online platforms and remain focused on expanding rural broadband policies.

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

Citing Security Risks, FERC, NERC To Keep Cyber Violation Details Under Wraps

After floating the idea a year ago of outing violators of mandatory cybersecurity standards without sharing details of their violations, the Federal Energy Regulatory Commission announced a new policy Sept. 23 that, instead, bars any public disclosure of information relating to these violations. The shift in position comes as the staffs for FERC and the North American Electric Reliability Corp. concluded, after reviewing comments on the initial proposal, that the substantial security risks to the bulk power system posed by disclosing violators and information on their noncompliance outweighed any transparency benefits, according to the joint staffs' second white paper on the topic (AD19-18).

—Read the full article from S&P Global Platts

ESG in the Time of COVID-19

COVID-19 Highlights Global Insurance Protection Gap On Climate Change

As the COVID-19 pandemic spread from region to region, it has drawn attention to a hitherto unnoticed protection gap in insured and noninsured property/casualty (P/C) risks. The problem is global, and even affected mature economies, where insurance penetration (insurance premium as a percentage of GDP) is typically high. In June 2020, the International Monetary Fund indicated global economic losses from COVID-19 of about $12 trillion over 2020-2021 while Munich Re estimates insured property/casualty losses at $30 billion-$107 billion for 2020. Moreover, S&P Global Ratings expects global GDP to fall by more than 2.5% in 2020.

—Read the full report from S&P Global Ratings

Embedding Environmental Factors In Strategy And Risk Management: For Banks, A Long Journey Just Begun

Environmental factors are moving to the forefront of banks' business strategies across regions and are gaining more and more relevance when we analyze banks' creditworthiness. Financial institutions are striving to approach environmental risks as financial risks, not just reputational as they used to, but they are still at an early stage. Banks are currently being impeded by the availability of robust data. For financial analysts, the main difficulty lies in comparing exposure to environmental risks and being able to form a view as to whether those risks and opportunities are appropriately captured.

—Read the full article from S&P Global Ratings

Green Policies The Saving Grace As 2020 Rattles Global Energy System – Analysts

The events of 2020 have changed much of the world beyond recognition, and the fall-out from the coronavirus pandemic will have lasting consequences on the energy sector, according to a new report from S&P Global Ratings and S&P Global Platts Analytics. People are travelling less, many industries are operating below normal capacity and trade flows have slowed. Global GDP is set to contract 3.8% this year, mainly due to a deeper and longer hit to emerging markets including India, Ratings analysts said. Demand for energy from all sources is falling alongside macroeconomic indicators, but green power looks set to weather the storm better than other types of energy.

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

US Relevance In Battery Supply Chain May Hinge On 2020 Election

Electric-vehicle manufacturer Tesla Inc. outlined various new strategies during its recent Battery Day event, including plans to build its own battery cathode manufacturing plant in North America, with company executive Andrew Baglino citing the potential for savings and environmental stewardship. The company would also start "leveraging all of the North American resources that exist for nickel and lithium" as part of this plan, Baglino said. CEO Elon Musk added: "It is important to note that there is a massive amount of lithium on Earth … Lithium is not like oil. There is a massive amount of it pretty much everywhere."

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

Insight From Brussels: EU’s Climate Goals Could Disrupt Global Commodity Flows

The EU’s aim to be the world’s first climate-neutral region by 2050 could disrupt global commodity trade flows, as it mulls ways to cut its emissions while protecting its industry and raising money for postpandemic recovery spending. The EU’s aim to be the world’s first climate-neutral region by 2050 could disrupt global commodity trade flows, as it mulls ways to cut its emissions while protecting its industry and raising money for post-pandemic recovery spending.

—Read the full article from S&P Global Platts

IEA's Birol Says 'More Optimistic Than Ever' On Shift To Clean Energy

The global transition to clean, low-carbon energy is gaining momentum with the impetus from the coronavirus pandemic this year likely to be "turning point" for climate change, International Energy Agency Executive Director Fatih Birol said Sept. 28. In addition to the global push by many governments to "build back greener" from the pandemic, renewable costs were falling fast and a wealth of cheap financing was available to fund clean energy projects, Birol told the FT Commodities Global Summit.

—Read the full article from S&P Global Platts

The Future of Energy & Commodities

Watch: Market Movers Asia, Sep 28-Oct 2: Refiners Reshuffle Oil Product Slate As Jet Fuel Outlook Remains Bearish

The highlights in Asia this week on S&P Global Platts Market Movers, with Associate Editor Joyce Zhang: Oil refiners slash jet fuel output on bearish outlook; China holiday to support gasoline, gasoil demand; winter restocking to drive seaborne coal market activities; China's post-COVID recovery starts to ease; and polyethylene market faces oversupply concerns.

Watch and share this Market Movers video from S&P Global Platts

South Korea Data: US Crude Imports Set To Fall Further Amid Weak Gasoline, Jet Fuel Demand

South Korea's crude oil imports from the US tumbled once again in August and the Asian consumer is poised to further reduce North American oil shipments in the coming months, as local refiners require less light sweet crudes amid faltering domestic fuel consumption. South Korea imported 4.45 million barrels of crude from the US in August, down 59.7% from a year earlier, according to data released by Korea National Oil Corp. on Sept. 28. The August shipments from the US were also down 15.1% from 5.244 million barrels imported in July.

—Read the full article from S&P Global Platts

Feature: South Korea Bucks Trend By Turning To LSFO After Typhoon-Led Nuclear Shutdowns

South Korea is raising its low sulfur fuel oil consumption for power generation for the first time in several years after two typhoons prompted the shutdown of nuclear reactors in early September, bucking the trend of North Asian countries reducing their fuel oil consumption for power as they shift to LNG. South's Korea East-West Power Company is likely to consume 70,000 mt/month of low sulfur fuel oil while the nuclear capacity is offline, a company official said Sept. 25. The company, which operates an oil-fired 1,200 MW power plant at Ulsan, has bought 38,000 mt of LSFO with maximum 0.3% sulfur and with maximum 540 CST viscosity for delivery to Ulsan over Sept. 24-28. This is the first time a South Korean power company has imported LSFO since January.

—Read the full article from S&P Global Platts

Merger With WPX Would Give Devon A Powerful Position In Delaware Basin

The merger of equals between Devon Energy Corp. and WPX Energy Inc. will create an oil and gas producer with a "dominant position" in the Permian Basin, the two companies said Sept. 28. The all-stock deal, which has a net worth of approximately $12 billion, combines two prominent operators in the Permian's Delaware Basin. Being one of the largest producers in that unconventional play, Devon President and CEO David Hager said, has positioned the expanded company in a position to succeed in a difficult market.

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

US ELECTIONS: Could A Policy Shift On US Oil Push Investment To Argentina?

When US Democratic nominee Joe Biden suggested that he could stop issuing drilling permits for federal lands and waters if he wins the presidential election, concerns rose of a decline in the country's oil production, and where else producers could look for growth. On paper, it makes sense. Argentina has Vaca Muerta, a huge shale play in northern Patagonia that was the first to come into production outside North America. A few other plays, largely unexplored, could be boons as well.

—Read the full article from S&P Global Platts

Global Oil Inventories Expected To Drop Below 5-Year Average In Q2 2021: OPEC

OECD commercial oil inventories are expected to stand slightly above the five-year average through Q1 2021, before dropping below that benchmark for the remainder of the year, OPEC Secretary General Mohammed Barkindo said Sept. 27. The projections are based on latest forecasts, which expect world oil demand in 2020 to contract by 9.5 million b/d, while non-OPEC liquids production is anticipated to decline by 2.7 million b/d, said Barkindo said in prepared remarks at the G20 energy ministerial hosted online by Saudi Arabia.

—Read the full article from S&P Global Platts

Listen: Global Oil Market Dynamics At Stake In Trump-Biden Race

The US presidential election could have far-reaching implications for the global oil market. Chris Midgley, global head of analytics for S&P Global Platts, takes us through the biggest potential impacts for supply, demand and price. He covers Iran sanctions relief scenarios, the outlook for OPEC+ cohesion, the US upstream forecast under Biden drilling restrictions and the future of US trade

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.