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S&P Global — 27 Aug, 2020

Daily Update: August 27, 2020

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By S&P Global

As the coronavirus has forced the world to become more insular, the global tourism industry has not been able to conquer consumers’ fears of the pandemic to revive travel during the peak summer season.

“No country has escaped the impact of COVID on tourism,” Sandra Carvao, the U.N. World Tourism Organization’s chief of market intelligence and competitiveness, said in a policy briefing on Aug. 25.

The crisis has been a “major shock” to the industry in advanced economies and exists as an “emergency” in developing nations’ tourism sectors, having prompted $320 billion in lost exports linked to tourism worldwide in the first five months of the year. According to U.N. Secretary-General Antonio Guterres, global GDP could plummet 1.5%- 2.8% this year as export revenues linked to tourism sink by $910 billion, to $1.2 trillion.

As the third-largest export sector of the global economy, tourism “employs one in every 10 people on earth and provides livelihoods to hundreds of millions more,” Mr. Guterres said, adding that the pandemic has put more than 120 million jobs worldwide at risk.

“The precipitous drop in tourism will have an outsized impact on countries that rely on foreign travelers—with potentially large-scale effects on their economies’ national accounts,” the International Monetary Fund said in its recently released 2020 External Sector Report. “Costa Rica, Greece, Morocco, Portugal, and Thailand could be among the hardest hit, with losses in tourism proceeds exceeding 3% of GDP.”

In the U.K., tourists are "staying away in droves," according to the World Travel and Tourism Council, which projected this week that the country’s economy is likely to lose £22 billion ($29 billion) from the collapse of international travel. Spending by foreign visitors could tumble 78% year-over-year—equivalent to daily losses of £60 million ($79 million).

Travel and tourism made up 9%, or £200 billion ($264 billion), of the U.K.’s GDP last year, generating nearly 11%, or 4 million jobs, of the entire workforce, according to the WTTC’s 2020 Economic Impact Report.

The implications of the “stop-start” quarantine the in U.K. could “threaten London’s position as one of the world’s premier hubs for business and leisure travel, which could see other destinations take over,” WTCC President and Chief Executive Gloria Guevara said on Aug. 26, as the capital city “is at a massive competitive disadvantage and won’t recover at the same speed as other cities in Europe” due to the country’s requirement for travelers to self-isolate for two-weeks upon returning from countries with high infection rates.

In Indonesia, tourism-dependent Bali said it wouldn’t reopen to international travelers until the end of this year as the total number of coronavirus cases climbs. The country planned to reignite its tourism industry on Sept. 11. Government officials anticipated in April that the volume of foreign travelers would fall to 5 million this year, from more than 16 million last year.
"The Indonesian government couldn't reopen its doors to foreign travelers until the end of 2020 as we remain a red zone," Bali Governor Wayan Koster in an Aug. 24 statement. "The situation is not conducive to allowing foreign tourists to come to Indonesia, including to Bali.”

Short-term rentals have seen a faster recovery than hotels in the months since the pandemic struck, S&P Global Market Intelligence reported. Although short-term rental bookings suffered a "massive" decline in March, to about 700,000 worldwide, the subsequent recovery soared to a peak of roughly 2.5 million bookings per week, Scott Shatford, the CEO of short-term rental data and analytics firm AirDNA CEO, said during a webinar last month.

"This uncertainty about interaction, touching things, people just want to be isolated in a way, want to have a controlled environment, and short-term rentals can offer that, guaranteed, more often," Mr. Shatford said. "When we look at the data, the biggest correlation that we see between markets that are doing really well and markets that aren't doing very well is how far the average person is traveling."

Today is Thursday, August 27, 2020, and here is today’s essential intelligence.

Uncertainty in the Global Economy

No End In Sight: What The Ongoing COVID-19 Crisis Means For Boardroom Strategies

"Very remote." That is how John Hitchins, a nonexecutive director at two U.K. companies, summed up what many corporate boards thought not so long ago of the likelihood of a pandemic suddenly disrupting countless businesses around the world. Then COVID-19 arrived in the early months of 2020. Boards swung into crisis mode, often in a matter of days, with many now continuing to take make-or-break decisions for their companies as the virus leaves a trail of bankruptcies, job losses and strategic upheaval across industries and geographies. As that's happening, boards are shifting their focus on the post-pandemic future, despite an array of unknowns, said Hitchins, who is a director at specialist lender and savings bank Aldermore Group PLC and at Societe Generale International Ltd. an investment banking unit of France's Société Générale SA.

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

US restaurants in sales 'purgatory' after Q2 slump as pandemic effects persist

U.S. restaurant chains accelerated their takeaway and delivery service offerings in the second quarter as coronavirus lockdowns continue to batter their sales and experts say much of the industry's recovery will continue to be held back as long as dining restrictions continue. After suffering losses following lockdowns and closures of dine-in operations in April, restaurant chains had started to see signs of recovery by May and June as states reopened their economies and eased restrictions on restaurants. But a resurgence of COVID-19 cases forced states to reverse course in July sending more shocks throughout the restaurant industry and tempering its recovery.

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

Consumer Discretionary Deal-Making Reaches Historic Low In Q2'20

The number of mergers and acquisitions in the consumer discretionary sector announced in the second quarter of 2020 fell to a low last seen in the early 2000s, data compiled by S&P Global Market Intelligence shows. A total of 587 deals were struck during the quarter, down 44.4% from 1,055 in the year-ago period. It was the fewest number of transactions in any three month period since the first quarter of 2004. Total M&A activity in value terms fell 58.3% to $25.58 billion from $61.35 billion in the second quarter of 2019, the lowest sum since the first quarter of 2013.

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

Low Interest Rates, Steady Home Prices To Help Boost Indian Residential Market

Improving home affordability amid 15-year-low interest rates and stagnant prices in India could help kick-start a recovery of the nation's residential property market, although a sustainable rebound will require the economy to grow more strongly again. India's housing market experienced its worst slump in at least a decade, with sales of new homes in the top eight cities down to 59,538 in the January-to-June period, almost half the 116,576 units sold in the previous six-month period, according to data from the Indian unit of Knight Frank LLP. The number of new homes launched in the period also dropped sharply to 60,489, from 112,150 in the July-to-December period of last year, the data show.

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

The Future of Credit

Credit FAQ: How S&P Global Ratings Factored Counterparty Risk Into Recent Midstream Energy Rating Actions

Lower commodity prices this year have significantly affected upstream companies' cash flow and creditworthiness. Out of the 61 negative rating actions S&P Global Ratings took on midstream companies from February to July 2020, 17 explicitly mentioned counterparty risk as a key driver. S&P Global Ratings thinks that in order to truly mitigate counterparty risk, companies generally must diversify. It's possible for a company with a diverse pool of low-rated counterparties to have an issuer credit rating that is above the average counterparty rating.

—Read the full report from S&P Global Ratings

Infrastructure Issues: At the Crossroads of a Potential $15 Trillion Problem

$15 trillion USD is the estimated world-wide infrastructure investment gap by 2040 based on the Global Infrastructure Outlook, a G20 initiative. The investment gap (“gap”) refers to the difference between the infrastructure needs of a country or sector based on current and expected demand, and the resources available to meet these needs. The gap can vary widely. For example, as of July 20, it was estimated to be $148 billion for the U.K., with 92% being driven by the rail transportation sector, and $115 billion for the Kingdom of Saudi Arabia, with 71% being driven by the road transport sector.

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

CLO Spotlight: U.S. CLO Rating Actions And Exposure To Negative Corporate Rating Actions (As Of Aug. 23, 2020)

As of Aug. 23, 2020, over 500 of the more than 1,500 obligors held in U.S. broadly syndicated collateralized loan obligations (BSL CLOs) rated by S&P Global Ratings have either been downgraded or placed on CreditWatch with negative implications, or both. This represents about 31% of the par amount of assets held in these transactions.

—Read the full report from S&P Global Ratings

Technology & Innovation

Antitrust Scrutiny Could Further Slow Amazon, Big Tech M&A Activity – Experts Inc. spent years growing its market power by scooping up emerging and complementary companies. But a deceleration in the pace of its acquisitions could further slow amid recent scrutiny by U.S. lawmakers and stronger antitrust rules, experts say. Over the past decade, Amazon announced 76 acquisitions that contributed to its market dominance. Deal activity, however, has slowed in recent years as lawmakers pushed to limit its influence. Amazon and its subsidiaries announced nine deals in 2019, up from six in 2018 but down from 13 in 2017, according to data compiled by S&P Global Market Intelligence. As of August 2020, Amazon had announced two acquisitions.

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

UK Enterprise Broadband Market Ripe For Disruption As Incumbent BT Falters

U.K. broadband incumbent BT Group's efforts to return its enterprise division to growth could be hampered by moves from competitors, analysts said. The telecom firm's enterprise revenue fell to £1.35 billion in the June quarter from £1.51 billion in the previous quarter. BT attributed the decline to the impact of the coronavirus pandemic and broader economic pressure. BT's main broadband rival Virgin Media, however, saw its enterprise revenues rise, thanks to an 8.7% year-over-year increase in small and home-office-based customers.

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

ESG in the Time of COVID-19

Better Data Can Highlight Climate Exposure: Focus On U.S. Public Finance

Better data could provide a foundation for understanding current and future climate risks on the county level across the U.S. in coming years, providing insight into U.S. public finance—where consistent and comparative disclosure has been lagging. Water stress and heat waves are on the rise in the U.S., where water scarcity will affect 38% of counties in 2050 under a high-stress climate scenario (RCP8.5), raising risks under this scenario for their municipal water utilities, public-owned power utilities, and local governments. Heat wave risk will continue to increase across all states and under all scenarios to midcentury with Florida particularly exposed.

—Read the full report from S&P Global Ratings

COVID-19 Could Focus Insurers' Minds On Climate Change Risks

The coronavirus pandemic is teaching the insurance industry lessons about how to tackle another systemic risk it faces — climate change — according to specialists in the field. As shown by the latest batch of quarterly earnings, the coronavirus pandemic is affecting both sides of insurers' and reinsurers' balance sheets, triggering large claims and squeezing investment returns. It has also put a greater emphasis on communicating with stakeholders beyond investors, such as dealing with policyholders on premium rebates and regulators on dividends.

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

Why Gas Utilities Could Get Left Behind In The Hydrogen Economy

Natural gas utilities could find themselves largely observing the rise of the U.S. hydrogen economy from the sidelines, according to a consultant who closely follows the emerging renewable hydrogen market. The gas industry envisions a future in which local distribution companies, or LDCs, decarbonize heating by delivering a blend of renewable hydrogen and natural gas to utility customers, energy consultant Tom Russo said during an Aug. 25 webinar hosted by the U.S. Association for Energy Economics.

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

Benchmark UK Offshore Wind Load Factors Seen Rising To 57% In 2030: BEIS

Benchmark UK offshore wind load factors are seen rising to 57% in 2030 and 63% in 2040 by the Department of Business, Energy and Industrial Strategy. The UK has a target of 40 GW of offshore wind capacity by 2030 which, using BEIS's current assumed offshore load factor of 47.3%, would generate 166 TWh/year. "Larger turbines are expected to produce higher load factors for several reasons, most importantly that larger turbines can access higher winds due to their increased height, and that a wind farm with fewer, larger turbines has increased efficiency," BEIS said in an Aug. 24 report on electricity generation costs.

—Read the full article from S&P Global Platts

Listen: Drivers And Challenges For US East Coast Offshore Wind Development

There is a lot going on with offshore wind development -- particularly on the US East Coast, where S&P Global Platts Analytics estimates there could be over 37 GW of capacity installed by 2050 -- with Orsted involved in many of those projects. In this edition of the Platts Commodities Focus podcast, Jared Anderson, senior writer with S&P Global Platts, speaks with David Hardy, Orsted president and chief operating officer for North America offshore, about offshore wind contract pricing, transmission planning, regulatory developments, policy drivers and more.

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

The Future of Energy & Commodities

Watch: Market Movers Asia, Aug 24-28: China Boosts US Crude Purchases In Line With Trade Deal

The highlights in Asia this week, with Paul Bartholomew, S&P Global Platts Head of Metals News & Insight for Asia-Pacific: China to ramp up crude oil and agricultural product purchases from the US to comply with Phase 1 of trade deal, LNG prices rise on uncertainties in Gorgon LNG supply, Seaborne iron ore prices hit 6-year high, Demand fundamentals weigh down Indonesian thermal coal prices, September contract talks for paraxylene and benzene set to kick off and Long Range tanker freight rates inch closer to three-month highs

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

Oil Market Treads Rebalancing Tightrope As Demand Recovery Falters

Global oil market balances are largely supportive of firmer oil prices over the coming 18 months, with demand exceeding supply despite growing concerns over the potential for a second wave of COVID-19 infections to derail the economic recovery. The International Energy Agency and OPEC both trimmed their global oil supply outlooks earlier in August, due to a slower-than-expected recovery in mobility and continued weakness in demand for aviation.

—Read the full article from S&P Global Platts

Asian Transport Fuels Face Headwinds As Second COVID-19 Wave Cases Rise

The surge in the second wave of coronavirus cases across Asia and Oceania has injected fresh weakness into the regional transportation markets, as the prior demand recovery looks set to stall as governments race to prevent yet another outbreak. In Southeast Asia, President Rodrigo Duterte of the Philippines announced on Aug. 2 that strict lockdown measures would be re-imposed in the capital city of Manila, while in Vietnam, the city of Danang was also placed under new lockdown measure at end-July, following reports of fresh coronavirus cases. Since then, new cases have been reported in other Vietnamese cities, namely Hanoi and Ho Chi Minh City.

—Read the full article from S&P Global Platts

Thousands Of Workers Prepare To Restore Service After Hurricane Laura Hits

More than 9,000 people are preparing to help restore service from Hurricane Laura during the week, area utilities said Aug. 25, and updated load forecasts indicate expectations of lower power demand if Laura hits the Louisiana-Texas Gulf Coast as a major hurricane as predicted by the National Hurricane Center. Peakload forecasts for the remainder of the work week for the three independent system operator footprints in Laura's forecast path decreased on Aug. 25, compared with Aug. 24 forecasts, by an average of about 1%, but remained well above the five-year-average for a comparable late-August work week, likely as heat gripped the areas of their large footprints not affected by the hurricane.

—Read the full article from S&P Global Platts

No Additional Shut-Ins By US Gulf Of Mexico Oil, Gas Companies

US Gulf of Mexico oil and gas production shut-in numbers released Aug. 26 are unchanged from a day earlier, indicating that companies have taken all facilities along the predicted path of Hurricane Laura offline as the storm barrels towards the Texas-Louisiana coast. As of midday Aug. 26, US Gulf upstream operators had shut-in nearly 1.559 million b/d of oil from platforms in the region, or a bit more than 84% of the region's crude production, the US Bureau of Safety and Environmental Enforcement said in its daily update.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.