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S&P Global — 24 Jul, 2020

Daily Update: July 24, 2020

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By S&P Global

The U.S. government has taken the unusual step of demanding China to close its consulate in Houston by today – Friday, July 24. Secretary of State Mike Pompeo insisted that the move was necessary, accusing the Chinese Communist Party of stealing American and European intellectual property and costing the U.S. hundreds of thousands of jobs.

"President Trump has said enough; we’re not going to allow this to continue to happen,” Secretary Pompeo said.

A Chinese foreign ministry spokeswoman insisted that China would soon respond with “firm countermeasures.”

Relations with China have become an issue in the 2020 U.S. presidential campaign. President Donald Trump attacked his opponent, former Vice President Joseph Biden as being “soft on China” in a recent Rose Garden event. The Biden campaign has responded with an ad that accuses the president of “rolling over for the Chinese.” Neither side is likely to take a more conciliatory tone with China in the months leading up to the election.

All signs point to a return of trade tensions between the two largest global economies. A decoupled global market for goods and services could have massive implications for goods and services sold worldwide.

The tensions also come at a difficult time for China. While the country reported real GDP growth of 3.2% in the second quarter, consumer demand remains soft. Technology represents one of the few bright points for a Chinese economy facing continuing headwinds. Rising demand for technology products is boosting electronics, according to S&P Global Ratings.

The China Senior Analysts Group of S&P Global, wrote in a special report last year: “As the focus broadens from trade to technology, the stakes for China rise. China's rebalancing and catch-up to rich countries relies, perhaps more than anything else, on the rapid and efficient deployment of new technology across its economy.”

S&P Global Market Intelligence has reported that China's digital economy will reach $9.13 trillion (60 trillion Chinese yuan) by 2025. However, U.S. opposition toward Chinese technology companies such as Huawei, and a perception that China is failing to protect intellectual property, may hamper China’s ability to grow a global technology footprint. The British government’s recent decision to ban Huawei from participating in its 5G network is believed by some political observers to be the product of pressure brought to bear by the Trump Administration.

Today is Friday, July 24, 2020, and here is today’s essential intelligence.

Uncertainty in the Global Economy

The Essential Podcast, Episode 17: The Collapse of Cushing – April 20th and the U.S. Oil Market

How did a small town in Oklahoma and a group of inexperienced oil traders nearly sink the U.S. oil market and drive the price of oil to a point where it was cheaper than free? Dave Ernsberger and Richard Swann of S&P Global Platts join the Essential Podcast to explain what went wrong on April 20th and how a new benchmark for U.S. crude can integrate effectively with the global market.

—Listen and subscribe to The Essential Podcast

U.S. Economic Update: A Recovery At Risk As COVID-19 Surges

With the number of COVID-19 cases climbing nationally at a dramatic rate, uncertainty for the U.S. economy is elevated again. High-frequency real-time economic data, which first hinted at a start of normalization in May, now suggests that the recovery may be losing steam. While it may be premature to sound the alarm for an even worse outcome, the recovery is facing increased challenges with the spread of COVID-19. This is all while government stimulus measures are set to expire.

—Read the full report from S&P Global Ratings

Oil complex retreats as economic uncertainty clouds demand outlook

The oil complex settled lower July 23 as demand outlook came under pressure amid growing economic uncertainty following a weak US jobs report. NYMEX September WTI settled 83 cents lower at $41.07/b and ICE September Brent was down 98 cents on the day at $43.31/b. Oil futures, which were already trending off overnight highs, turned lower ahead of US trading after US Labor Department data showed initial unemployment claims climbed to 1.416 million in the week ended July 18.

—Read the full article from S&P Global Platts

Leveraged Finance: U.S. Leveraged Finance Q2 2020 Update: Recovery Ratings Maintain Social Distance From Credit Impact Of COVID-19 Pandemic

The COVID-19 pandemic, which ended the longest economic expansion in the U.S., appears to be far from over, even as the economy emerges from possibly the shortest recession in the U.S. history. In its wake, the pandemic has caused material damage to the business and creditworthiness of companies in almost all corporate sectors, though speculative-grade companies have borne the brunt of it. With states gradually opening up and lifting lock down measures, albeit in fits and starts, the initial liquidity crisis has given way to a long, slow, and difficult road to recovery for U.S. corporates.

—Read the full report from S&P Global Ratings

Banking Sector Under Pressure

Coming bank branch purge means perils, opportunities for landlords

Fewer and fewer bank customers are visiting branches to make a deposit or cash a check, and their proclivity to bank virtually will exacerbate the challenges landlords already face repositioning vacant commercial space. Banks had been trimming their fleets of branches for years before the novel coronavirus upended the U.S. economy, as customers migrated to increasingly sophisticated digital banking services. "Certainly for the last six or seven years, the amount of new lifetime value — new deposits, new customers — that the branches bring in has been declining," Kevin Travis, a senior partner at New York-based financial institution consulting firm Novantas, said in an interview.

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

Central Banks In Africa Are Guiding Banks Through COVID-19’s Economic Fallout

Banks operating across Africa will face challenges for the foreseeable future as they steer through the ill-effects of the coronavirus pandemic and the collapse of oil prices in 2020. Support from governments could help, but their responses are constrained by limited fiscal space and hinge on sources of external support. Conversely, central banks have been proactive, swiftly cutting interest rates and injecting liquidity. Some African economies are particularly vulnerable to the current crisis because of their reliance on commodity exports, tourism, and remittances, as well as external financing needs.

—Read the full report from S&P Global Ratings

Polish bank shares lag main European index ahead of Q2 earnings

Shares in Polish lenders fell at the onset of the coronavirus pandemic in March and three interest rate cuts in as many months have stifled their recovery, leaving them largely lagging the EURO STOXX index ahead of second-quarter earnings. The second-quarter net profit of the nine listed Polish banks is expected to slump 55% year over year, news agency PAP said. Lenders in Poland face several challenges including legal disputes relating to Swiss franc-indexed mortgages, higher loan losses stemming from the COVID-19 crisis, the economic health of the country and how many borrowers restore payments after loan holidays end.

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

Singapore banks to remain major trade financiers as global commerce returns

Singapore's local banks will likely see growth return in their trade financing business once global commerce flows resume, given the island nation's unique geographical position as a major transshipment hub, analysts say. The COVID-19 pandemic has hurt global trade flows this year, and Southeast Asia has been no exception. Singapore's three banks — DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. Ltd. and United Overseas Bank Ltd. — are active trade financiers and are expected to have faced the drag from slower shipments. But, as nations emerge from stricter lockdowns and global trade starts to flow again, Singapore will likely gain from a new cycle of imports and exports once households resume buying and demand returns.

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

Technology & Innovation

Delays, misfires mark Amazon's early gaming forays, but analysts urge patience Inc. planned for 2020 to mark its triumphant entry into PC gaming. Now, that seems unlikely — and it's not because of the COVID-19 pandemic. The company's video game development division, Amazon Game Studios, released its first PC title "Crucible" on May 20, but then withdrew it back to closed beta July 1 after the free-to-play multiplayer shooter game failed to generate much player interest. Its other planned PC titles, "New World," a multiplayer online role-playing game, and "Pac-Man Live Studio," a refresh of the iconic Pac-Man franchise, both missed their original 2020 launch dates.

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

With maturation of cryptoasset sector comes demand for insurance

Global insurance brands and experienced hands are venturing into the cryptoasset business to offer coverage with a mix of established commercial products and technology-backed risk management. For cryptoasset companies, the hope is that insurance can provide legitimacy and investor reassurance to an asset class and currency often not well-understood and frequently associated with criminal enterprises. Meanwhile, insurance players from New York to London are wading into a sector where underwriting is untested but rich starting premiums are on offer to cover a market of a quarter with a trillion dollars of assets.

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

ESG in the Time of COVID-19

Environmental, Social, And Governance: Why Corporations' Responses To George Floyd Protests Matter

The horrific May 25 death of George Floyd, an unarmed black man, while in Minneapolis police custody, sparked protests across the U.S. This incident came at a time when many communities were already reeling from the economic and social impact of the COVID-19 pandemic, particularly on people of color, and it was captured on video for the world to see. Thousands of people hit the streets carrying placards saying Black Lives Matter, igniting a movement that has spread to other countries and gained support from many public figures.

—Read the full report from S&P Global Ratings

Public focus on equality opens doors for some Black-owned banks

The number of Black-owned banks in the U.S. has been dwindling, but recent regulatory changes and momentum to fight social injustice are creating some tailwinds for the minority depository institutions. Since 2002, the number of Black-owned banks has fallen 47.5% to 21 as of March 31, according to an analysis by S&P Global Market Intelligence. However, the death of George Floyd while in police custody ignited nationwide protests against racism, and for some Black-owned banks, the focus on race and equality is translating to new business.

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

The Future of Energy & Commodities

Listen: Metals trade insights as markets emerge from coronavirus lockdowns

China appears to be almost singlehandedly supporting global metals prices on the back of a return to high levels of industrial activity. But other Asian markets are still slowly emerging from COVID-19 related lockdowns. How is this impacting iron ore, steel, coking coal, scrap and alumina demand and prices? Julien Hall, director of Metals for APAC, S&P Global Platts, and Paul Bartholomew, head of metals news and insight, APAC, Platts, discuss key findings from the latest quarterly spot market trade reviews, and ponder the implications of these on the current quarter.

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

Dow Chemical sees recovery starting for durable plastics amid pandemic

Dow Chemical is seeing early signs of recovering demand in automotive, construction, furniture and bedding markets as economies worldwide emerge from widespread coronavirus pandemic-related shutdowns during the second quarter of 2020, company executives said July 23. The company has restarted two polyethylene plants in Texas and a third in Argentina that were shut in April to keep inventories in check amid low demand. Operating rates for the company's ethylene and PE facilities have rebounded to year-ago levels, CEO Jim Fitterling said during the company's second-quarter 2020 earnings call.

—Read the full article from S&P Global Platts

Crude oil prices rise on coronavirus vaccine hopes

Crude oil futures were higher in Asia afternoon trade July 23 as the market reacted positively to news of further developments in the race for a COVID-19 vaccine, after they slipped overnight following a bearish US stock build. At 2:11 pm Singapore time (0611 GMT), ICE September Brent crude futures rose 13 cents/b (0.29%) from the July 22 settle at $44.42/b, while the NYMEX September light sweet crude contract rose 13 cents/b (0.31%) at $42.03/b.

—Read the full article from S&P Global Platts

Diesel and gasoil fortunes diverge as lockdowns ease

As Europe emerges from its COVID-19 lockdown, diesel demand is flickering back to life. But can the same be said for gasoil? S&P Global Platts reporters Virginie Malicier and Harry Morton discuss with Joel Hanley how European distillate markets have reacted to the Coronavirus pandemic, and the prospects for a swift recovery.

—Listen and subscribe to Oil Markets, a podcast from S&P Global Platts

Written and compiled by Molly Mintz.