COVID-19 Daily Update: April 10, 2020

As hard-hit countries strive to establish the criteria upon which they will reopen their economies and lift lockdown restrictions, the known number of deaths due to coronavirus surpassed 101,700 and the total of confirmed cases has reached 1.67 million, according to Johns Hopkins University data. The global economy is freezing as preventative measures to protect populations from infection boost unemployment levels and diminish economic activity. While market volatility is increasing, with equity markets befuddling participants and observers with erratic fluctuations, the oil market has finally found a kind of tranquility after a weeks-long price war.

“Global debt across all sectors rose by over $10 trillion in 2019, topping $255 trillion. At over 322% of GDP, global debt is now 40 percentage points ($87 trillion) higher than at the onset of the 2008 financial crisis—a sobering realization as governments worldwide gear up to fight the pandemic,” according to a report by the Institute of International Finance.

“There’s no exit strategy until you’re in control of the situation,” the World Health Organization’s health emergencies program head, Mike Ryan, said. W.H.O. Director-General Tedros Adhanom Ghebreyesus said that lifting restrictions too quickly could create a “deadly resurgence” of coronavirus cases and that “no country can claim it has a strong public health system.”

U.S. President Donald Trump said today the administration would create a task force to determine when to reopen the country. Approximately 17 million Americans have filed for unemployment over the past three weeks. The U.S. features the world’s greatest numbers of confirmed cases, at approximately 486,700. The death total in New York, the state at the epicenter of the U.S.’s crisis, dropped slightly after three days of record deaths, but New York City is digging mass graves to accommodate the already-full morgues. The crisis is disproportionally effecting minority populations of lower socioeconomic status. Every U.S. state with available data shows both higher coronavirus contraction and death rates for black Americans, according to the Brookings Institution. “Health disparities have always existed for the African-American community,” said Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases. He said that the crisis is “shining a bright light on how unacceptable that is because… when you have a situation like the coronavirus, they are suffering disproportionately.”

Late last night, representatives from 19 of the E.U.’s member countries agreed on an immediate €500 billion economic stimulus, after talks stalled on Wednesday. This package brings the Eurozone’s total fiscal response to the crisis to €3.2 trillion, not including each nation’s individual actions. “With this unparalleled package we shoulder the burden of the crisis together. This compromise is aimed at quick targeted relief,” European Council President Charles Michel said in a statement, describing the package as “a significant breakthrough" that will “shield European Union countries, workers, and businesses.” E.U. leaders will meet via videoconference on April 23 to discuss whether to set up a temporary relief fund.

Italy, the nation most impacted by the pandemic, extended its nation-wide lockdown by three weeks to May 3. In the U.K., which reported its highest daily death toll to date, Prime Minister Boris Johnson “has been able to do short walks, between periods of rest, as part of the care he is receiving to aid his recovery” from coronavirus after being moved from intensive hospital care, according to a spokesperson. French officials said signs that the country’s outbreak is starting to slow are apparent in the two consecutive days of lower numbers of seriously ill patients.

Moscow’s mayor, Sergei Sobyanin, announced the closure of non-essential businesses from April 13 to 19 and said the Russian capital will introduce a digital pass system starting Monday to enforce the movement restrictions. At least 150 members of the Saudi Arabian royal family are believed to have the virus. Despite having fewer confirmed cases than the U.S. and Europe, Latin America has a limited infrastructural capacity, from medical professional and hospital bed shortages to insufficient fuel storage. The March 24, 2020, closing price of MXN 25.1185 per USD 1 was the worst official closing level for the Mexican peso in March, cementing the currency as the most affected in Latin America during the month, according to S&P Dow Jones Indices.

After their marathon videoconference meeting on Thursday to negotiate an end to Russia and Saudi Arabia’s oil price war, a total of 23 OPEC and OPEC+ countries agreed to cut production by 10 million b/d in May and June. Russian energy minister Alexander Novak said today the cuts would remain in force until May 1, 2022; from July until the end of this year the combined cut would by 8 million b/d and from the start of 2021 until May 2022, the cut will be 6 million b/d, according to S&P Global Platts. Mexico had stalemated talks yesterday with the alliance members over the deal’s quota, but today agreed to cut 100,000 b/d of its crude oil production, following an intervention by President Donald Trump to heal the rift in the group. Backed by the G20 and U.S., the deal marks the largest oil supply agreement in history.

Today is Friday, April 10, 2020 and here is essential insight on COVID-19 and the markets.

GLOBAL ECONOMY

Novak calls for creation of G20 committee to coordinate cooperation on stabilizing energy markets

Russian energy minister Alexander Novak called Friday for the G20 to create a committee to monitor and coordinate cooperation on stabilizing global energy markets, during a speech at the opening of the G20 energy ministers meeting. "It is necessary to establish an effective mechanism for monitoring and developing the necessary response measures," Novak said. He added that all interested countries should take part in the G20 committee, including those who take on obligations to balance the market as well as relevant international energy organizations.

—Read the full article from S&P Global Platts

Mexico agrees to slash 100,000 b/d in deal with OPEC brokered by Trump

Mexico has agreed to cut 100,000 b/d of its crude oil production as part of an OPEC+ pact to take 10 million b/d of global supply off the market, following the intervention by US President Donald Trump to heal a rift in the group, Mexican President Andres Manuel Lopez Obrador said Friday. Mexico had been at loggerheads with Saudi Arabia, Russia and the rest of the OPEC+ alliance over its quota under the deal, dragging out negotiations for more than nine hours Thursday.

"[OPEC+] asked us for a 23% reduction like that of Saudi Arabia," Lopez Obrador said at a press conference. "They asked us for 400,000 barrels less and then 350,000 barrels less. President Trump spoke with us and an agreement of 100,000 barrels was reached." The US is not part of the OPEC+ alliance, but Trump has pressured Saudi Arabia and Russia, the two largest producers in the group, to end their price war and forge a landmark pact on output cuts to help bolster the ailing oil industry -- a key constituency for the president's electoral prospects.

—Read the full article from S&P Global Platts

Coronavirus market conditions to push copper supply to surplus: S&P Global Market Intelligence

Depressed economic conditions are expected to push 2020 global refined copper supply into a surplus after a reported deficit in 2019 as the coronavirus pandemic pressures industrial metal demand, especially in China, S&P Global Market Intelligence analysts said Thursday.

"On the supply side, China's output of copper cathode has been under pressure as some smelters trim output due to swelling inventories of by-product sulfuric acid, which has reduced storage capacity for new metals output," Market Intelligence analyst Jason Sappor said during a webinar panel discussion focusing on the pandemic's impact on metals markets. "We have therefore forecast the global refined copper market to record a surplus of 22,000 mt in 2020 compared to our previous expectations of a 41,000 mt deficit."

Market Intelligence analyst Thomas Rutland said the surplus would also be fueled by an expected 3.3% year-on-year decrease in Chinese copper demand to 11.1 million mt due to a drop in China's GDP growth forecast and lower-than-expected economic stimulus measures implemented by the Chinese government.

—Read the full article from S&P Global Platts

PODCAST OF THE DAY

The Essential Podcast, Episode 3: The New Not-Normal – Technology and Infrastructure in Coronatime

Host Nathan Hunt interviews Liam Eagle, research vice president at 451 Research, part of S&P Global Market Intelligence, to understand how the COVID-19 crisis is changing enterprises and the ways we all work. 

Listen and subscribe to this podcast on Spotify, Apple Podcasts, Google Play, Google Podcasts, Deezer, and our podcast page. 

The Essential Podcast from S&P Global is dedicated to sharing essential intelligence with those working in and affected by financial markets. Host Nathan Hunt focuses on those issues of immediate importance to global financial markets – macroeconomic trends, the credit cycle, climate risk, energy transition, and global trade – in interviews with subject matter experts from around the world.

—Subscribe to The Essential Podcast from S&P Global

EMERGING MARKETS

Oil crisis, project delays will not derail Exxon-Hess development in Guyana

On the precipice of a production boom that could transform its struggling economy, Guyana has attracted the drillbits of some of the largest international oil companies in recent years. Now, amid a collapse in global oil demand that has devastated crude prices and forced producers to make massive capital spending cuts, analysts say some projects in Latin America are no longer economical and will be delayed or suspended. In addition, the outcome of Guyana's March 2 presidential election is still unknown and could affect the country's production-sharing contract with majors Exxon Mobil Corp. and Hess Corp.

Both companies, though, have a long-term view of the hot oil-rich frontier region off the coast of South America and will not be deterred. More than 8 billion barrels of recoverable oil have been discovered in the region's Stabroek Block so far.

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

Feature: Latin America continues to adjust to coronavirus fallout

Reported cases of coronavirus continue to climb throughout Latin America and countries in the region are tightening restraints to curb the outbreak, drastically affecting economies on all fronts in the process. Despite having less confirmed cases than the US and Europe, Latin America has a significantly more limited infrastructural capacity, from medical professional and hospital bed shortages to insufficient fuel storage. According to Johns Hopkins University, as of Thursday, there were 42,281 confirmed coronavirus cases in Latin America, including 3,181 cases in Mexico, the single largest buyer of US refined products. With stay-at-home orders now in full effect, and some countries increasing restraints, regional markets are seeing a dramatic drop in fuel demand, in turn creating a storage shortage as stocks build up.

One of the last countries to issue stay-at-home orders, Mexico finally implemented one on March 27. The previous week had already begun to see effects of the anticipated order, as it closed with gasoline imports falling to the lowest level since June 2019, according to energy ministry data. Brazil's state-led oil company Petrobras set a production target of 2.07 million b/d for April amid a lack of crude oil storage capacity and reduced domestic demand for refined products, the company said Tuesday. The company slashed investments to $8.5 billion from $12 billion and cut oil output by 200,000 b/d in two separate moves less than a week apart in late March and early April. Argentina's government implemented an obligatory quarantine on March 19, which has wreaked havoc on domestic consumption levels and limited production capacity. S&P Global Platts Analytics had forecast a decrease of 2%-4% of Colombian crude output by the end of the year, in line with a 1.6% decrease in February, and recent developments have only aggravated the situation, causing its top two crude producers to announce a slash in capital investment. Peru implemented a nationwide lockdown to curb coronavirus contagion on March 15, issuing a state of emergency and closing its land, sea and air borders. Venezuela's oil industry had already been crippled largely by US sanctions prior to the virus outbreak, with refineries operating well below capacity and crude exports severely limited.

—Read the full article from S&P Global Platts

EUROPE

European utilities tap bond market to help ride out coronavirus volatility

Utilities in Europe have raised billions in fresh debt over the past few weeks to shore up their finances as they cope with a host of challenges brought on by the coronavirus pandemic. The recent bond bonanza among electric and multi-utilities peaked April 7, when Portugal's EDP - Energias de Portugal SA, Germany's EnBW Energie Baden-Württemberg AG and Britain's SSE PLC raised almost €2.5 billion between them.

The busy day in new issuances capped a four-week period in which some of the sector's biggest names headed to the capital markets for new financing lines, with green bonds issued by the likes of Spain's Iberdrola SA, Germany's E.ON SE, France's Engie SA and Swedish state-owned Vattenfall AB. Spanish gas utility Naturgy Energy Group SA and water and waste groups such as Veolia Environnement SA and Suez SA have also ramped up their debt funding in recent weeks. Analysts said the issuances showed utilities' relative resilience to the coronavirus and the economic shock the pandemic has wrought across the globe, thanks to solid investment-grade ratings and a large share of regulated revenue that is insulated from the broader market turmoil.

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

Spanish banks have little room to maneuver in case of coronavirus capital crunch

Spain's largest banks had the weakest capital positions among EU lenders at the onset of the coronavirus outbreak, leaving them little room to maneuver in the event of a capital crunch during the pandemic, according to S&P Global Market Intelligence data.

Banco Santander SA ranked bottom among Europe's 40 biggest banks, with its common equity Tier 1 ratio — a key measure of capital strength — standing at 11.41% at the end of the 2019 fourth quarter. Banco Sabadell SA was second from the bottom at 11.71%, and Banco Bilbao Vizcaya Argentaria SA next at 11.74%. CaixaBank SA was fourth from the bottom at 12.03%. State-controlled Bankia SA fared better, taking the 12th-from-last place, having rebuilt its capital following a €22 billion government bailout in 2012. By contrast, Finland's OP Financial Group topped the list, with a ratio of 19.50%.

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

UNITED STATES

Servicer Evaluation Spotlight Report™: U.S. Residential Mortgage Servicers Gear Up To Face COVID-19 Related Challenges

U.S. residential mortgage servicers will need to address what is almost certain to be an unprecedented number of loss-mitigation assistance requests by borrowers as a result of fallout from the COVID-19 pandemic. Servicers may not have adequate staff in place to handle the vast work volumes, and the enormous amounts of forbearance requests will result in very large sums of capital needed to meet servicers advancing requirements. It is still way too early to tell if the new borrower mortgage assistance programs and lessons learned from the Great Recession will be enough to help servicers manage through these trying and uncertain times.

The COVID-19 pandemic has spread like wildfire throughout the world, hobbling the global economy. The resulting market disruption is being felt by many businesses and consumers, including residential mortgage servicers and borrowers. The virus has also resulted in a majority of the U.S. population under some form of shelter-in-place or similar order, with nonessential businesses closed and millions of people being furloughed or laid off in different sectors of the economy. An even less rosy picture is painted by the numbers, with the March 2020 unemployment rate at 4.4%, according to the U.S. Bureau of Labor Statistics. For the three weeks ending April 4, a record 16 million Americans filed claims for unemployment benefits, according to the U.S. Department of Labor. S&P Global Ratings projects the unemployment rate to dramatically increase in the second quarter, to 10.1%, then moderate to 6.9% in the third quarter. S&P Global Ratings' recent U.S. Biweekly Economic Roundup noted: "We had earlier expected a cumulative 16.5 million jobs lost by May when all is said and done with social distancing, but job losses are coming at a faster pace and sooner than we initially thought. Unfortunately, they could be much greater and, while once unthinkable, we now expect over 20 million jobs lost by May."

—Read the full report from S&P Global Ratings

Assessing The Potential Credit Effects Of COVID-19 On U.S. ABCP

While the COVID-19 pandemic is having a broad impact upon global structured finance markets, the magnitude of the impact varies by industry, geography, and rating. For U.S. asset-backed commercial paper (ABCP) sector, the credit quality of the issuances remains stable, based on the percentage of fully supported transactions; structured finance asset sector exposure for the partially supported transactions; high investment-grade ratings on banks and non-bank institutions providing liquidity support to the U.S. ABCP programs; and extensive experience of bank and non-bank sponsors.

While securitized assets are sensitive to the macroeconomic stress induced by COVID-19, the credit quality of U.S. ABCP issuance remains stable. From the total outstanding 48 ABCP programs, 85 % are fully supported by liquidity, while the remaining 15% are well-diversified partially supported assets, with the largest sector being autos at 7.55%, including subprime (1.5%). Overall exposure in the ABCP programs to subprime autos, which may have a greater negative performance impact and may be at greatest risk in the non-investment-grade ABS classes, is less than 2%, with enhancement commensurate at 'A' level or higher. Banks and non-bank institutions providing liquidity to U.S. ABCP programs are diversified and highly rated entities, and a one-notch movement of the long-term rating may not necessarily lead to a change in the short-term rating based on our linking methodology.

—Read the full report from S&P Global Ratings

Media, broadband groups push for additional funding in next stimulus bill

As Congress mulls over the need to pass another coronavirus relief package, telecommunications and media organizations are clamoring for additional funding. U.S. President Donald Trump signed a $2.2 trillion coronavirus relief package, known as the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, into law March 27 to provide financial assistance to workers and businesses across the U.S. While the bill provided money for public broadcasting, rural broadband and telehealth services, trade groups are urging Congress to add further funding support for local media and the broadband industry in any subsequent stimulus bill.

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

US EPA opens door to waivers for coronavirus, but observers downplay impact

The Trump administration in recent days has signaled it could give vast swaths of the U.S. economy, including the energy sector, waivers from certain federal environmental regulations in response to the coronavirus pandemic.

However, several industry experts are downplaying the potential impacts of the move, predicting that not many companies will seek to capitalize on relaxed environmental oversight. The U.S. Environmental Protection Agency has historically, and on a case-by-case basis, granted narrowly tailored waivers known as no action assurances to certain entities and locations during natural disasters to ensure the continued operation of critical energy infrastructure. While the EPA has yet to grant any no action assurances for COVID-19-related reasons, EPA enforcement officials have recently indicated that the agency is now willing to do so for any facility considered critical to public safety and national security, including energy, agriculture, waste, manufacturing, chemicals and hazardous materials.

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

As US utilities prepare for downturn, 'liquidity is paramount

U.S. investor-owned utilities continue to have access to capital but are taking precautions to maintain liquidity in an increasingly perilous economy wrought by the novel coronavirus. Nearly all the large-cap utilities have raised new debt in the past two weeks, CreditSights analyst Andrew DeVries said. Several of these companies, including Exelon Corp. and Southern Co., ended the first quarter with multibillion-dollar debt offerings, which is "definitely not normal to come at the end of the quarter."

So far in 2020, U.S. utilities have collectively raised more than $25 billion, including roughly $15 billion in March alone, according to Scotia Capital (USA) Inc. analyst Andrew Weisel. Banks also have stronger balance sheets and capital positions compared to 2008 and 2009, giving utilities open access to bond markets.

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

Bank stress tests don't account for pandemic but may still offer benefits

The Federal Reserve's upcoming stress tests of the largest U.S. banks will have one crucial limitation: they will not examine how banks would withstand a pandemic-induced recession. But there may still be some benefits to moving forward with the annual stress tests, analysts say, such as providing more transparency into the state of bank balance sheets and potentially offering another chance to signal that banks are much healthier today than in 2008.

The annual exams test the ability of banks to withstand a hypothetical "severely adverse" scenario the Fed designs, with consequences attached to falling short on key metrics. The conjured scenario for this year is dire: a U.S. recession in which the unemployment rate peaks at 10%, stock prices drop by 50% and commercial real estate prices fall 35%, among other things. Still, those numbers are starting to look rosy compared to the actual situation U.S. banks are likely to face this year, so it is "safe to assume that most banks would be happy" if the economic damage is limited to the scenario the Fed designed, said Laura Brown, a managing director at Protiviti who advises banks on risk and compliance issues.

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

Auto industry not a likely problem for banks in COVID-19 pandemic – experts

The ongoing coronavirus pandemic is putting pressure on the U.S. auto industry as vehicle demand drops and production is halted, but experts say banks giving loans in the auto sector might not face much trouble.

Experts are forecasting that auto sales will drop by millions of vehicles in 2020 as the pandemic has locked down consumers across the globe. Some automakers have tapped their credit lines to the tune of billions in cash to help weather uncertain times, though experts say such credit should be used only if companies run out of money to clear debt payments, which is an unlikely scenario. Even with temporary production shutdowns in North America, automakers are likely to continue paying their bills, experts say.

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

Pandemic, economic uncertainty slow US private equity deal activity in Q1

Private equity deal activity in the U.S. got off to a slow start in the first quarter of 2020, though fundraising in the period outpaced year-ago amounts. Entry deal volume was down 21.68% year over year to 1,174 transactions announced in the first quarter, according to S&P Global Market Intelligence data. Gross transaction value for private equity entries during the first quarter was $45.85 billion, down from $50.06 billion across 1,499 deals announced in the same period in 2019. Quarter over quarter, entry deal volume dropped 4.63% from 1,231 deals, but gross transaction value was up 8.03% from $42.44 billion in the fourth quarter of 2019.

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

USDA raises US wheat 2019-20 ending stock estimates; virus concerns boost export prices

The US Department of Agriculture raised US wheat ending stock estimates for the 2019-20 marketing year (June-May) from March by 3.2% to 26.4 million mt (970 million bushels), according to its World Agricultural Supply and Demand Estimates report released Thursday. The biggest increase in the ending stock levels was seen for the Hard Red Winter wheat grade, the USDA said. HRW ending stock estimates were about 4% higher from March levels, at 13.7 million mt.

—Read the full article from S&P Global Platts

CHART OF THE DAY

Food in Focus: March consumer prices rise, but COVID-19 dings data collection

On-the-shelf U.S. grocery prices rose faster than wholesale costs in March. But the monthly estimates came with more qualifications than usual as the novel coronavirus hindered on-the-ground documentation of food prices. The difference between year-over-year changes in consumer food prices and wholesale costs turned positive in March for the first time since May 2019, according to data from the U.S. Bureau of Labor Statistics, or BLS. While the final-demand food index of the producer price index, or PPI, rose 0.8% during the month, the food at home index of the consumer price index, or CPI, advanced 1.1% over the same period, BLS said.

Grocery analysts use the difference between the two metrics to evaluate the state of supermarkets' profit margins. For March, the difference was positive by 0.3 percentage point, suggesting that, in aggregate, grocers' margins improved. But BLS cautioned that the spread of COVID-19 curtailed the bureau's normal data collection during the month. Work-at-home requirements for federal employees forced the BLS to pause in-person data collection trips to stores for the CPI on March 16. For the remainder of the month, it collected data remotely through phone calls and company websites. This methodological detour coincided with a surge in grocery sales during the month as consumers stocked up to comply with stay-at-home orders and restaurants halted dine-in services or shuttered completely.

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

Coronavirus kicks casual dining to the curb

Casual dining chains could be one of the hardest-hit segments of the U.S. restaurant industry as it suffers from a massive drop in customers during the outbreak of the new coronavirus, experts say. The restaurants, which have long counted on in-person traffic, are ramping up their delivery and curbside takeout offerings as stay-at-home measures and business restrictions keep diners away. Sit-down restaurants have long experimented with their own delivery services or partnerships with third parties like Uber Technologies Inc.'s Eats service, Grubhub Inc. and Postmates Inc. But experts say those full-service chains will be more challenged by a switch to drive-thru or delivery as their takeaway offerings are less robust than their quick-service peers.

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

Written and compiled by Molly Mintz.