COVID-19 Daily Update March 30, 2020

In response to the ongoing impact of the coronavirus pandemic on economic activity and financial markets, S&P Global Ratings has lowered our forecast for global growth to just 0.4% this year, with a projected rebound to 4.9% in 2021. Central banks and governments have moved quickly to keep the financial system functioning, protect the most vulnerable and highly affected groups, and provide a bridge to an eventual recovery. The risks to S&P Global Ratings’ baseline forecast remain firmly on the downside since the translation from health outcomes to economic variables remains uncertain.

In the immediate term, the devastation of the COVID-19 outbreak is visible in the U.S. and Europe.

Governors across the U.S. are requesting essential life-saving equipment, including ventilators, from the federal government as cases rise. Of the world’s approximate 777,200 confirmed cases, the U.S. has 159,000—about 20% of the total. Roughly, 75% of Americans have been instructed to remain in their homes. More and more state and municipal governments have announced lockdown measures aimed at quelling the virus’ spread. The Trump Administration has not called for a nationwide shelter-in-place order. Dr. Anthony Fauci, a key member of the White House’s coronavirus task force, warned of millions of cases and as many as 200,000 deaths in the U.S., but stressed that the actual outcome can’t yet be known.

The private sector has stepped up to aid those affected by the virus and the efforts to contain its spread. In the U.S. and around the globe, other large corporations are converting their factories to produce essential products and personal protective equipment for the healthcare professionals at the forefront of the crisis.

While the World Health Organization said the peak of Europe’s outbreak might be near, France reported its highest daily death toll; 418 people died there today from the coronavirus. There are almost 45,000 confirmed cases of infection across France. Spain rolled out tighter restrictions on its population in an attempt to reduce the immense pressure on hospitals. Italy’s death toll continues to rise, but at slower rates than in previous days.

These lockdowns and losses of life have affected industries and individuals alike. Tourism and auto sectors are bearing the brunt of the downturn, while oil and energy markets remain in crisis. S&P Global Platts crude benchmark Dated Brent fell below $20/b today for the first time since February 2002.

Today is Monday, March 30, 2020, and here is essential insight on COVID-19 and the markets.

GLOBAL ECONOMY

Economic Research: The Escalating Coronavirus Shock Is Pushing 2020 Global Growth Toward Zero

As the spread of COVID-19 goes global, the economic effects of social-distancing measures to contain the virus, along with plummeting consumer and business confidence, have delivered a sharp blow to near-term growth prospects and roiled financial markets. In addition to the fast-rising human toll of the virus, we are entering a period of unprecedented rates of decline in economic activity and financial-asset prices, and equally fast and unprecedented policy responses to both combat and offset these declines.

The recent extraordinary movements in key economic and financial variables include: U.S. jobless claims surging to 3.3 million for the week ended March 21, more than four times the 1982 record; China's January-February fixed-asset investment falling 45% year on year, industrial production slipping by 14%, and retail sales dropping 21%—declines not seen since the reform era began in the late 1970s; capital outflows from emerging markets far outpacing any previous global crisis episode; and the benchmark S&P 500 index tumbling 30% in a record 22 trading days, while the VIX measure of volatility spiked to levels not seen since the Global Financial Crisis.

—Read the full report from S&P Global Ratings

CHART OF THE DAY

COVID-19: Coronavirus-Related Public Rating Actions On Corporations And Sovereigns To Date

In response to investors' growing interest in the COVID-19 coronavirus and its credit effects on companies, S&P Global Ratings is publishing a regularly updated list of rating actions we have taken globally on corporations and sovereigns. For this report, S&P Global Ratings also included a summary of project finance rating actions. These are public ratings where S&P Global Ratings mentions the COVID-19 coronavirus as one factor or in combination with others.

—Read the full article from S&P Global Ratings

Tourism to bear the brunt of coronavirus downturn, says Alpha Bank

Tourism, along with transport and shipping, will bear the brunt of the economic downturn caused by the novel coronavirus outbreak, Alpha Bank AE chief economist Panagiotis Kapopoulos warned.

"The sector is confronted with a considerable reduction in international arrivals as we expect cancellations and a drop in bookings from, for example, American, Japanese, Chinese and South Korean travelers," Kapopoulos said during a March 27 earnings call, adding that EU arrivals have ground to a halt as the result of national-level travel bans.

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

Global exploration activity bound for 'hard' hit in 2020

Analysts expect activity in the exploration sector to crumble in 2020 as financings dry up and miners look to conserve capital amid falling industrial metal prices and in response to pandemic measures aimed at containing the coronavirus outbreak. "Exploration is going to get hit pretty hard in 2020," S&P Global Market Intelligence mining analyst Kevin Murphy said. "We all know that when companies go into cash preservation mode, one of the first things that gets reduced is exploration."

The outlook for the sector remains uncertain as the coronavirus pandemic and its knock-on economic effects are still unfolding, but smaller explorers already look to be curtailing activity, in part because travel bans have made running fieldwork difficult.

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

Goods shortage around COVID-19 outbreak a fluke, not a major supply chain issue

Cold storage has emerged recently as a favored niche of the darling industrial real estate segment, a major beneficiary of the growth of e-commerce. In the cold storage sphere, Americold Realty Trust is a dominant player and the only public real estate investment trust. S&P Global Market Intelligence caught up with Fred Boehler, Americold's president and CEO, to discuss the growth of the business and how the COVID-19 outbreak might have changed its trajectory. This article includes an edited transcript of that conversation.

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

Coronavirus hits February auto sales as most major markets report declines

New vehicle sales dropped year over year in Europe, China and Japan in February as the coronavirus spread and global economic conditions started to weaken, according to an analysis by S&P Global Market Intelligence. U.S. auto sales, meanwhile, rose during the month. But experts say March data could reflect a decline as states ramped up efforts to keep people at home.

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

Oil demand, price forecasts continue to be cut as US extends lockdown

Predictions over collapsing global oil demand due to the spread of coronavirus are continuing to spiral, further depressing oil price forecasts, after the US extended its latest lockdown guidance. Brent crudes futures fell $2.35/b to a new 17-year low at $22.58/b Monday after US President Trump announced plans to extend social distancing in the world's biggest oil consumer until April 30. Trump had previously said he hoped the restrictions could begin to be lifted by the Easter weekend, or April 10-13.

Most market-watchers expected the lockdowns to continue to roll on for much longer, however, further denting oil demand expectations this year. This week, global oil demand will drop by 26 million b/d, or 25%, as social-distancing measures to contain the coronavirus now impact 92% of global GDP, Goldman Sachs said in a note Monday.

—Read the full article from S&P Global Platts

Dated Brent falls below $20/b Monday, first time since Feb 2002

S&P Global Platts crude benchmark Dated Brent fell below $20/b Monday for the first time since February 2002. Dated Brent was assessed by Platts at $17.79/b Monday, down $3.31/b day on day. The last time the benchmark was assessed below $20/b was February 25, 2002, when it was assessed at $19.63/b.

The benchmark was last assessed lower than Monday's level on December 13, 2001, when it was assessed at $17.55/b. This follows the benchmark falling below $30/b on March 16, $40/b on March 9 and below $50/b on March 6. The benchmark has fallen over 65% since March 5.

—Read the full article from S&P Global Platts

ASIA PACIFIC

Credit Conditions Asia-Pacific: As Bad As 1997

Credit conditions in Asia-Pacific going into the second half 2020 look tough. The COVID-19 pandemic and increasing attendant health controls across Asia-Pacific ex-China are dampening business and consumer sentiment and movement of people and goods. The consequent demand shock is translating to an environment as challenging as the Asian Financial Crisis of 1997-1998.

The quarantine of about three-fifths of Americans, either voluntarily or by mandate, has led to a sudden stop in economic activity across the country. That has left the U.S. grappling with possibly the largest economic contraction on record and the highest unemployment rate on record, going back to 1948. (The unemployment rate was 25% in 1933, during the Great Depression, according to the census. Given many unemployed were probably not counted back then, the actual unemployment rate was likely even higher.) Indeed, looking back at U.S. recessions since 1960, this "sudden stop" recession is shaping up to near the economic losses during the Great Recession, according to S&P Global Ratings estimates, but over a much shorter time frame. If this recession worsens, the economic damage would far exceed that of the Great Recession.

—Read the full report from S&P Global Ratings

IPTV, Multichannel Services In Asia Evolving Quickly In Response To COVID-19

The COVID-19 outbreak is driving expanded service offerings in East Asia, a region with an estimated 419.8 million multichannel subscribers as of year-end 2019.

In response to the sudden hit in the first wave of the pandemic, IPTV services in China and South Korea, which accounted for 2019 penetration rates of 36.4% and 78.3%, respectively, quickly evolved to meet the needs of the communities. Other multichannel operators, particularly those in less affected markets — Hong Kong, Taiwan and Japan — rolled out various promotional plans. Subscribers are being given free access to services that may have been of less interest before the onset of the pandemic.

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

Australia And New Zealand Telcos Launch Special Packs Amidst COVID-19 Outbreak

With the coronavirus (COVID-19) pandemic forcing companies to shift to work-from-home operations, schools to adopt online education, and individuals to self-isolate and practice social distancing, telcos in Australia and New Zealand are putting together new measures to ensure connectivity for homes and businesses. A slew of data and voice plans have been made available to support telecom customers in both markets during the crisis.

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

NORTH AMERICA

Economic Research: Oil Price Plunge And COVID-19 Deal A Double Blow To Canada's Economy This Year

A sudden-stop recession is all but certain for Canada. The unrelenting sequence of hits to the already weak economy from plummeting oil prices, rail blockades, COVID-19, and global recession has ensured that Canada will see two quarters of well below-trend growth rate, which will materially increase the unemployment rate. S&P Global Ratings forecasts a 2% real GDP contraction in Canada in 2020. If containment is effective, which is what S&P Global Ratings assumes in their baseline, stronger 3.4% growth in 2021 is to be expected.

Forecast uncertainty is unusually high given the unprecedented circumstances. The Bank of Canada (BoC) and the federal government will do whatever it takes to cushion the blow, but still the balance of risk to S&P Global Ratings’ growth forecast remains on the downside.

—Read the full report from S&P Global Ratings

Analysis: US gasoline stocks likely build as COVID-19 lockdowns crater demand

US gasoline inventories likely showed a counter-seasonal build last week as COVID-19 pandemic containment efforts created a historic demand slowdown, an S&P Global Platts analysis showed Monday. Total gasoline stocks are expected to have climbed 3.6 million barrels to around 242.9 million barrels during the week ended March 27, analysts surveyed by Platts said. The expected build would snap eight consecutive weeks of draws and put stocks 2.4% above the five-year average of US Energy Information Administration data.

Gasoline stocks typically draw through late April as shoulder-season refinery maintenance weighs on production. But the nationwide proliferation of state and local governments issuing lockdown orders urging non-essential workers to remain home has created an unprecedented slowdown in end-user demand.

—Read the full report from S&P Global Platts

Putin, Trump discuss oil market, agree energy ministers to hold further consultations: Kremlin

Russian President Vladimir Putin discussed the situation on global oil markets with his US counterpart, Donald Trump, Monday, according to a statement issued by the Kremlin press service. "There was an exchange of views on the current state of the world oil market, and it was agreed that Russian-American consultations should be held on this subject by energy ministers," the statement said.

Putin and Trump discussed the oil market at a time when prices continue to tumble due to the collapse of the OPEC+ crude production cut agreement, and the major economic impact of the coronavirus pandemic.

—Read the full report from S&P Global Platts

PODCAST OF THE DAY

Listen: With oil demand in free fall, Trump administration has few answers for US shale

The consequences of this will likely last years. In the midst of a price war, global oil demand is in a free fall. The spread of the coronavirus has left 3 billion people worldwide unable to get on a plane, drive to work or go anywhere, really, at all. In response, global oil demand is plummeting. The International Energy Agency says as much as 20 million b/d of oil demand may be lost this year.

On today's Capitol Crude podcast, Sarah Ladislaw, senior vice president and director and senior fellow of the Center for Strategic & International Studies' energy security and climate change program, answers a few questions about where the US oil sector is headed. What is the Trump administration doing to bail out the struggling shale industry? They say they're pressing the Saudis to work to stabilize the market, but how serious is that effort? And with Texas regulators contemplating oil alliances with Saudi Arabia, has the US oil industry entered a new, unpredictable chapter?

—Share this Capitol Crude podcast episode from S&P Global Platts

More US coal mines idled as two Pa. mine workers test positive for COVID-19

Consol Energy Inc. shut down its Bailey coal mine in Pennsylvania after two employees of the mine tested positive for COVID-19 and Alliance Resource Partners LP announced they are temporarily ceasing production from its Illinois Basin mines, the companies announced March 30. Consol said it is curtailing production at Bailey for two weeks to perform a "precautionary deep cleaning of the facilities while attempting to determine if any other employees were at risk from exposure." Meanwhile, Alliance said it has been working at reduced levels for the past six weeks to evaluate the need of its customers in the wake of business disruptions related to the virus but is now suspending coal production from its Illinois Basin mines.

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

Power M&A deals going on pause as coronavirus stalls US economy

Even as M&A deals for power generation assets that were inked before the coronavirus became widespread in the U.S. sail toward closing, the sales processes lined up behind them are being put on hold. It is still too soon to tell how asset valuations will be affected, Marathon Capital LLC CEO Ted Brandt said on a March 25 conference call hosted by Norton Rose Fulbright. "I'm not closing up shop and laying everybody off, but we're obviously nervous that transactions are going to slow."

"In the short term, we are likely to see risk aversion and a drying up of transaction volumes," said Roger Wood, managing director in Moelis & Co.'s power group. "We are only at the front end of the pandemic, with no visibility on how long it may last." The long-term outlook is one that no one is yet able to predict, though it would be "unrealistic to think that power asset M&A would not be negatively impacted" in the event of a long-term market downturn or a global recession, according to Wood.

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

US 'far too reliant' on Chinese lithium: American Battery CEO

The coronavirus pandemic and its subsequent impact on the global lithium supply chain emphasizes the US' damaging overreliance on lithium from China, American Battery Metals CEO Doug Cole said Monday.

"If coronavirus has shown us anything, it's that we are far too reliant on China and other countries for key minerals like lithium, cobalt and nickel," Cole said in a statement. "The United States is rich in these key metals, and we must quickly increase domestic investment to bring these resources into the supply chain." The US is only mining and producing about 1% of the world's lithium despite having access to large domestic lithium resources, Cole added.

—Read the full article from S&P Global Platts

Distressed in Distressing Times

Jeff Gundlach has been recently quoted as asking, “the Fed can buy up corporate bond ETFs and thereby prop up prices of corporate bonds, but what happens when there are defaults and the artificial Fed price is replaced by the recovery value?” We have already seen how the S&P U.S. Corporate Investment Grade Corporate Bond Index, an index of 7,000+ bonds whose constituents’ option-adjusted spread (OAS) topped out at 568 at the beginning of March 2020, now contains 99 bonds with an OAS greater than 1,000. Though not all are Energy sector bonds, 51 of the 99 are as the virus and the currently low price of oil take their toll on the economy and energy industry.

Moving down the credit scale and looking at more speculative-grade securities, the effects are even greater. Year to date, the S&P U.S. High Yield Corporate Bond Index has seen a fair amount of spread widening. In addition to the movement in OAS spreads, the amount of debt per sector that is at or above an OAS of 1,000 (distressed) has also increased since the beginning of the year. Distressed bonds will be an early indicator of issuers that may end up in default.

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

EUROPE, THE MIDDLE EAST, AND AFRICA

European ABS And RMBS: Assessing The Credit Effects Of COVID-19

Although the spread of COVID-19 has sharply slowed the European economy, ABS and RMBS transactions in the region are well placed to deal with a spike in delinquencies through a combination of external and internal liquidity. However, timeframes for enforcement and liquidation of security are likely to lengthen.

S&P Global Ratings expects transactions with already weak asset performance to exhibit higher sensitivity to underemployment and unemployment, and to show a greater rise in delinquencies. The short weighted-average life of ABS transactions and speedy deleveraging will support credit performance in the sector. There is an increased risk that originators will not exercise call options, especially for non-banks.

—Read the full article from S&P Global Ratings

Danish banks face impact on 'virtually all revenue streams' from COVID-19

The coronavirus pandemic could severely impact Danish banks' earnings, according to experts, but the crisis may also provide an opportunity for them to strengthen their client relationships. Shares in Danish financial institutions have dropped dramatically in recent weeks, with the S&P Denmark BMI Banks Industry Index decreasing by close to 40% since Feb. 20.

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

VIDEO OF THE DAY

Watch: Market Movers Europe, Mar 30–Apr 3: Energy prices hit by coronavirus; steel producers revise output levels

Prices fall across the oil complex due to the coronavirus pandemic; the jet market eyes storage space; petrochemicals contract prices are expected to come in low; and steel producers are revisiting their production plans.

—Read the full article from S&P Global Platts

Saudi Arabia says will raise oil exports further in May, in face of coronavirus hit to demand

Saudi Arabia's energy ministry on Monday said it will boost its oil exports in May to 10.6 million b/d, further flooding an oil market in which prices have cratered due to the coronavirus pandemic's hit to demand. In a statement, the ministry said an increase in the amount of natural gas used to generate electricity, along with a decrease in domestic demand for refined products due to the coronavirus outbreak would free up 600,000 b/d additional barrels of crude oil for export in May.

—Read the full article from S&P Global Platts

Closures at refineries in Europe, Africa as COVID-19 hits demand

Refineries in Europe and Africa have started shuttering operations as the coronavirus pandemic hits demand. South Africa's Engen refinery said late last week it had opted for a "temporary controlled shutdown", noting that the lower demand it is already experiencing is resulting in its inventory "building up fast". Despite COVID-19 hitting European countries hard, refineries have resisted the urge for closures as cheap crude, at least initially, boosted their margins. Market sources also said that adjusting operations was taking time.

—Read the full article from S&P Global Platts

FAR's West African assets under stress from oil price rout

Australia-based explorer FAR Limited's operations in Senegal and the Gambia have been adversely impacted due to the coronavirus pandemic and the "precipitous fall" in oil prices, it said Monday. FAR said the debt facility for Senegal's maiden oil development, Sangomar, had been "compromised" and it is evaluating and exploring options to "preserve and enhance the value" of this project in light of the current environment.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.