COVID-19 Daily Update: March 31, 2020

Insufficient testing and asymptomatic cases are compounding uncertainty around the coronavirus’ true humanitarian toll. Uncertainty also abounds across economies and markets. Businesses, borders, and transportation services reopened on Saturday in Wuhan, China lifting the months-long lockdown on the city’s 11 million people. Still, reports are raising doubts over the accuracy of China’s COVID-19 numbers. It’s unclear whether the country has included asymptotic cases in its totals, and Chinese officials recently confirmed more than 1,500 cases they hadn’t previously reported.

Benchmark stock indices in the U.S. ended the first quarter down roughly 20%, the biggest drop since the Great Financial Crisis more than a decade ago. Companies large and small are furloughing and laying off employees as liquidity anxieties rise. Social distancing and containment measures are hitting the entertainment, restaurant and bar, and airline sectors. The coronavirus crisis has brought the diamond industry to a standstill as supply chains freeze.

Governments are taking decisive action to shore up economies alongside efforts to protect populations from the rapidly spreading virus. According to S&P Global Ratings’ Global Chief Economist Paul Gruenwald, “people are either losing their jobs or being put on furlough. Firms are having difficulty meeting their expenses, including their payroll. So whether we're keeping the firms afloat and the employees on the payroll or paying employees directly through longer unemployment insurance or higher dollar payments, all of those things that get spending power quickly into the pockets of households and small businesses in particular, those sorts of demand creation efforts by governments are going to be the most effective.” Fiscal policies that replace a large portion of labor markets’ lost demand are effective at combatting the pressing economic implications of the coronavirus pandemic.

Oil demand continues to fall from the combined effects of coronavirus and the oil-price war, prompting many sovereigns to take different approaches. U.S. President Donald Trump is considering a plan that would limit refineries in the country from importing foreign crude and instead process domestic supply. Brazil has ramped up fuel exports to compensate for losses to domestic demand, as the South American nation grapples with the measures taken to stem the spread of the coronavirus outbreak. Demand destruction for gasoline caused by the pandemic is set to intensify as more countries in Africa become subject to curfews and lockdowns.

Today is Tuesday, March 31, 2020, and here is essential insight on COVID-19 and the markets.

GLOBAL ECONOMY

PODCAST OF THE DAY

The Essential Podcast, Episode 1: Closing the Confidence Interval – Economic Impacts of COVID-19

Host Nathan Hunt interviews Paul Gruenwald, Global Chief Economist at S&P Global Ratings, to understand the economic implications of the COVID-19 global health crisis, the effectiveness of fiscal and monetary policy, and the path to a recovery.

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.

Listen and subscribe to this podcast on Spotify, Deezer, and our podcast page. This show will soon be available on Apple Podcasts and Google Podcasts.

—Share this podcast from S&P Global

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 they’ve taken globally on corporations and sovereigns. For this report, S&P Global Ratings has also included a summary of project finance rating actions. These are public ratings where the COVID-19 coronavirus is mentioned as one factor or in combination with others.

—Read the full article from S&P Global Ratings

Coronavirus brings diamond sector to standstill

The coronavirus has been taking a heavy toll on the already-subdued diamond sector, with sales seeing an almost immediate impact from the lockdown in China and the rest of the globe following suit with containment measures, including the U.S., a top diamond buyer. The whole supply chain from mining to sales and trading is frozen, diamond industry analyst Paul Zimnisky told S&P Global Market Intelligence. "The impact could well lead the diamond industry into a recession," Zimnisky said.

Sudden stops in economic activity caused by lockdowns and other quarantine measures have the potential to create longer-term disruptions to global productivity that could continue well after the viral outbreak is brought under control, according to Zimnisky.

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

Trade finance digitization faces 'tipping point' amid coronavirus lockdowns

Demand for digital trade finance solutions is growing in light of coronavirus lockdowns, with technology companies saying the crisis could be a tipping point for the traditionally paper-heavy and manual business to go digital. Stories of cargo being stuck at ports while parties in a transaction are waiting for paperwork to arrive are not uncommon in the trade finance industry in normal times. With coronavirus closures, the challenge is becoming ever more obvious.

"We heard from a corporate that could not get hands on the goods because closures of courier services in China prevented the trade documents from reaching the bank issuing the letter of credit," Jacco De Jong, global head of sales at electronic trade finance solutions provider Bolero International Ltd., told S&P Global Market Intelligence.

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

Shell Q1 write-down could be 'harbinger' of pain to come for oil majors

Royal Dutch Shell PLC may have plans to mitigate the current oil price collapse, but analysts said the supermajor and its peers should prepare for a bumpy ride for the rest of the year as the coronavirus pandemic wrecks havoc on the global economy and oil demand. The Anglo-Dutch major's March 31 announcement that it will write-down as much as $800 million in the first quarter may be a sign of things to come for integrated oil and gas companies as they navigate what analysts said will likely be a much more challenging market environment in the second quarter.

Global crude oil prices continue to test multiyear lows, and the increasingly likely lower-for-longer price scenario is already forcing most integrated majors to begin preserving cash and protecting their bottom lines from the fallout.

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

Credit Conditions Emerging Markets: Covid-19 Magnifies Risks

Emerging markets (EMs) are facing severe stress resulting from three simultaneous shocks, as the COVID-19 pandemic spreads globally. All key emerging economies that we cover will fall into recession or see sharply lower growth in 2020. Downside risks are significant. A prolonged outbreak will depress economic activity and stress health systems. Extended shock to investor sentiment could result in heightened refinancing risk, especially for low rated issuers.

—Read the full article from S&P Global Ratings

EUROPE, THE MIDDLE EAST, AND AFRICA

Default, Transition, and Recovery: Recession Likely Will Spur The European Speculative-Grade Default Rate To Rise Toward 8%

S&P Global Ratings expects the European trailing-12-month speculative-grade corporate default rate to rise to 8% within the next 12 months, from 2.2% in December 2019, as a global recession is now here amid the coronavirus pandemic. Financial market turmoil in response to the pandemic has led to a month with almost no bond or loan issuance, at a time when some sectors' earnings are under severe strain due to widespread lockdowns and supply side disruption.

In S&P Global Ratings’ pessimistic scenario, a protracted period of fighting to contain the virus would lead to a longer and deeper recession, potentially pushing the default rate up to about 11%. The oil and gas sector is likely to be particularly hard hit during this time as Brent prices have fallen below $30 a barrel amid expanding supply following the standoff between Saudi Arabia and Russia. A quick resolution between the two parties is not expected.

—Read the full article from S&P Global Ratings

Fintechs, challengers keen to help distribute UK government's coronavirus loans

Financial technology companies, challenger banks and alternative lenders could soon be joining big banks in distributing U.K. government-backed loans to small and medium-sized businesses hit by the novel coronavirus pandemic. These companies can do as good a job as incumbent banks in disbursing government loans to businesses, if not better, industry insiders said. Starling Bank Ltd., Aldermore Bank Plc and iwoca Ltd told S&P Global Market Intelligence that they hope to be included in the scheme, which is being administered by the British Business Bank PLC.

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

European gas supply security 'cannot be taken for granted' amid COVID-19: Eurogas

Security of gas supply in Europe cannot be taken for granted given the unprecedented measures taken across the continent to combat the coronavirus outbreak, industry body Eurogas said Tuesday.

Eurogas—which represents dozens of European gas companies—said pre-planning and contingency measures had so far proven sufficient, even in the worst-hit countries such as Italy and Spain, but that there was no room for complacency.

—Read the full article from S&P Global Platts

Gasoline demand on downward spiral as African countries go into lockdown

Demand destruction for gasoline caused by the coronavirus pandemic is set to intensify as more countries in Africa become subject to curfews and lockdowns, trading sources said Tuesday. West Africa, in particular, is a key outlet for European supplies, and this region historically imports more gasoline when prices start to slide, using the opportunity to top up inventories. But with parts of Nigeria, going into lockdown, demand for the road fuel is expected to dissipate.

—Read the full article from S&P Global Platts

LATIN AMERICA

Economic Research: For Latin America, The Path To Economic Recovery From COVID-19 Remains Uncertain

The COVID-19 outbreak, and its associated economic and financial implications, will push Latin America into a recession in 2020, recording its weakest growth since the Global Financial Crisis (GFC). S&P Global Ratings forecasts Latin America's GDP to contract 1.3% in 2020, and then, bounce back to 2.7% growth in 2021. While S&P Global Ratings believes that the depth of the recession could be on par, or potentially worse, for some Latin American economies than during the GFC, S&P Global Ratings expects the length of the recession will be much shorter: two quarters versus six quarters during the GFC.

Risks are firmly to the downside as inadequate or delayed policy implementation could lengthen the health crisis and postpone the economic recovery S&P Global Ratings had expected across the region. S&P Global Ratings sees a higher risk of a prolonged crisis in Mexico due to the slow public health response to the pandemic combined with pre-outbreak weak investment dynamics.

—Read the full article from S&P Global Ratings

Copper, coronavirus and a constitutional crisis: Chile's banks under pressure

Chilean banks, which already were bracing for fallout from political turmoil, are now also having to contend with a global health pandemic that is threatening the country's economy.

Widespread and prolonged social unrest in the latter months of 2019 — spurred initially by a hike in metro fares that subsequently exploded into a constitutional crisis — led to Chile's weakest economic performances in a decade. GDP contracted 2.1% year over year in the fourth quarter, reversing from a 3.4% expansion in the previous quarter. Both exports and imports declined, consumer spending shrank, and the country's currency started to show signs of weakening.

The situation battered bank profits. The country's three major private banks — Banco de Credito e Inversiones SA, Banco Santander Chile and Banco de Chile — posted an aggregate 16.3% drop in quarterly net income as loan growth stalled and asset write-downs jumped by more than 65%.

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

Feature: Consumption collapse triggers new market dynamic in Brazilian ethanol market

The two largest fuel distributors in Brazil declared have force majeure to lower their monthly ethanol purchases amid a scenario of hampered fuel demand. The Raízen joint-venture, owned by Shell and Cosan, told its ethanol suppliers Monday it could not sell scheduled volumes because of plummeted fuel demand caused by the coronavirus pandemic. BR Distribuidora also Monday said its initially scheduled volumes would need to be revised down, following lower fuel demand. However, BR emphasized it hopes to eventually take all contracted volumes as soon demand returns to normal.

The two companies accounted for nearly 40% of Brazilian demand for total gasoline C, the domestic specification blended with 27% anhydrous ethanol, and hydrous ethanol sales in January, according to Sindiom, the national distribution association that represents the largest Brazilian fuel distribution companies.

—Read the full article from S&P Global Platts

Brazilian fuel exports rise as coronavirus saps local demand

Brazil has ramped up fuel exports to compensate for losses to domestic demand, as the Latin American nation grapples with the measures taken to stem the spread of the coronavirus pandemic. In Brazil, refined product output has been reduced on decreased demand, especially for gasoline and jet fuel, as per Anelise Lara, Petrobras' director for refining and natural gas.

—Read the full article from S&P Global Platts

NORTH AMERICA

Credit Conditions North America: Unprecedented Uncertainty Slams Credit

Credit Conditions in North America look set to remain extraordinarily difficult for borrowers at least into the second half of the year, with the economic stop associated with coronavirus containment and mitigation measures continuing with no clear end in sight. Intense pressure on the credit quality of borrowers won't soon subside, as cash flows slump and financing conditions materially diverge between investment- and speculative-grade borrowers.

—Read the full article from S&P Global Ratings

Insurers may need 90-day-rule relief for COVID-19 premium grace periods

The National Association of Insurance Commissioners may need to temporarily relax a statutory accounting provision that it last used in the aftermath of the devastating 2018 California wildfires — and this time it may need to do so on a much broader scale.

The New York State Department of Financial Services' March 30 announcement of an emergency regulation requiring the life and property and casualty insurers it regulates to grant hardship waivers of 90 and 60 days, respectively, is intended to provide much needed relief to those who are suffering financially due to COVID-19. But that edict and others like it create the potential for additional downward pressure to be placed on carriers' capitalization when it might already been strained by the effects of financial market dislocation.

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

U.S. bank balance sheets swell with commercial loans and Fed liquidity

A corporate scramble for cash and massive injections of liquidity by the Federal Reserve are reverberating across the balance sheets of U.S. commercial banks, with commercial and industrial loans registering the biggest week-over-week increase in more than 45 years.

C&I loans jumped 7.4%, or $176.17 billion, during the week ended March 18, according to seasonally adjusted data in the Fed's latest H.8 report on bank assets and liabilities. The data covers a week during which the crisis caused by the new coronavirus pandemic escalated rapidly. The Trump administration declared a national emergency March 13, and states placed increasing restrictions on public gatherings and business activity aimed at slowing the spread of the virus.

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

Protests at Amazon, Instacart may lead to more coronavirus-related labor unrest

Amazon.com Inc. and other e-commerce retailers could face increasing labor unrest and worker backlash at their warehouses and grocery stores in the coming weeks if essential workers continue wielding their collective power to advocate for better working conditions in the wake of the coronavirus outbreak, experts said.

Worker frustration took center stage March 30 when some Amazon employees at the company's Staten Island fulfillment center in New York City walked off their jobs, calling on the retailer to close the facility for a deep-clean and pay during a closure after an associate tested positive for coronavirus. Meanwhile, shoppers who work for online grocery delivery service Instacart began walking off the job nationwide March 30 to protest for more protections such as hazard pay and safety gear for essential workers on the front lines of the outbreak. And some employees at Whole Foods Market Inc., Amazon's grocery arm, are staging a national "sick-out" protest March 31.

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

CHART OF THE DAY

U.S. sees power demand decline as coronavirus pandemic spreads

What’s happening? New York City electricity loads have been weaker year-over-year this winter so far due to milder weather, but are now trending significantly below the recent five-year average, indicating a virus-related slowdown, according to Manan Ahuja, manager of North America power at Platts Analytics. These demand numbers could slow down even further as people stay home and businesses remain shuttered to prevent spreading the virus.

What’s next? US power system impacts from the coronavirus pandemic are beginning to emerge, with shifting load patterns, significant load declines in a number of areas and projections that mild weather and business shutdowns will continue to suppress load during the coming weeks.

—Read the full article from S&P Global Platts

U.S. rolls back fuel economy standard to 1.5% annual target, from 5%

The Trump administration Tuesday issued final fuel economy targets for 2021-26 model-year light-duty vehicles, rolling back the existing targets to an annual efficiency increase of 1.5% from 5%. Easing the requirements on automakers would increase US oil demand by 500,000 b/d, according to estimates by the Environmental Protection Agency and National Highway Traffic Safety Administration.

The analysis was done before global oil prices and US gasoline demand plummeted as a result of the coronavirus pandemic. The regulatory rollback has been in the works since 2018 and remains the subject of legal challenges by states and environmental groups fighting to keep the Obama-era standards.

—Read the full article from S&P Global Platts

Trump considering crude oil import limits for U.S. refiners: sources

President Donald Trump is considering a plan which would significantly limit US refineries from importing foreign crude and instead process Bakken, Permian and other domestic crudes, sources said Tuesday. US Senator Kevin Cramer, a North Dakota Republican, pitched the idea to Trump during a roughly 40 minute phone call Monday.

"It just doesn't seem rational to accept Saudi oil while they're declaring a price war," Cramer said in an interview Tuesday with S&P Global Platts.

Sources familiar with discussions within the White House said Tuesday that the import prohibitions were among the options Trump is considering to blunt the impact of the ongoing price collapse on the domestic oil and gas industry. A White House spokesman declined to comment on the record Tuesday.

—Read the full article from S&P Global Platts

Shale drillers may see gas prices rise as virus, oil price war rebalance market

If the U.S.'s pure-play shale gas producers can survive the sub-$2/MMBtu gas prices this year, they could enjoy a 50% to 100% jump in the price of natural gas when the next winter heating season starts in November, analysts said. The primary driver for the bump in gas prices would be a fall-off in the amount of gas associated with shale oil drilling, primarily in Texas' Permian Basin, as exploration and production companies lay down rigs in response to the Saudi-Russian oil price war and tanked oil demand amid the coronavirus pandemic.

With 2 Bcf/d or more of associated gas dropping out of the supply equation, and Appalachian and Haynesville shale producers drilling fewer wells in 2020 to conserve cash, the gas market this year is slated to burn through existing oversupply, according to sector analysts. The glut has depressed prices for more than a year, but the shifting dynamics may pave the way for a big jump at the onset of the winter heating season in October, analysts said.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.