Daily Update: January 8, 2024

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Supply Chains in the Aftermath

The initial impacts of the pandemic on global supply chains included empty shelves, congested ports, and a shortage of semiconductors and other critical goods. But even as supply chains appeared to recover from COVID-19, secondary effects lingered. Prior to the pandemic, manufacturers and retailers evaluated their supply chains strictly based on cost. Geopolitical concerns, resilience and supplier diversity were sacrificed for the best price. But the frailty of global supply chains during the initial lockdowns shocked importers. In response, many corporations increased their inventory balances, diversified their suppliers and rebalanced supply chains for proximity and geopolitical alignment. 

S&P Global Market Intelligence recently analyzed 2024 supply chains in “The Big Picture: 2024 Supply Chain Industry Outlook.” Chris Rogers, head of supply chain research, questioned whether corporations will continue to build resilience into supply chains despite the higher costs of maintaining a diverse set of suppliers.

“Supply chain resilience will be just as important in 2024 as it was in the past three years, with the nature of risks shifting to geopolitics and tariffs from operational challenges,” Rogers wrote. “Yet, corporate willingness and ability to invest in inventory management and multisourcing may be limited by falling profits and high financing costs.”

Gross operating margins for manufacturers look to fall in 2024 just as capital expenditures are expected to rise, according to S&P Global Market Intelligence. This imperils further investment in the resilience of supply chains. Inventories have declined sharply from their pandemic highs, but for many sectors they continue to track above their pre-pandemic trends. A focus on cost-cutting will encourage manufacturers to further sell off inventories. 

Nearshoring and friendshoring were prominent trends over the past two years. Mainland China lost a significant share of the market in tariff-affected goods while Mexico and Southeast Asian countries such as Vietnam, Malaysia and the Philippines gained market share in the process. Ongoing geopolitical tensions have driven some of this movement, but the proximity of Mexico to US markets has appealed to many manufacturers, despite tensions over migration.

Diversification of supply chains remains important for long-term resilience. However, with a squeeze on revenues, corporations may be tempted to shorten their supplier lists to get better prices from bulk purchases. Sectors including autos and electronics continue to maintain higher supplier diversity, but consumer staples and durables have returned to pre-pandemic supplier levels. 

Technology may offer corporations more supply chain resilience. Generative AI has attracted the interest of organizations in the hopes that it can offer predictive possibilities of future disruptions. But corporations are loathe to spend on unproven new technologies in this environment, particularly after the disappointment following the hype of blockchain and autonomous vehicles.

The story of supply chains remains one of “before and after.” The lessons of the pandemic remain fresh for the auto industry and consumer electronics companies, where shortages created headaches. But memories fade and even the aftermath of the pandemic will come to an end as companies search for cost savings once again.

Today is Monday, January 8, 2024, and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

US Home Prices Continue To Increase In October 2023

US home prices continued to increase in October 2023, recording the strongest annual gain of the year. The S&P CoreLogic Case-Shiller US National Home Price NSA Index, covering all nine US census divisions, rose 4.8% year over year in October 2023, up from a 4% increase in the previous month after seasonal adjustment — and the highest yearly increase since the 5.7% year-over-year change recorded in December 2022.

—Read the article from S&P Global Market Intelligence

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Capital Markets

Twenty-First Century Fox: DJCI Gold Tops Stocks and Bonds This Century

The equity markets roared to the finish line, easily passing commodities and bonds with a 26.3% return for the S&P 500 in 2023. Much of that rally could be attributed to declining consumer price indices and favorable Federal Reserve guidance, with increased confidence in a soft landing. Declining inflation can best be observed at the kitchen table, where the S&P GSCI Grains saw 15% declines on the year and the S&P GSCI Livestock remained flat.

—Read the article from S&P Dow Jones Indices

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Global Trade

LNG Futures Trade Volumes In Q4 Hit Record High, 2023 Volumes Up 12.5%

LNG futures trade volumes on the financial exchanges during the fourth quarter of 2023 hit a record high, while the overall volume in 2023 rose 12.47% year on year, according to data from the exchanges and brokers. Trade volumes of the LNG futures in Q4 were at 182,971 lots, surpassing a previous high recorded in Q3 2023 at 164,748 lots.

—Read the article from S&P Global Commodity Insights

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Sustainability

Wall Street Thrived, Small Towns Lost As Anti-ESG Campaign Raged In 2023

In 2023, a fervent anti-environmental, social and governance campaign swept state legislatures but failed to curtail the movement's main foe: Wall Street and its multitrillion-dollar asset management firms. At the same time, the new state policies seeking to eliminate ESG considerations from public investments had some real-life consequences for cities and towns caught by the new mandates.

—Read the article from S&P Global Market Intelligence

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Energy & Commodities

Cautious Optimism Looms Over US Ethanol Markets Into 2024 After Near-3-Year Lows To End The Year

The US ethanol industry awaits key policy support in 2024 after markets tumbled to near 3-year lows to end the year. Despite the slide in values observed in the fourth quarter, US ethanol producers enjoyed positive margins for the entirety of 2023, a feat that has been rare in the ethanol industry over the last decade. According to S&P Global Commodity Insights, the average cash margin in 2023 was 41 cents/gal, compared with 9 cents/gal in 2022.

—Read the article from S&P Global Commodity Insights

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Technology & Media

US Media And Entertainment Industry: Looking For Bright Spots Amid The Industry’s Sea Of Gloom

Advertising remains the single best way for companies to increase revenue. Advertisers are increasing spending and shifting dollars down funnel. Advertisers still need brand advertising to build brand awareness. Television remains the best way to build brand despite shrinking audiences.

—Read the article from S&P Global Ratings

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