Daily Update: July 8, 2022

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.

New Geopolitical Shocks Roil International Order

A series of geopolitical shocks to the global economy—including OPEC Secretary General Mohammed Barkindo’s unexpected death, Boris Johnson’s resignation as U.K. prime minster, and the assassination of former Japanese Prime Minister Shinzo Abe, all this week—have unfolded against the backdrop of the COVID pandemic and war in Ukraine to roil international markets. 

Rising political uncertainty and geopolitical risks are radically transforming the world, with the first half of this year defined by disruption and the rest of 2022 likely to be shaped by increased fragmentation and ongoing reorientation, according to S&P Global Ratings. And as geopolitical shifts develop, S&P Global Market Intelligence expects the resulting global system may emerge as more fluid and flexible—but ultimately more divided and unstable.

Mr. Barkindo’s sudden death on July 5, less than one month before his term was due to end, came as many countries are seeking to curb the oil revenues of Russia, with which the six-year OPEC leader had helped to forge an alliance. After taking office in 2016, Mr. Barkindo oversaw the creation of the OPEC+ bloc that has endured unprecedented production pressures and market volatility from the coronavirus crisis and Russia's invasion of Ukraine. Although the majority of its members continued to struggle to hit their output targets, the coalition hiked crude oil production by 390,000 barrels per day in June, according to the latest Platts survey by S&P Global Commodity Insights. Now, as the Group of Seven nations reduce their reliance on Russian commodities, economies are now looking to limit money flows from Russia's oil—but market participants have doubts over the effectiveness of potential price caps on Russian seaborne crude purchases. 

“The West's boycott of Russian barrels will be the oil market's ultimate test,” Paul Hickin, associate editorial director of European and African oil news and analysis at S&P Global Commodity Insights, said in a recent analysis. “The more supply is cut from the market, the more consumers get twitchy and pump prices become politicized, so should Russian supply eventually plummet, buyers may start to scramble … The oil market may already be paying the extra costs of epochal changes in oil flows, but the eventual price could be much higher.” 

Meanwhile, Mr. Johnson resigned as leader of the British Conservative Party and U.K. prime minister on July 7 as the country suffers from high inflation that could reach 10% by year-end, the rising risk of recession that could materialize in the third or fourth quarter, and a looming energy security crisis with spiraling household energy bills. 

“Johnson plans to remain a caretaker prime minister until the autumn, leading what will effectively be a ‘zombie’ government unable to pass vital legislation ahead of winter. By the time a successor is selected, it will probably be too late to avoid the U.K. heading into a winter energy crisis with household energy bills spiraling further out of control,” Andrew Critchlow, head of EMEA news for S&P Global Commodity Insights, said in an analysis yesterday. “Many of the ruling Conservative Party [are] likely to vote against any of Johnson's policies until a new leader is selected and the opposition [is] wanting to force a vote of no confidence in the government and ensuing general election. Another scenario, of course, is Johnson even managing to survive as prime minister if the political landscape changes. All of this leaves U.K. energy security in limbo until the winter, by which time the problem may be too late to fix.” 

The stunning assassination of former Japanese Prime Minster Shinzo Abe today has shocked the country and world. Mr. Abe was shot while presenting a campaign speech at a midday rally in western Japan. As the country’s longest-serving prime minister, from 2012-2020, Mr. Abe championed economic revitalization and strived to position Japan as a military power and was seen as an influence for some of current Prime Minister Fumio Kishida’s policies. Since Mr. Abe left office, Japan has experienced a recovery in domestic demand, and S&P Global Ratings now expects the Asia-Pacific country to see favorable growth prospects despite the geopolitical uncertainty and higher prices, inflation, and interest rates.

Today is Friday, July 8, 2022, and here is today’s essential intelligence.

Written by Molly Mintz. 

Economy

Global Real Estate Choked By Rising Interest Rates, Leads Economic Slowdown

Detailed sector PMI data compiled by S&P Global, derived from information provided by panels of over 30,000 companies in 45 countries, reveals demand falling in nine of the 26 detailed sectors covered by the surveys, with by far the steepest contraction recorded for real estate amid tightening financial conditions and the rising cost of living.

—Read the article from S&P Global Market Intelligence

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Capital Markets

U.S. Equities Market Attributes June 2022

Enter the bear, exit the bull. We decidedly entered a bear market this month, as higher inflation, higher interest rates and a slowing economy pushed the S&P 500 into official bear territory (down 20% from its last closing high, in this case Jan. 3, 2022’s 4,796.56). It reached a closing low of -23.55% (3,666.77, on June 16), then seesawed upward, as buyers went bargain hunting, but with slower trading than when sellers dominated the market.

—Read the article from S&P Dow Jones Indices

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Global Trade

'Disentangling' The Global Nuclear Fuel Supply Chain After Russia's Invasion Of Ukraine

In the world of nuclear energy, things rarely move quickly. Nuclear power reactors often take 10 years or more to license and build, and then can operate for six or more decades. Nuclear fuel is only replaced in a reactor at most once a year, or every 18 or 24 months. Uranium can take more than a year to be mined, milled, converted to a gas form, enriched in fissile uranium-235 and fabricated into the fuel bundles that are lowered into reactors during refueling.

—Read the article from S&P Global Commodity Insights

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ESG

United Kingdom: Sustaining Upstream Decarbonization Momentum

The United Kingdom's Conservative government is building policy and regulatory frameworks to facilitate decarbonization and reach emission-reduction targets on the U.K. Continental Shelf. Despite recent upstream policy volatility and uncertainty—reflected by the recently proposed 25% Energy Profits Levy for oil and gas companies—the government has avoided major shifts in its low-carbon policies so far, demonstrating a strong commitment to advancing the energy transition in the hydrocarbon sector.

—Read the article from S&P Global Commodity Insights

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Energy & Commodities

Trade Review: Asian Iron Ore Prices At Crossroads Of China's Post-Pandemic Recovery In Q3

Asian iron ore prices landed at a crossroads following one of their worst second-quarter performances ever, yet the expectations of more stimulus measures in China and the reality of steel output cuts paint the third-quarter outlook hazy. The 62% Fe iron ore index, or IODEX, dipped 24.87% in Q2 to 120.1/dmt CFR China June 30 as China's pandemic curbs, followed by floods in South China and high temperature in North and East China, continued to suppress steel demand.

—Read the article from S&P Global Commodity Insights

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Technology & Media

California Fuel Cell Electric Vehicle Market Needs To Ensure Supply: CFCP

California's fuel cell electric vehicle economy is now ready to shift its focus from refueling infrastructure to clean hydrogen production capacity to advance the industry toward commercialization, the California Fuel Cell Partnership said during a July 6 webinar. "When we started to focus on commercialization, it was really to synchronize the rollout of vehicles with fueling infrastructure," said the CFCP's Keith Malone. "Over the last couple of years, it has become absolutely clear that we need to now synchronize all of that with hydrogen production."

—Read the article from S&P Global Commodity Insights

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