COVID-19 Daily Update: March 27, 2020

As markets ricocheted in response to governments’ stimulus plans, the COVID-19 chaos has continued to bludgeon economies worldwide. The effects have been seen in the U.S., Europe, and Asia, but may be delayed in materializing in emerging markets as the virus continues its geographic spread. Almost 600,000 cases have been reported across 176 countries.

More than 100,000 cases of infection have been confirmed in the U.S, where the peak of the outbreak may still be weeks away. The collapse in oil prices has left many of the country’s oil and gas producers teetering on financial ruin, and the longest economic expansion in U.S. history has abruptly ended. In S&P Global Ratings’ baseline case, the nation’s GDP will drop 1.3% this year, down from the December forecast of a 1.9% gain. Chief U.S. Economist Beth Ann Bovino sees the recession to be on par with the economic losses of the Great Recession, but in a much shorter time. The government's economic relief package and the Federal Reserve's stimulus measures will likely help conditions, but not enough to offset the drag on second-quarter economic activity.

U.K. Prime Minister Boris Johnson tested positive for coronavirus today and is self-isolating, as cases in the country double every 3-4 days. Italy continues to suffer from overwhelmed hospitals and almost 10,000 deaths. France and Belgium extended their nationwide lockdown until at least mid-April. The Bank of England said the pandemic is likely to cause greater disruption to the economy than its most recent stress test envisioned, but the overall economic hit will remain within anticipated boundaries. In the past month, the S&P Europe 350® lost a third of its market value. The crisis, according to analysts, will force more listed European landlords to cut dividend payouts as tenants struggle to pay rent amid the widespread closure of businesses.

South Korea seems to have flattened their curve of new coronavirus infections. China is closing its borders to foreign travelers who they fear will bring the virus from western countries. There are greater numbers of confirmed cases outside of China than within it. The pandemic has been a bane to vehicle producers in Asia.

Emerging markets are facing severe stress from a combination of coronavirus, shocks to commodities, and worsening financial conditions. S&P Global Ratings believes that all key emerging economies will fall into recession or see sharply lower growth this year. Economic stress could become more significant in coming weeks as most emerging markets are only beginning to show an escalation of COVID-19 cases. A prolonged outbreak will depress activity and stress health systems. Tightening financing conditions, if sustained, will bring additional stress to issuers across emerging markets, and refinancing risks could rise. The strength of eventual recovery will depend on policy measures to cushion the blow and limit economic dislocation.

Today is Friday, March 27, 2020, and here is essential insight on COVID-19 and the markets.

GLOBAL ECONOMY

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 have taken globally on corporations and sovereigns. These are public ratings where they mention the COVID-19 coronavirus as one factor or in combination with others.

—Read the full report from S&P Global Ratings

Variations in REIT Sectors – Time to Go Defensive

As of March 20, 2020, COVID-19 has disrupted the global economy, resulting in a 32% drawdown in the S&P 500® (total return) from its all-time high. The Dow Jones U.S. Select REIT Total Return Index, which is traditionally more defensive, also plummeted 42% from its peak. However, the responses within sectors of equity REIT have varied.

Cyclical sectors such as hotels and malls took the brunt of the impact due to their direct dependence on consumer spending. The substantially weakened demand for travel, dining out, lodging, and shopping resulted in hotel and retail REITs suffering more than a 50% loss MTD through March 20, 2020, compared with -21.9% and -33.5% from the S&P 500 and Dow Jones U.S. Select REIT Index, respectively. Health Care REITs declined 44.7% MTD. Increased visits to hospitals made medical buildings less affected compared with senior housing, which took a harder hit because of residents being from a high-risk demographic and delaying moving in to the senior community. This outbreak also pushed more companies to adopt a work-from-home policy, causing reduced demand for office spaces, which led to a 34.5% sell-off in office REITs MTD.

On the other hand, the more stable demand for defensive sectors like data centers and cell towers ensured a relatively milder sell-off. Working from home has increased demand for internet stability, data storage, and mobile usage, thus benefiting the data center and cell tower components of REITs. Showing greater resilience, these two sectors returned -8.8% and -12.9% from March 2, 2020, to March 20, 2020, respectively. Thanks to the rapid growth of e-commerce due to online shopping, industrial REITs outperformed the market by 4.1%. Self-storage REITs also benefited from the rising demand resulting from the sudden country-wide college closures. The self-storage sector held relatively better at a -20.7% return, outperforming overall REITs and equity markets.

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

Wash Your Hands of Market Timing with Risk Control

The market highs of February 2020 already seem like a strange, distant past, in which people socialized, worked in offices, and were blissfully unappreciative of their abundant supply of toilet paper. Life has changed. With that change, the S&P Europe 350® lost a third of its market capitalization in just a month. The market may have subsequently ticked up, but with volatility still high, it may be premature to call the bottom.

In times of market panic, it is not uncommon for defensive equity factor strategies to correlate with the market. They are, after all, still equity indices. However, the S&P DJI Risk Control Indices, which use realized market volatility to allocate systematically between an equity index and cash, were better able to cushion the crash.

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

PODCAST OF THE DAY

Listen: Lithium demand heads for 2020 decline as market feels effects of coronavirus

Joe Lowry of Global Lithium — known as "Mr. Lithium" — forecasts lithium demand to fall in 2020 compared with 2019, the first annual decrease in many years. Lowry examines the impacts of the coronavirus outbreak on the lithium market with Henrique Ribeiro of S&P Global Platts.

—Share this Battery Metals podcast episode from S&P Global Platts

UNITED STATES

Economic Research: It's Game Over For The Record U.S. Run; The Timing Of A Restart Remains Uncertain

With now almost 200 million Americans either under shelter-in-place orders or being urged to stay at home in a concerted effort to contain the spread of the new coronavirus, the longest economic expansion in U.S. history has come to an abrupt end. On March 17, S&P Global Economics said the world's biggest economy had fallen into recession. Based on data and news reported since, they now see the toll on GDP will be far more severe than they once thought—with the contraction showing up in the first-quarter figure and worsening substantially in the April-June period. S&P Global Ratings forecasts a decline in real GDP of 2.1% (annualized) in the first three months of the year and of 12.7% (annualized) in the second quarter, translating to a decline of 3.8% peak to trough.

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

Ratings Outlooks On U.S. Transportation Infrastructure Issuers Revised To Negative Due To COVID-19 Pandemic

S&P Global Ratings revised to negative the outlooks on nearly all long-term debt ratings in the U.S. transportation infrastructure sector due to the severe and ongoing impacts associated with the COVID-19 pandemic. S&P Global Ratings believes the dramatic contraction of the global and U.S. economies and virtual collapse of travel and mobility across the transportation subsectors is a demand shock without precedent, with no definitive indication at this time regarding its duration and severity as well as the follow-on effects of an economic recession. The outlook revisions to negative of each issuer and issuer credit rating follows on their updated overall view of the sector. S&P Global Ratings is affirming the ratings and outlooks for transportation infrastructure issuers with existing negative outlooks and not modifying the ratings or outlooks of debt secured by federal transportation grants.

This action applies to the ratings of approximately 187 issuers and 252 ratings in the following six transportation subsectors: airports, toll roads and bridges, ports, transit systems, parking, and special facilities (e.g. consolidated rental car facilities at airports).

—Read the full report from S&P Global Ratings

Mass Transit Agencies' Priority Lien Revenue Bond Outlooks Revised To Negative On Anticipated COVID-19 Pressures

S&P Global Ratings revised its outlook to negative from stable on several long-term and underlying ratings on bonds issued by mass transit agencies and secured by priority lien tax revenue pledges. The negative outlooks provide notification to market participants that the affected credits face at least a one-in-three likelihood of a negative rating action over the intermediate term (generally up to two years). This action applies to the ratings of approximately 20 issuers, and 215 unique ratings.

—Read the full report from S&P Global Ratings

Insurance stocks, broader market rally as rescue package moves through Congress

After enduring historic sell-offs over the last month, equity markets put together one of their best weeks in decades as Congress took action on a pandemic rescue package. Despite a sharp decline in the final day of trading for the week of March 27, the S&P 500 still rose 10.26% to 2,541.47, while the SNL U.S. Insurance Index jumped 17.50% to 911.55.

The U.S. Senate announced midweek that it had reached an agreement on a $2 trillion economic relief bill to help combat the impact of the coronavirus pandemic. The package included financial assistance for hospitals, the healthcare industry and small businesses, a huge boost to unemployment insurance benefits and direct cash payments to most Americans. That bill was approved by the House of Representatives on March 27.

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

Relief bill would help boost Fed lending; Regulators move on small-dollar loans

Congress plowed ahead this week with a fiscal package aimed at rescuing the U.S. economy from the coronavirus pandemic, a bill that has several implications for the financial industry. The relief bill, which boosts unemployment insurance benefits and will send checks to many Americans, includes $454 billion in funding for the Treasury Department's efforts to provide credit protection for the Federal Reserve's emergency lending facilities. That funding is aimed at helping the Fed provide some $4 trillion in lending to eligible businesses, states and municipalities.

At a Financial Stability Oversight Council meeting on March 26, Fed Chairman Jerome Powell said the funds will help the central bank increase the size of the emergency lending facilities it has launched this month. Those programs have not yet fully solved liquidity issues but already appear to be easing pressures on the corporate and municipal bond market, where borrowing rates had spiked late last week.

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

U.S. coronavirus relief bill no immediate cure for retailers, restaurants

Retailers and restaurants would see tax incentives and fresh cash in their customers' pockets under the U.S. Senate's $2 trillion coronavirus relief measure. But the bill doesn't go far enough to help companies facing plunging sales and foot traffic, experts said. Multiple provisions of the Coronavirus Aid, Relief, and Economic Security, or CARES, Act, stand to benefit retailers, restaurants and other businesses hurt by social distancing, shelter-in-place orders and other steps meant to control the spread of coronavirus in the U.S. Under the Senate version passed March 25, retailers and other companies would receive tax breaks for keeping employees on staff while stores are closed as well as refunds for improvements to their stores or other properties. They would also potentially benefit from any spending spurred by payments to individual taxpayers of up to $1,200.

But those measures are unlikely to do much for retailers in the short-term as most consumers stay home and away from shopping in person, said Brian Yarbrough, an analyst at Edward Jones.

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

Higher U.S. broadband usage the 'new normal' after coronavirus

It would be an exaggeration to say that Netflix Inc. is the reason U.S. broadband networks were prepared to handle the extra traffic generated by the coronavirus crisis — but the yearslong shift to streaming was a key factor. U.S. internet usage has surged in the days since the World Health Organization declared the coronavirus a global pandemic and federal and state leaders began encouraging many Americans to stay at home. Industry experts say investments to support bandwidth-intensive services such as high-definition streaming in recent years mean networks are so far standing up to the increased traffic, even as specific applications buckle under the strain.

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

CHART OF THE DAY

Higher U.S. broadband usage the 'new normal' after coronavirus

It would be an exaggeration to say that Netflix Inc. is the reason U.S. broadband networks were prepared to handle the extra traffic generated by the coronavirus crisis — but the yearslong shift to streaming was a key factor. U.S. internet usage has surged in the days since the World Health Organization declared the coronavirus a global pandemic and federal and state leaders began encouraging many Americans to stay at home. Industry experts say investments to support bandwidth-intensive services such as high-definition streaming in recent years mean networks are so far standing up to the increased traffic, even as specific applications buckle under the strain.

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

With oil prices down, some federal, state efforts to aid producers stumble

The collapse in oil prices has left many US oil and gas producers teetering on financial ruin, moving federal and state policymakers to take actions aimed at blunting the impact of ongoing and unprecedented supply and demand shocks. But some of these efforts, particularly a plan to buy millions of barrels of crude for US government stocks, have failed early or have yet to materialize. And, notably, President Donald Trump has given no indication he is pushing for any substantial aid for oil.

—Read the full article from S&P Global Platts

Calls to ease steel, aluminum tariffs amid COVID-19 crisis prompt renewed enforcement debate

Metal industry organizations renewed the debate this week over the enforcement of Section 232 steel and aluminum tariffs after the US Customs and Border Protection said March 20, through its Cargo Systems Messaging Service, that it would consider delaying payments of estimated duties and taxes on imports in response to the economic severity caused by the COVID-19 pandemic.

The Aluminum Association said Friday in an email to members that it "continues to favor the removal of Section 232 aluminum tariffs on all market economy countries" in response to the CBP's announcement, which sparked speculation that the Trump administration may soften tariff regulations.

—Read the full article from S&P Global Platts

EUROPE

Coronavirus crisis likely to force more European landlords to cut dividends

The coronavirus crisis will force more listed European landlords to cut dividend payouts as tenants struggle to pay rent amid the widespread closure of businesses, according to analysts. British Land Co. PLC, one of the U.K.'s largest listed landlords with a portfolio of mainly office and retail assets, is the latest landlord to announce a temporary freeze on dividend payouts to shareholders. It joins Unibail-Rodamco-Westfield, Shaftesbury PLC, Unite Group PLC, and Deutsche EuroShop AG in withdrawing dividends in response to the crisis.

"We would really expect to see issues with the dividend for a few more [listed landlords]," Colm Lauder, real estate equity analyst at stockbroker Goodbody, said in an interview. "It depends on the segment and the type of property that's being focused on."

Share buyback programs are also exposed to the impact of the coronavirus pandemic. Capital & Counties Properties PLC, which owns the retail-focused Covent Garden estate in London's West End, announced the temporary suspension of its share buyback program as it expects a "disruption to income this year."

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

Pandemic will push Bank of England stress tests beyond their limit – at first

The Bank of England said the coronavirus pandemic is likely to cause greater disruption to the economy initially than its most recent stress test envisaged, but the overall economic hit will remain within anticipated boundaries. The BoE's comments came as it launched an emergency liquidity scheme, its contingent term repo facility, which allows market operators to get hold of central bank cash reserves in return for high quality but less liquid collateral. The BoE said the move is designed to help alleviate frictions in money markets as a result of the economic shock caused by the coronavirus.

Minutes released by the BoE from the most recent meeting of the Financial Policy Committee show that it believes that the pandemic will have less impact on the core banking system than recent stress tests showed the system could withstand.

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

As construction slows, Europe's renewables market shows coronavirus resiliency

As hundreds of millions of workers enter lockdowns across Europe to help slow the spread of the coronavirus, leaving offices and construction sites deserted, it has become clear that most sectors will feel the sting of the crisis. While there is uncertainty over the duration and severity of the downturn, developers of renewable energy projects are already facing delays in the construction of new capacity. Project financing decisions may also be pushed back as the market backdrop changes from day to day. But the booming sector also has inbuilt strengths shielding it from catastrophic contraction, developers said, and it may also be a central part of any stimulus packages laid out by governments to try and boost economies after the pandemic.

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

ASIA

COVID-19 wreaks havoc on Asia's automotive industry

The COVID-19 pandemic has been a bane to vehicle producers in Asia, but the industry's reaction is just the tip of a supply chain disruption as heightened demand destruction to component parts, such as steel coils and foams are in the offing. The trend of halting production among Asia-based car makers is starting to spread, threatening to dent metal and petrochemical requirements from the automobile sector.

Two auto powerhouses of the Far East — Japan and South Korea — have implemented an interim shutdown of production at national car makers Toyota Motors and Hyundai Motor since the outbreak of the coronavirus in February. India is the latest victim to the spread of the coronavirus with a nationwide lockdown which will last until April 14. Even before the lockdown, Indian carmakers were already struggling with poor buying interest amid concerns of a slowing economy. The shutdown of an auto manufacturing plant translates to an abrupt reduction in demand for steel plates, foams and polypropylene, all of which are troubling given India's inability to import material from other countries.

—Read the full article from S&P Global Platts

Coronavirus forces Chinese hypermarket operators to accelerate online push

A surge in online sales as a result of store closures and quarantines imposed during the coronavirus outbreak has given further urgency to Chinese hypermarket operators' developing e-commerce efforts. Shares of Sun Art Retail Group Ltd. and Yonghui Superstores Co. Ltd., two of the country's largest brick-and-mortar retailers, rallied during the outbreak due to strong online sales of essential consumer goods, including groceries. Sales were aided by the Chinese government's opening of a "green channel" to ensure a constant supply of food and essential items despite the travel and logistics restrictions that were in place during January and February.

Alibaba Group Holding Ltd.-backed Sun Art said a jump in online sales offset a dip in offline sales in February. The brick-and-mortar retailer said 80% of its stores were closed in mid-February. Activity on its online platform, Feiniu.com, accounted for 19.4% of its sales in February, according to a Jefferies report. Overall, retail sales plunged 20.5% year over year during the first two months of the year, while online sales of goods grew 3%.

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

EMERGING MARKETS

Emerging Markets: Empty Streets And Rising Risks

Emerging markets (EMs) are facing severe stress resulting from three simultaneous shocks, as COVID-19 pandemic spreads globally. All key emerging economies that we cover will fall into recession or see sharply lower growth in 2020. S&P Global Ratings believes stress could become more significant in the coming weeks given that most EMs are only beginning to show an escalation of COVID 19 cases. As the epidemic accelerates, measures to contain the spread of the virus will compound the hit to economic activity from external shocks. The strength of eventual recovery will crucially depend on policy measures to cushion the blow and limit economic dislocation. Policy space differs across EMs. Downside risks are significant. Prolonged outbreak will depress activity and stress health systems. Extended shock to investor sentiment could result in heightened refinancing risk, especially for low rated issuers.

—Read the full report from S&P Global Ratings

COVID-19 Credit Update: Latin America Structured Finance Is In Lockdown

The COVID-19 outbreak in Latin America has been gradual, and major countries in the region were among the last to be hit. However, most of them are now in the local transmission stage, according to the World Health Organization. Measures across the region include lockdowns that restrict business activities to essential services. Welfare support in the region is not robust, and therefore, the impact of a prolonged lockdown on consumers and small and medium enterprises (SMEs) could be severe.

Because Latin America has less of a social safety net than many more developed areas, measures to reduce the spread of COVID-19 will likely hit individuals and small businesses especially hard. S&P Global Ratings expects new structured finance issuance to virtually halt while the pandemic persists. When assessing the effects on existing transactions, S&P Global Ratings is monitoring the liquidity, with special attention on payment reserves, expected debt service (including expenses) during the next three to six months, deferability clauses, and defaults.

—Read the full report from S&P Global Ratings

LatAm banks could see coronavirus crisis crunch in 3 months

Latin American banks are sufficiently capitalized to withstand ongoing turmoil as effects from the financial crisis and the commodity shock bleed into regional economies, provided that these conditions do not extend longer than three months, analysts say.

The rapid slowdown in the global economy stemming from the novel coronavirus outbreak is already generating spillover effects in Latin American countries. Supply chain disruptions, commodity shocks and restrictions to market access all make up a grey outlook for the region. And recently enacted quarantine measures to contain the pandemic — such as the nationwide lockdown imposed in Argentina March 19 — can only add pressure to domestic companies already suffering to maintain their top-line growth.

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

India's steep rate cut may help banking system, but impact unlikely immediate

The Indian central bank's unprecedented easing measures will be a shot in the arm to the economy, although the impact might not be felt immediately, analysts said. The Reserve Bank of India March 27 announced its steepest rate cut in a decade, a day after the government announced a 1.7 trillion rupee relief package that includes distribution of cash and food to nearly 800 million poor and needy Indians affected by the national lockdown aimed at slowing the spread of COVID-19.

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

South Africa's lockdown to hit cobalt exports: sources

Cobalt exports are expected to be negatively impacted by South Africa's 21-day nationwide lockdown, with sea ports remaining open only for essential cargoes like medical and food supplies. South Africa started the lockdown at midnight on March 26 in a bid to halt the spread of the coronavirus in the country. The country's Minister of Transport, Fikile Mbalula, said on Wednesday that "essential cargo" would still be allowed at South Africa's eight sea ports, although cargoes from high risk countries will have to be sanitized, with no crew interchanges allowed.

—Read the full article from S&P Global Platts

OPEC members still trying to broker an end to Saudi-Russia price war

Several OPEC members, largely bystanders suffering amid the Saudi-Russia oil price war, continue to press for a new production accord to stem the market rout. Algerian energy minister Mohamad Arkab, who holds OPEC's rotating presidency this year, and his staff have been extremely active in attempting to round up enough support to try and convince Saudi Arabia to consider an alternative tack, according to sources in the organization. But with the kingdom so far standing firm in its plans to ratchet up its production starting next month, the prospects of any new deal seem scant.

—Read the full article from S&P Global Platts

Insight from Moscow: Are Russia’s war chest and fiscal setup enough to combat OPEC+, coronavirus fallout?

The first few months of 2020 saw major changes to Russia’s political and energy landscape, as President Vladimir Putin proposed amendments to the constitution, the country’s crude production agreement with OPEC dramatically collapsed, and the coronavirus pandemic caused chaos on global markets. Of these factors, the latter two are having a more immediate impact on the Russian energy sector, most evidently in the recent oil price crash.

Although the Russian energy ministry has released details on how much producers can increase crude output in April, the economic impact of the spread of the coronavirus could now derail these plans.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.