Daily Update: March 31, 2022
Start each business day with our analyzes of the most pressing developments affecting markets today, along with a curated selection of our latest and most important news on the global economy.
The haves and have-nots of Asia-Pacific
In response to the effects of the war in Ukraine on energy and commodity markets, the gap between Asia-Pacific economies and private issuers who may or may not weather the turmoil is widening.
Greater geopolitical uncertainty, high prices exacerbated by the Russian-Ukrainian conflict, accelerated monetary policy by central banks and risks in China’s real estate sector are hurting some Asia-Pacific economies more than others. others. The confluence of factors is weighing on regional growth and threatening to further tighten uneven financing conditions, according to the latest research from S&P Global Ratings on macroeconomic and credit conditions.
In its latest forecast, S&P Global Ratings Economics downgraded the growth outlook for Asia-Pacific economies, but forecast the region as a whole to experience solid growth this year of 5.1% as its recovery lags behind. an earlier stage than the western regions. Nevertheless, inflation is likely to exceed targets in more economies and is pushing Asia-Pacific central banks in New Zealand, Singapore, South Korea, Taiwan and other countries on the way to monetary policy normalization.
“Rising energy prices will weigh on current account balances and real purchasing power in the many net energy-importing economies. This will be particularly true for South Korea, Taiwan and Thailand, where net energy imports are the largest relative to the size of the economy. High prices will be a plus for the region’s net energy exporters – Indonesia, Malaysia and, in particular, Australia,” said Louis Kuijs, chief economist at S&P Global Ratings Asia-Pacific, and Vishrut Rana in a study published this week. “An escalation of the Russian-Ukrainian conflict could rapidly increase energy prices, hit demand and create turbulence in financial markets. Asia-Pacific central banks may be forced to tighten monetary policy more aggressively.
Asia-Pacific central banks have generally not been called upon to raise interest rates. If central banks take stronger steps to normalize monetary policy, the region’s post-COVID recovery could be stalled. Globally, rising interest rates could prompt investors to withdraw capital from emerging Asian markets, hurting energy-importing economies that have low current account surpluses or deficits, according to S&P Global Ratings. .
“Rising energy and commodity prices as a result of the Russian-Ukrainian conflict is one of the reasons dividing the region into winners and losers. These include net energy importers and exporters, havens and non-havens, producers and consumers. The already uneven recovery path will lead to greater divergence among rated issuers,” said Eunice Tan, president of regional credit terms at S&P Global Ratings Asia-Pacific, and Terry Chan, senior credit researcher, in a published study. yesterday. “Central banks (eg the Fed and the Bank of England) embark on monetary tightening; China and Japan are exceptions. Emerging markets could experience capital flight, affecting currencies and increasing funding costs. Meanwhile, investor sentiment may limit refinancing options for some speculative-grade issuers.
Continuing to implement its low-tolerance COVID strategy, lowering interest rates rather than raising them, and slowly recovering amid a housing downturn, China appears to be the exception in Asia- Peaceful. Despite its ambitious economic target of achieving growth of around 5.5% this year, S&P Global Ratings Economics believes that growth of 4.9% is more likely. Ongoing housing issues in Asia-Pacific’s largest economy signal continued liquidity strains for property developers amid weak unit sales and falling prices, according to S&P Global Ratings.
Today is Thursday, March 31, 2022and here is today’s essential intelligence.
Written by Molly Mintz.
Q2 2022 North America Credit Conditions: Danger Ahead: Intersection of Risks
With heightened geopolitical tensions adding to already tight price pressures and supply constraints, and the Federal Reserve beginning to battle lingering inflation with what promises to be an aggressive monetary tightening cycle, borrowers in North America may soon see remarkably favorable financing conditions unfold. come to an end. While North America is relatively insulated from the direct effects of the Russian-Ukrainian conflict, the US and Canadian economies – and the borrowers operating there – are not immune to the fallout.
—Read the full report from S&P Global Ratings
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European banks cut fossil fuel financing, unlike North American peers – Report
Major European banks have cut funding for fossil fuel companies by 27.6% in 2021 amid growing shareholder pressure and the release of new funding policies, while their US and Canadian peers have increased their funding, according to new research. Investor pressure is having a ‘clear impact’ on some banks’ climate strategies, with UK lenders such as Barclays PLC and HSBC Holdings PLC issuing new policies after facing shareholder resolutions, chief executive Maaike Beenes said. campaign at BankTrack, one of the conservationists. organizations behind the new Banking on Climate Chaos report.
—Read the full article from S&P Global Market Intelligence
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U.S. rate probe could jeopardize some utility-scale solar plans
A U.S. Commerce Department probe into whether solar power makers were using factories in Southeast Asia to circumvent U.S. tariffs on imports from China could put a big damper on some project plans. large-scale developers and installers. Crystalline silicon solar cells and modules assembled in Cambodia, Malaysia, Thailand and Vietnam could be subject to the same tariffs the agency imposed on components made in China to enforce anti-dumping and countervailing duties. These four countries accounted for more than 85% of U.S. solar panel imports during the fourth quarter of 2021.
—Read the full article from S&P Global Market Intelligence
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Feature: US electric utilities begin adding Scope 3 emissions to climate goals
With an overwhelming majority of major U.S. electric companies now working toward net zero goals, a new set of trailblazers are shifting their climate ambitions to include Scope 3, the bulk of the power sector’s total carbon emissions. electricity. Scope 3 emissions, or those generated by a company’s indirect impacts along its value chain, accounted for 75% of total electricity sector emissions in 2019, according to data from S&P Global. Most utility net zero goals currently do not include Scope 3, which is the most difficult category of emissions to quantify and reduce, and instead relate exclusively to Scopes 1 and 2. , or emissions directly associated with a company’s operations and energy consumption. But that seems to be changing.
—Read the full article from S&P Global Commodities Outlook
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Energy and raw materials
Gas crisis increased power sector emissions in 2021 despite renewables milestone
Wind and solar accounted for a record 10% of global electricity production in 2021, but power sector emissions still rose 7% – the biggest increase since 2010 – as the demand has rebounded and coal generation has increased, energy and climate think tank Ember said in its Global Electricity Review 2022. Fifty countries around the world now get a tenth or more of their electricity from coal. wind and solar, Ember said in the March 30 report. China, Japan, Vietnam and Argentina passed this milestone for the first time in 2021, while world leader Denmark now generates more than half of its electricity from renewables.
—Read the full article from S&P Global Market knowledge
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Technology and media
How Cyber Risk Affects Credit Analytics for Global Issuers
The rapid pace of digitalization and interconnectivity has led to an increase in the frequency and severity of cyberattacks, leading to greater financial losses for businesses. The total number of negative rating actions where a cyberattack was a contributing factor, albeit modest, more than doubled for 2020 and 2021 compared to the previous two-year period – a trend we believe will continue. Cyber readiness is an increasingly important emerging risk factor in our analysis and companies that do not incorporate cyber risk mitigation strategies into their corporate governance and risk management frameworks could facing scoring pressure, even before an attack.
—Read the full report of S&P Global Ratings
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