We start each working day with an analysis of the most pressing developments impacting today’s markets and a curated selection of the latest and most important insights about the global economy.
Reality returns to the corporate credit market
In the decade following the global financial crisis, central banks around the world kept interest rates at or near 0%. Even with moderate inflation during that period, low interest rates created an economic incentive for businesses to borrow heavily over the long term. If interest rates are lower than inflation, borrowers are essentially being paid to receive money from lenders. Some companies took advantage of these favorable financing terms to build formidable balance sheets, while others used cheap capital to fund basic operations and avoid necessary restructuring. This has led to fears of so-called zombie companies. Few companies are stuck, but they are those that teeter on low interest rates and are susceptible to even modest rises in interest rates.
In 2022, the corporate credit market has begun to change. Many central banks responded to persistent inflation by raising interest rates. Interest rates remain historically low, but the speed of their rise has raised concerns that some companies cannot survive without cheap financing.
S&P Global Ratings recently released its 2023 global credit outlook under the ominous title of ‘No Easy Way Out’. Based on the work of our global research and analysis team, the report’s authors, Alexandra Dimitrijevic, Global Head of Analytics Research and Development, and Gregg Lemos-Stein, Chief Analytical Officer, Corporate Ratings, concluded that “there is room for error. Almost no” portrayed a tough situation in the credit market. ” Steady inflation, a possible recession and geopolitical tensions create tight and volatile funding conditions. These conditions will hit hardest on vulnerable businesses that have relied on borrowing to maintain their viability.
Some of these vulnerable borrowers have benefited from funding secured under previously lower interest rates. This funding should give some companies more room to readjust and restructure. Corporate bond issuance, which was unusually high in 2020 and 2021 when companies tried to lock in at low interest rates, is down this year. But inevitably, there will come a time when companies will return to the credit markets for new funding rounds.
Ratings are already lower than they were pre-pandemic. A total of 29% of non-financial companies are rated below his B-. S&P Global Ratings expects speculative-grade default rates to double in the U.S. and Europe, with strained funding conditions, global recession risks, price pressures and geopolitical tensions already fragile. We anticipate that it could put considerable pressure on borrowers. There are also structural risks that weigh heavily on some sectors, such as physical risks from climate change and the risk of exacerbation of cyberattacks. While it is difficult to predict who will weather this difficult period effectively, rising interest rates have brought reality back to the corporate credit market. Zombies are not real.
today Monday, December 5, 2022and this is today’s essential intelligence.
Written by Nathan Hunt.
Economy
Week ahead economic preview: the week of Dec 5, 2022
Global service PMI data are due at the beginning of a busy week that includes central bank meetings in Canada, Australia and India. Inflation data will also be plentiful from mainland China, the Philippines and Thailand, while US PPI figures are due to be updated. Germany’s industrial output and China’s trade value, which help assess the global economic environment, also provide greater insight into conditions within the commodity production sector.
— read the article S&P Global Market Intelligence
Access more insights on the global economy >
capital market
A tough year for valuations.Rapid increase in PE investment in Central and Eastern Europe
Private equity firms grappling with year-end portfolio valuations face cut jobs after a turbulent 2022 and beyond. Portfolio company valuations rely on comparisons to the earnings or profitability of similar publicly traded companies. But soaring inflation, rising interest rates and geopolitical turmoil have disrupted corporate earnings trajectories and prospects across a broad spectrum of the global economy, making it difficult to read clearly.
— read the article S&P Global Market Intelligence
Access additional capital market insights >
international trade
OPEC+ Decision on Oil Allocation Confused by Russian Sanctions
OPEC and its Russian-led allies are set to meet on Dec. 4 to review production quotas on the eve of an EU crackdown on Russian oil supplies and an attempt to impose a G7 price cap. The punitive measures are believed to disrupt oil flows, but with the exact impact still unclear amid an uncertain market outlook, the coalition appears likely to maintain production cuts. But representatives say further cuts in quotas cannot be ruled out entirely.
— read the article S&P Global Commodities Insights
Access more insights on global trade >
sustainability
US finds solar imports from Southeast Asia avoid tariffs.industry vigilance
The U.S. Department of Commerce issued a tentative decision on Dec. 2 that certain crystalline solar cell and panel imports from four Southeast Asian countries could be subject to a decade of tariffs against China by relying on components from those countries. I have verified that I am avoiding The tentative decision comes after a months-long investigation into allegations by California-based module maker Auxin Solar Inc. Auxin claimed that Chinese photovoltaic (PV) manufacturers assemble cells and modules in Cambodia, Malaysia, Thailand and Vietnam, and that parts and components are manufactured in Cambodia. China should avoid anti-dumping and countervailing duties imposed by the Obama administration in 2012.
— read the article S&P Global Market Intelligence
Access additional sustainability insights >
energy and commodities
China’s oil market may be able to cheer up after changes in COVID measures
China’s oil and commodity markets are already breathing a sigh of relief and may be hoping for a rebound in demand following the new measures recently adopted. This could send a strong signal to global markets that Beijing may be beginning to ease its strict zero-COVID policy. Prevent slowing economic growth and restore normalcy to citizens.
— read the article S&P Global Commodities Insights
Access more insights on energy and commodities >
technology and media
Two big tech antitrust bills remain stuck in final weeks of lame-duck Congress
U.S. lawmakers who support legislation to curb the power of big tech companies are calling for a pair of technology antitrust bills to be voted on in the final weeks of Congress. The two bills are part of the American Innovation and Choice Online Act (AICOA), which prohibits large technology companies like Amazon.com Inc. from favoring their products and offerings over third-party competitors. is. The Open App Markets Act prohibits app stores operated by Google LLC and Apple Inc. from requiring developers to use in-app payment systems directly. The Open App Markets Act also creates rules for in-app pricing and developer fees.
— read the article S&P Global Market Intelligence
Access more insights on technology and media >
