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.
Credit Conditions in North America
Every quarter, the credit conditions committees at S&P Global Ratings, composed of the chief economist at the regional and global level and the most senior rating experts across all asset classes, meet to define the base case that ratings analysts will use to underpin ratings forecasts in Asia-Pacific, North America, Europe and emerging markets. These reports are published on S&P Global Ratings’ website to create full transparency about the assumptions that substantiate credit ratings around the world. The report on North America, “Credit Conditions North America Q4 2023: Shift To Low Gear,” was published Sept. 26.
The US economy continues to confound expectations. The jobs numbers released Oct. 6 showed that job growth was almost double previous estimates for September. Despite the continued resilience of the US economy, economists continue to point to underlying weaknesses and warn of challenging days ahead. Satyam Panday, chief economist for the US and Canada at S&P Global Ratings, warned that a slowdown is merely delayed, not averted. Interest rates may be near their peak, but Panday believes that a further rate hike is possible during this tightening cycle. Inevitably, higher interest rates will cool the white-hot labor market, and the unemployment rate will begin to creep upward, reducing pressure on employers to increase wages. US GDP has outperformed expectations this year with a revised growth forecast of 2.3%. But the country’s GDP for 2024 should fall to below-trend growth of 1.3%.
“We see maturities ramping up, especially for the weaker credit in 2025 and 2026. But typically companies start to think about refinancing about 12 to 18 months before maturities, which means that by the middle of next year is when a lot of these weaker companies are going to want to refinance,” said Alexandra Dimitrijevic, global head of research and development at S&P Global Ratings, during a recent episode of S&P Global’s “Essential Podcast.” “A lot of these companies are already financing themselves on floating rates. So, they would have already seen a significant impact in the cash interest payment that they’re making. … What that means is that we expect defaults to continue to increase.”
With the US economy still running hot, higher-for-longer interest rates look to be an ongoing trend. Higher interest rates put pressure on borrowers, especially at the lower end of the ratings scale. As the maturity wall approaches, these borrowers will have to roll over their existing debt at a higher interest rate. This will lead to increases in the default rate for speculative-grade debt. Commercial real estate loans will be subject to particular pressures due to secular changes in workplace practices.
Panday believes that the Canadian economy will remain more sluggish than that of its neighbor to the south. The GDP growth estimate for Canada this year was lowered to 1.2%, and this level of growth is projected to continue into 2024. The Bank of Canada is also expected to raise interest rates again this tightening cycle. The unemployment rate tends to be higher in Canada for several structural and reporting reasons, currently standing at a comparatively low 5.5%.
Today is Monday, October 9, 2023, and here is today’s essential intelligence.
Written by Nathan Hunt.
Economy
Week Ahead Economic Preview: Week Of Oct. 9, 2023
Fed minutes from the September FOMC meeting will be released in the coming week alongside an assessment of US inflation conditions with CPI data. Inflation readings will also be due from mainland China for an update of both factory gate and consumer price developments. Amid concerns over the growth trajectory in the UK and Eurozone, August GDP and industrial production numbers will be updated for the respective economies. Additionally, the S&P Global Investment Manager Index, tallied from survey respondents collectively managing more than USD $3500 billion of assets, will provide the latest US equity market signals.
—Read the article from S&P Global Market Intelligence
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Capital Markets
The Resolution Story For Europe’s Banks: Making The Regime Fit For Purpose
The collapse of Credit Suisse and certain US regional lenders earlier this year created the biggest stress to hit the global banking industry since the implementation of “too-big-to-fail” reforms. For Credit Suisse, the Swiss authorities’ reluctance to use established resolution powers has sparked a debate about whether resolution frameworks can do what they were designed to do, particularly when financial market conditions are volatile.
—Read the report from S&P Global Ratings
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Global Trade
Listen: Ban On Diesel And Gasoline Exports: Will Russia Double Down Or Reverse Course?
Global fuel markets were set to receive another shockwave when Russia announced a ban on diesel and gasoline exports amid tight domestic supplies. Brazil and other importers of Russian diesel were expected to suffer the most. But judging by the falling prices, things are not going quite as some had expected. In this episode of the Platts Oil Markets podcast, London-based oil news reporter Elza Turner and oil price reporters Matthew Tracey-Cook and Sasha Foss join Francesco Di Salvo to discuss the market’s reaction to a ban that many traders doubt Russia can stick to for much longer.
—Listen and subscribe to Platts Oil Markets, a podcast from S&P Global Commodity Insights
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Sustainability
Listen: Breaking Down Silos Between Investment And Climate Communities
In this episode of the ESG Insider podcast, hear from Nikita Singhal on the sidelines of The Nest Climate Campus at Climate Week NYC. Nikita is managing director and co-head of sustainable investment and ESG at Lazard Asset Management, a global asset manager with more than $200 billion in assets under management. She was also a speaker at the event S&P Global Sustainable1 hosted during Climate Week NYC.
—Listen and subscribe to ESG Insider, a podcast from S&P Global Sustainable1
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Energy & Commodities
Spotlight On Growing African Lithium Supply
Despite a softening in spot prices, the long-term outlook for lithium remains strong as governments push for electrification to meet energy transition goals. Amid growing focus on new supply, Africa is emerging as a key player on the global stage due to its vast and relatively undeveloped resources, though the path ahead is not without its challenges.
—Read the article from S&P Global Commodity Insights
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Technology & Media
Listen: Next in Tech | Episode 135: Hosting and Cloud Transformation Summit is back!
For over 15 years, the Hosting and Cloud Transformation Summit has been a forum for sorting out the complexities of digital infrastructure and this year it’s back in person and in New York City on Oct. 10. Brian Partridge and Kelly Morgan join host Eric Hanselman to talk about the latest in edge computing and M&A activity in the datacenter world. Both areas are undergoing tremendous change and you can find out more about HCTS here.
—Listen and subscribe to Next in Tech, a podcast from S&P Global Market Intelligence
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