Daily Update: June 28, 2022
Start each business day with our analyzes of the most pressing developments affecting the markets today, along with a curated selection of our latest and most important news on the global economy.
The growing risk of recession in the United States
The likelihood that activity in the world’s largest economy will contract sharply at some point over the next year is increasing.
Worsening supply chain disruptions, rising inflation, declining purchasing power and consumer confidence, and aggressive monetary tightening by the Federal Reserve are expected to put pressure on the US economic momentum this year and next, according to S&P Global Ratings. The risk of a technical recession, or at least two consecutive quarters of contraction, has risen to 40% (within a range of 35% to 45%) over the next 12 months. While US GDP is expected to slow to 2.4% this year, 2023 could bring a low-growth recession with a GDP gain of just 1.6% and a higher unemployment rate of 4.3%.
As growth falters and the cost of living soars, prospects for a soft landing for the U.S. economy are fading, according to S&P Global Market Intelligence. Markets reacted to such uncertainty with volatility, marked by the official entry of the benchmark S&P 500 stock index into bearish territory earlier this month on June 13, according to the S&P Dow Jones Indices.
“As we move into a potential recession, we expect stronger Fed action to slow hiring and increase unemployment. In such a scenario, the ‘cure’ for the economy and labor market working Americans might look worse than bad,” said Beth Ann Bovino, S&P Global Ratings chief economist for North America, in her third-quarter economic outlook. “We expect the Fed to raise interest rates and shrink its balance sheet will be enough to start bringing inflation under control and restoring real wage strength and purchasing power. The question is whether that will push also the United States in recession.
Against this backdrop, the hot housing market is expected to cool as interest rates and prices continue to rise.
From 2010 to 2019, it took first-time homebuyer American families 12 years to save a 20% down payment for a first home, assuming a savings rate equal to the national average. S&P Global Ratings expects this period to extend significantly over the next three years. This will be spurred by tighter monetary policy, rising house prices relative to household income and falling savings rates as inflation hurts household reserves.
“There are signs of weakening, although we don’t see it in the price yet… It’s going to slow down,” Robert Shiller, a Yale University economics professor and Nobel laureate, told S&P Global Market Intelligence during an interview. “We tend to talk about the stock market as affecting people’s decisions, but the housing market is really what impacts people’s willingness to spend.”
“Housing is one of the most cyclical sectors of the economy and tends to lead us into recession and recovery,” Mark Vitner, senior economist at Wells Fargo, told S&P Global Market Intelligence.
As the outlook deteriorates, lower-rated borrowers in the U.S. will be the most vulnerable if access to capital markets becomes tight, especially as ‘B-‘ rated issuers make up about a quarter of the portfolio speculative grade from S&P Global Ratings.
“The possibility of a recession or at least slower growth, amid continued cost and supply chain pressures, is forcing investors to reevaluate credit risk premiums,” S&P Global said. Ratings in a recent report. “While we do not believe that market volatility drives rating changes, we view market volatility as a response to the emergence or construction of fundamental stressors, such as declining corporate earnings or In fact, every period of acute market stress has also emerged during or before a recession, especially since the driver of rating downgrades and defaults is most likely.
Nonetheless, U.S. banks largely continued to project confidence, despite headwinds facing the broader economy and worse-than-expected Fed stress tests on their capital cushions, according to S&P Global Market Intelligence.
Today is Tuesday, June 28, 2022and here is today’s essential intelligence.
Written by Molly Mintz.
Latin America Q3 2022 Economic Outlook: Resilient so far this year, with tougher conditions ahead
Most major Latin American economies performed better than expected, showing resilience in the face of external headwinds, prompting us to raise our average GDP growth forecast for 2022 for the six major economies to 2 %, compared to 1.7% previously.
—Read the report of S&P Global Ratings
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U.S. long-term care insurers see surge in new customers in 2021
The number of new individual long-term care clients nearly tripled in 2021. The spike was likely a one-time increase related to the creation of a public option in Washington State, which caused many residents to seek coverage instead of participating in the government-mandated program, according to Jesse Slome, executive director of the American Association of Long-Term Care Insurance.
—Read the article by S&P Global Market Intelligence
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Mexican steel market predicts difficult third quarter, prices fall
The Mexican steel market is bracing for a bearish third quarter as prices are expected to fall due to lackluster demand and oversupply. Prices for flat and long steel have fallen for several consecutive weeks, and the speed and severity of the falls have concerned market participants from mills to end users.
—Read the article by S&P Global Commodities Outlook
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Analyzing Europe’s electrification path to 2050
In Western Europe, the electrification of sectors dependent on fossil fuels will lead to a doubling of European electricity demand by 2050. Electric vehicles will account for more than 11% of electricity demand – 10 times current levels -, while the demand for electrolysis, heat pumps and data centers will also increase.
—Watch the full video of S&P Global Commodities Outlook
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Energy and raw materials
Under Pressure: Utilities Turn to Coal, FERC Considers Interconnection Review
Consultancy ScottMadden’s latest update on the energy sector, aptly titled ‘Under Pressure’, outlines how rising post-pandemic energy demand, ambitious decarbonization targets, soaring commodity prices and geopolitical tensions have all combined to exert immense pressure on the global energy industry.
—Listen and subscribe to Capitol Crude, a podcast from S&P Global Commodities Outlook
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Technology and media
Global internet outages drop 9%, US disruptions drop 7% in 3rd week of June
Global Internet outages fell 9% to 254 in the week of June 18 from 278 the previous week, according to data from ThousandEyes, a network monitoring service owned by Cisco Systems Inc. US fell 7% to 87, accounting for 34% of all global disruptions. The total US rating is still above the levels seen in early and mid-May.
—Read the article by S&P Global Market Intelligence
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