ppt

Coronavirus: The Global Impact April 7th, 2020

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Speakers

2

*Statements by persons who are not S&P Global Market Intelligence employees represent their own views and opinions, and are not necessarily the views of S&P Global Market Intelligence.

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Gary Regenstreif Executive Editor, News

S&P Global Market Intelligence

Paul Gruenwald Global Chief Economist

S&P Global Ratings

Chris Rogers Supply Chain Analyst S&P Global Market Intelligence Panjiva

Rachelle Kakouris Director

LCD Research

Liam Eagle Research VP, Voice of the Enterprise & Voice of the

Service Provider 451 Research

(now a part of S&P Global Market Intelligence)

Moderator:

The Economic Impact of COVID-19

Paul Gruenwald Global Chief Economist S&P Global Ratings

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April 7, 2020 Coronavirus: The Global Impact Webinar

Global Macro meets COVID-19: Unprecedented Times …

• There is no analytical framework/history to map a global pandemic into macro variables (macroeconomics was developed/grew out of work by Keynes in the 1930s/1940s).

• The speed and magnitude at which economic and financial variables are moving is unprecedented – some examples later.

• Macro forecasts always have a confidence interval, but when compounded by (and driven by) a health shock, these intervals are much wider.

• Macro/business/employment vs public health trade-offs can be complicated.

• It’s not too early to think about the shape and velocity of the recovery.

Some preliminary thoughts

The Health Policy Response To COVID-19 Dynamics Is Key

Everyone (hopefully) now knows why plotting logarithms is important!

1

10

100

1000

10000

100000

1-Jan 15-Jan 29-Jan 12-Feb 26-Feb 11-Mar 25-Mar

COVID-19 Cases in 2020

China Italy US Source: Johns Hopkins University

Our Stab At Macro-Sectoral Credit-COVID Linkages

Consider the Following Unprecedented Moves In The Data

1. US jobless claims rose 3.3 million in the week of March 21, five times the old (1982) record. The following week they doubled.

2. Chinese industrial production, profits and retail sales all fell by their largest amounts ever in January-February 2020 (and don’t the authorities “smooth” the data?).

3. Capital outflows from emerging markets over the past few weeks have far outpaced anything ever seen in any crisis (Asian crisis, dot com, GFC, EU debt crisis, et al.)

4. The S&P 500 fell by over 30% in 22 days – the fastest drop ever (and then had the sharpest rebound since the Depression).

… do you want to be the one forecasting what comes next?

The 2020 Global Recession Is Here and Now

Not shown: we expect unprecedented declines in sequential growth (q/q saar) in the coming quarters.

-2

0

2

4

6

8

10

United States

Eurozone China India 1/ Japan Russia Brazil World 2/

GDP Growth Forecasts (%)

2019 2020 2021 Source: S&P Global Economics, Oxford Economics.

Policy: Use The Kitchen Sink, Be Countercyclical, Time Bound

Monetary Policy – Use the balance sheet • Cut rates to zero, buy assets to hold down risk-free yields • Stand ready to intervene in CP, MM and even corporate (IG) credit markets to support liquidity

and ensure that markets function reasonable well.

Macro-Prudential Policy – Be counter cyclical

• Ease capital burdens to allow banks to lend and absorb shocks. • Flexibility around repayments, foreclosures in return to lending to critical sectors.

Fiscal Policy – Support the most vulnerable, pave the way for recovery

• Support labor market and SMEs, and keep them intact as much as possible. • Use guarantees to ease borrowing costs and financial conditions.

Bottom line: think big, but make it temporary and conditional on “good” behavior.

Lessons have been learned from the GFC and Euro Debt Crisis!

Thinking About the Recovery: V’s, U’s, and Others (single wave)

Original output 100, q/q growth = 0.5% 10% hit in Q2 2020, 0% Q3 2020.

Case A (demand only shock): recover output over 4 quarters, back to old path

Case B (case A + one-off supply loss): lose 2% of GDP in Q3 2020, but otherwise follow path A.

Case C (case B + lower trend growth): recovery is 4/5ths of case B, lower trend q/q growth 0.4%

Is COVID-19 just a demand shock, a temporary supply shock, or a growth shock?

90

92

94

96

98

100

102

104

106

108

2019 Q4

2020 Q1

2020 Q2

2020 Q3

2020 Q4

2021 Q1

2021 Q2

2021 Q3

2021 Q4

2021 Q1

2021 Q2

2021 Q3

2021 Q4

COVID Recovery Scenarios (in levels)

Old Base A B C

Source: S&P Global Economics.

Q2 2020 Supply Chain Outlook April 2020

Chris Rogers Quantamental Research – Supply Chains

S&P Global Market Intelligence Panjiva

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Through a COVID-19 lens, darkly

Decision making in an uncertain environment Non-financial data more important than ever

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Source: Panjiva, part of S&P Global Market Intelligence. Data as at March 31, 2020

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Source: Panjiva, part of S&P Global Market Intelligence. Data as at March 31, 2020

Lockdowns have a significant impact on trade Shipping from China shows what wider lockdowns may bring

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Source: Panjiva, part of S&P Global Market Intelligence. Data as at March 31, 2020

The bullwhip effect – demand falling as supplies return Wave of disruptions could roil supply chains for months

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Source: Panjiva, part of S&P Global Market Intelligence. Data as at March 31, 2020

The right stuff - Logistics face plethora of challenges Deliveries can’t be guaranteed, risk of force majeure rises

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Source: Panjiva, part of S&P Global Market Intelligence. Data as at March 31, 2020

Medical hoarding a persistent problem Manufacturing, protectionist issues won’t clear quickly

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Source: Panjiva, part of S&P Global Market Intelligence. Data as at March 31, 2020

Trade deals on hold U.S.-China trade relations likely to get worse

18

Trade deals on hold Brexit withdrawal extension vital for supply security

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Source: Panjiva, part of S&P Global Market Intelligence. Data as at March 31, 2020

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Source: Panjiva, part of S&P Global Market Intelligence. Data as at March 31, 2020

Through a COVID-19 glass, darkly Conclusions

Corporate uncertainty makes alternative data more important than ever Lockdowns set to cause significant supply chain disruption Bullwhip effect may mean it takes months for supply chains to normalize Logistics industry has slew of technical issues to address, service levels can’t be guaranteed Healthcare supply industry faces protectionist as well manufacturing challenges Trade deals on hold, China-U.S. relations may worse, Brexit extension vital

Find out more: • panjiva.com/research • https://www.spglobal.com/marketintelligence/en/topics/coronavirus

20

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These materials have been prepared solely for information purposes based upon information generally available to the public and from sources believed to be reliable. No content (including index data, ratings, credit-related analyses and data, research, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P Global Market Intelligence or its affiliates (collectively, S&P Global). The Content shall not be used for any unlawful or unauthorized purposes. S&P Global and any third-party providers, (collectively S&P Global Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Global Parties are not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the Content. THE CONTENT IS PROVIDED ON “AS IS” BASIS. S&P GLOBAL PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Global Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

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COVID-19 & Leveraged Loans Unprecedented volatility and sectors in distress

Rachelle Kakouris Director Leveraged Commentary and Data

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April 7, 2020

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Loan prices decline at fastest pace on record

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Source: LCD, an offering of S&P Global Market Intelligence; S&P/LSTA Leveraged Loan Index

Pushing secondary prices toward 2009 lows

50

60

70

80

90

100

110

03/31/06 03/31/08 03/31/10 03/31/12 03/31/14 03/31/16 03/31/18 03/31/20

Weighted average bid of US loans

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March dominates largest single-day losses

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The result: a brutal repricing

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Loans below 80 far exceed ’08 crisis levels

0

0.2

0.4

0.6

0.8

1

$0B $200B $400B $600B $800B

$1000B $1200B $1400B

M ar

-0 8

M ar

-0 9

M ar

-1 0

M ar

-1 1

M ar

-1 2

M ar

-1 3

M ar

-1 4

M ar

-1 5

M ar

-1 6

M ar

-1 7

M ar

-1 8

M ar

-1 9

M ar

-2 0

Di st

re ss

ra tio

Breakdown of the performing loans in S&P/LSTA LLI

Distress amount Non-distress amount Distress ratio

Distressed volume spikes to $672B→

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Sectors previously insulated from China supply-chain disruptions now feeling the pain

28

Industry returns March 2020

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29

Impacted sector distress rises sharply

0% 20% 40% 60% 80% 100% Electronics/electric

Business equipment and… Telcommunications

Automotive Industrial equipment

Insurance Leisure

Oil and gas Distress ratio by industry

3/23/2020 2/28/2020 12/31/2019

Percent of loans trading below 80

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Industry downgrade pressure

0 5

10 15 20 Issuer downgrades in March – S&P/LSTA Index

31

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Voice of the Enterprise: Digital Pulse, Coronavirus Flash Survey, March 2020

Liam Eagle Research VP, Voice of the Enterprise & Voice of the Service Provider 451 Research

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April 7, 2020 Coronavirus: The Global Impact Webinar

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Most Enterprises Expect a Major Disruption to their Business

Q:If the situation surrounding the coronavirus outbreak continues in its current state, how long is your organization equipped to function before a major disruption to its business occurs (e.g., inability to meet debt obligations or deliver agreed-upon services, loss of a major client or contract)? Base: All respondents (n=556) Source: 451 Research's Voice of the Enterprise: Digital Pulse, Coronavirus Flash Survey March 2020

13% 26% 13% 21% 28%

Already or less than a month 1-3 months 3-6 months More than 6 monthts Indefinitely

o f e n t e r p r i s e s s u r v e y e d e x p e c t t o e x p e r i e n c e a m a j o r d i s r u p t i o n t o t h e i r b u s i n e s s w i t h i n 6 m o n t h s

41% 25% 27% 21%

Mar 10-11 (n=44) Mar 12-13 (n=36) Mar 14-17 (n=401) Mar 18-19 (n=75)

T h e p o r t i o n p r e p a r e d t o g o i n d e f i n i t e l y w i t h o u t d i s r u p t i o n d r o p p e d f r o m 4 1 % t o 2 1 % i n 1 0 d a y s

52%

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Q: Please indicate whether your organization is currently experiencing or expects to experience each of the following as a result of the coronavirus outbreak.? Base: All respondents (n=556) Source: 451 Research's Voice of the Enterprise: Digital Pulse, Coronavirus Flash Survey March 2020

Immediate and Impending Disruption of Operations

27%

32%

32%

41%

40%

66%

25%

30%

26%

14%

22%

14%

6%

4%

5%

3%

2%

2%

43%

34%

37%

43%

37%

17%

Reduced or delayed supply of parts or materials

Reduced or delayed access to services

Loss or reduction of customer demand

Increased strain on internal IT resources

Reduction in employee productivity

Reduced access to clients or prospects (e.g., canceled meetings)

Currently Within 3 months More than 3 months Don't expect to experience

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A Permanent Influence on Ways of Working is Likely

Q: Which, if any, of the following strategic plans has your organization delayed, reduced or halted as a result of the situation surrounding the coronavirus outbreak? Please select all that apply. Q: Do you expect your organization to put any of the following new policies or changes into place as a result of the circumstances surrounding the coronavirus outbreak? Please select all that apply. Q: Do you expect any of these new policies or changes to remain in place long-term and/or become permanent? Please select all that apply. Base: All respondents Source: 451 Research's Voice of the Enterprise: Digital Pulse, Coronavirus Flash Survey March 2020

74%

67%

65%

62%

60%

54%

33%

27%

11%

6%

7%

12%

10%

13%

14%

12%

17%

16%

15%

8%

Travel limitations/bans

Not attending events we have attended in the past

Expanded/universal work from home policies

Delaying/canceling company events

External in-person meeting limitations

Internal in-person meeting limitations

Office closures (temporary or permanent)

Expanded employee leave rules

Workforce reductions or work furloughs

Diversifying supply chain or suppliers

Currently in place (n=748) Plan to implement (n=594)

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New Technology Investments to Support New Working Conditions

Q: Which, if any, of the following technology products or services do you expect your organization to spend more on as a result of the circumstances surrounding the coronavirus outbreak? Please select all that apply. Base: All respondents (n=662) Source: 451 Research's Voice of the Enterprise: Digital Pulse, Coronavirus Flash Survey March 2020

43%

37%

32%

28%

18%

17%

8%

29%

34%

31%

22%

21%

16%

13%

6%

37%

63%

53%

55%

46%

22%

26%

11%

11%

Employee communication/collaboration technologies

Mobile devices/services (e.g., phones, tablets,…

Bandwidth/network capacity

Information security software/tools (e.g., VPN)

External/hosted/cloud IT infrastructure

Internal IT infrastructure

Third-party services (e.g., installation, managed…

None

Total (n=662)

<$1B revenue (n=397)

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Demand on IT Resources Will Increase, But Not Overwhelm

Q: Please indicate whether your organization is currently experiencing or expects to experience each of the following as a result of the coronavirus outbreak. - Increased strain on internal IT resources (n=742) Q: For each of the following expense categories, please indicate whether your organization is spending more or less money as a result of the coronavirus outbreak. - IT resources/assets (n=642) Q: How equipped are your organization's IT systems to handle the requirements of any new policies resulting from the circumstances surrounding the coronavirus outbreak? (n=752) Base: All respondents Source: 451 Research's Voice of the Enterprise: Digital Pulse, Coronavirus Flash Survey March 2020

41% 14% 3% 43%

Currently Within 3 months More than 3 months Don't expect to experience

M o s t e x p e c t i n g i n c r e a s e d s t r a i n o n i n t e r n a l I T r e s o u r c e s

3% 63% 34%

Spending less No change Spending more

M o r e s p e n d i n g o n I T r e s o u r c e s a n d a s s e t s o v e r a l l

2% 7% 52% 39%

Not at all equipped Not very well equipped Somewhat equipped Totally equipped

E n t e r p r i s e s f e e l e q u i p p e d t o h a n d l e a d d i t i o n a l I T r e q u i r e m e n t s

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S&P Global Market Intelligence’s opinions, quotes and credit-related and other analyses are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P Global Market Intelligence may provide index data. Direct investment in an index is not possible. Exposure to an asset class represented by an index is available through investable instruments based on that index. S&P Global Market Intelligence assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P Global keeps certain activities of its divisions separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain divisions of S&P Global may have information that is not available to other S&P Global divisions. S&P Global has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

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39

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3. Alerts: News & Research keyword ‘coronavirus’ or ‘Covid-19”, customizable by industry and/or geography

4. S&P Global website: www.spglobal.com or https://www.spglobal.com/en/research- insights/featured/economic-implications-of-coronavirus

Q&A

40

*Statements by persons who are not S&P Global Market Intelligence employees represent their own views and opinions, and are not necessarily the views of S&P Global Market Intelligence.

Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Global Market Intelligence.

Gary Regenstreif Executive Editor, News

S&P Global Market Intelligence

Moderator:

Paul Gruenwald Global Chief Economist

S&P Global Ratings

Chris Rogers Supply Chain Analyst S&P Global Market Intelligence Panjiva

Rachelle Kakouris Director

LCD Research

Liam Eagle Research VP, Voice of the Enterprise & Voice of the

Service Provider 451 Research

(now a part of S&P Global Market Intelligence)

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