Daily update: April 8, 2021

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This year will be the key to the transition of the London Interbank Offered Rate (LIBOR). As regulators have warned financial firms for years that the benchmark interest rate – which indicates borrowing costs for short-term loans from global banks in the international interbank market – would be phased out by the end from 2021, the seismic change has moved away broadened. This will take effect after December 2021 for LIBOR settings in pounds sterling, euros, yen and Swiss francs and after June 2023 for most US dollar settings. Nonetheless, market players are approaching change at varying speeds.

“I think they are starting to have a emergency in the first six months of 2021Richard Sandor, president of the American Financial Exchange and creator of Ameribor, a proposed alternative to LIBOR, told S&P Global Market Intelligence. year or more, they will run into trouble. Regulators will not be happy with people who take out loans with Libor that extend beyond 2021. ”

Countries are likely to have divergent experiences when transitioning to a new benchmark rate, according to S&P Global Ratings. In Japan, the effect of losing LIBOR could be difficult, while the process for Australian banks is should be smooth. Latin America Exhibition should be minimal. Banks, structured financial markets, and other financial institutions across Europe and The United Kingdom will will likely benefit from the transition.

The most common alternative in US bond markets at LIBOR is the Guaranteed Overnight Funding Rate (SOFR), a volume-weighted median of US Treasury repo data at the transaction level that reflects the overnight cost of borrowing guaranteed by securities from the US Treasury.

There are three distinct differences between the USD LIBOR and SOFR benchmarks, according to the S&P Dow Jones indices.

First, SOFR is an overnight rate, and the USD LIBOR benchmark has seven forward-looking forward rate maturities.

In addition, SOFR is almost risk-free as an overnight guaranteed rate guaranteed by US Treasury bonds, while LIBOR is credit sensitive and incorporates a bank credit risk premium.

Finally, the difference between the two rates is the largest when it comes to their transaction rates. “The SOFR is based on observable transactions on the world’s largest interest rate market at a given maturity. Since SOFR’s first publication in April 2018, the average daily underlying transaction volume is approximately $ 977 billion. By comparison, the Fed estimates that on a typical day there are a handful of trades worth up to a few hundred million dollars that underlie a total of seven USD LIBOR maturities in the market. unsecured bank funding, ”S&P Dow Jones Indices said in a statement. recent report. “In fact, the decline in transactions underlying LIBOR is one of the main reasons the authorities are pushing the financial sector to switch from LIBOR to more robust benchmarks based on observable transactions rather than estimates. ”

While market players have made strides away from the benchmark rate and recognize the urgency to do so, “people know what to expect. [with LIBOR], and we just don’t have a mandate structure for SOFR yet, ”Nitish Idnani, director of Deloitte & Touche LLP, told S&P Global Market Intelligence. Overall, the transition is “no longer just a selling point. Insurance companies, asset managers, they’re all very focused on this… Over the last year or so we’ve seen a significant interest in financial services in what it means to them, which is. encouraging. ”

Today it’s Thursday April 8, 2020, and here is the essential intelligence of today.

Market dynamics


Supply issues push Mexican steel prices to 13-year highs

A long-standing regional supply shortage, exacerbated by the impacts of COVID-19, has pushed steel prices in Mexico to soar in 13 years, as local demand has yet to recover. Rising commodity prices, coupled with a strong US dollar, have also been the driving force behind a trend that is not expected to end in the near term. Adriana Carvalho, S&P Global Platts Editor-in-Chief for Latin American Metals, and Claudia Cardenas, Mexican Metals Price Specialist, examine trends influencing markets and present the latest updates on Platts methodology and specifications for Mexican flat steel prices.

—Listen and subscribe to Commodities Focus, a podcast of S&P Global Platts

The future of credit


A look back at the impact of the COVID-19 pandemic on global solvency

Just over a year ago, the World Health Organization declared COVID-19 a global pandemic, and the world plunged into a deep economic downturn. A series of negative rating actions quickly followed as S&P Global revised its assumptions to reflect the emerging risk of a sudden drop in revenues. The impact of ratings has been particularly pronounced for weaker, more indebted companies entering recession and issuers in industries heavily impacted by social distancing.

—Read the full report of S&P Global Ratings

Global business services industry poised for growth

S&P Global Ratings estimates that the global business and consumer services industry is poised for growth this year, after some turbulence in 2020 due to COVID-19-related shocks and the ensuing global economic recession. S&P Global Ratings has taken negative rating actions on more than a third of the companies rated by S&P Global Ratings worldwide in this industry in the past 12 months.

—Read the full report of S&P Global Ratings

The banking sector under pressure


Major Asian Banks Record Market Cap Growth in Q1 As Economic Recovery Persists

All but one of Asia-Pacific’s 20 largest banks saw their market capitalization increase in the quarter ended March 31, building on the momentum of the previous quarter, as the economy recovered from the COVID-19 pandemic persisted throughout the region.

—Read the full article by S&P Global Market Intelligence

Technology and media


Disney’s Pandemic Project: from the Mouse House to the Mouse Platform

Like many companies, Disney shares took a first plunge in 2020 when it became clear that there would be no big screens to launch its big-budget blockbusters on, no crowds to congregate in its parks. themed and less advertising for its television networks. Shares hit a low on March 23, 2020, down more than 40% from New Year’s Day. In comparison, the S&P US BMI Media and Entertainment Index was down about 26% and the S&P 500 was down about 30%. But the company’s investments in its streaming platform seemed to come at the right time. On April 8, 2020, Disney reported 50 million Disney + subscribers, less than five months after the service launched in the United States. These figures have contributed to a 22% recovery in the stock from the low point of the pandemic.

-Read the full article from S&P Global Market Intelligence

ESG in the time of COVID-19


In the ESG age, a new green asset ratio could give European banks an edge over their rivals

European banks could take the advantage over their US counterparts with a proposed “green asset ratio” to enlighten investors on increasingly important environmental issues, according to market participants. The European Banking Authority has recommended that banks adopt a host asset ratio, or GAR, to show how their business activities are environmentally sustainable, by submitting the proposal for consultation.

—Read the full article by S&P Global Market Intelligence

Enbridge Sticks to North American Oil, Gas and Renewable Energy Strategy

Canadian-based Enbridge expects future spending on growth projects to focus more on natural gas and renewables than oil, as it strives to meet its emissions reduction targets carbon, CEO Al Monaco said on April 7.

—Read the full article by S&P Global Platts

The future of energy and raw materials


Pandemic fears and high prices will dampen recovery in plant oil demand in India in 2021: Sunvin CEO

According to Sandeep Bajoria, CEO of Mumbai-based vegetable oil brokerage firm Sunvin Group, imports of vegetable oil from India are forecast for another moderate year in 2021 as refiners pass high prices on to consumers. consumers and a resurgence of the coronavirus pandemic is looming in the country. .

—Read the full article by S&P Global Platts

US, Iran move closer to relaunching nuclear deal after Vienna talks

The United States and Iran appear to have made progress in their indirect talks in Vienna on restoring the nuclear deal, improving prospects for relief from sanctions that could lead to the lifting of severe restrictions on Iranian oil sales.

—Read the full article by S&P Global Platts

Chilean mining sector should not be deterred by second wave of COVID-19

Chile’s copper mining hub is grappling with a large second wave of coronavirus infections amid a nationwide lockdown, but the mining sector could be on the verge of weathering the crisis largely unhindered.

—Read the full article by S&P Global Market Intelligence

Written and compiled by Molly Mintz.

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