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Daily Update: January 5, 2022


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Daily Update: January 5, 2022

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.

After a year that saw the dissemination of coronavirus vaccines, historic net-zero policy discussions, and the disruption of supply chains and energy markets, 2022 is likely to result in a recalibration of the global economy.

Macroeconomic and credit conditions are expected to remain solid in 2022, with persistent high inflation posing the strongest risk to derailing the big picture recovery and momentum. As more companies improve their digital capabilities and cyber defenses, technological advancement is likely to accelerate throughout the year. This year could be a critical one for renewable energy capacity—particularly from hydrogen, offshore wind, nuclear, and solar—to grow buoyantly. The oil market will start the year confronting the implications of responses to omicron alongside countries’ strategic petroleum reserve releases.

In the face of uncertainties from the coronavirus omicron variant and geopolitical, supply chain, price, and inflationary pressures, the market is facing questions about what the third year of COVID-19 will bring. Although the pandemic and its aftershocks will remain pivotal to credit prospects, global credit momentum is likely to remain positive—and while the world is still far from normal, global economic growth is returning to a more sustainable pace, according to S&P Global Ratings’ credit and economic outlooks for this year.

“If 2021 was the year of the big rebound, with COVID-19 vaccines fueling a robust economic recovery and steadily improving credit markets, the recent emergence of the omicron variant has offered a stark reminder that we have not yet beaten the virus,” S&P Global Ratings Global Head of Research Alexandra Dimitrijevic said in her global outlook for 2022. “More than COVID, persistently high inflation, fueled by supply-chain disruption and soaring energy prices, could be the primary setback derailing a still fragile recovery in 2022.”

The importance of technology will only intensify this year. Supply chain disruptions could push e-commerce companies to explore deals to expand their digital and technology capabilities and capitalize on higher volumes of online sales in 2022, according to S&P Global Market Intelligence. Small businesses may turn to data technologies in search of stronger business interruption insurance, while oil and gas companies may solidify public-private partnerships to proactively protect against cyber threats and attacks.

2022 is already shaping up to be a milestone for Europe’s investment in hydrogen, the U.S.’s development of offshore wind, solar, and battery power, and the world’s reconsideration of nuclear as an energy source following the two weeks of deliberations between political and corporate leaders on how to best combat climate change at the 26th U.N. Climate Change Conference. S&P Global Platts Analytics anticipates the U.S.’s new renewable energy capacity to surpass 30 gigawatts in 2022, with solar accounting for 15.5 gigawatts, wind for 11 gigawatts, and batteries for 4.2 gigawatts. In Europe, the hydrogen industry may experience a critical moment to make official investment decisions. In addition, nuclear advocates see changing attitudes about the energy—so much so that 2022 could fuel public and private sector action to establishing nuclear technologies, according to S&P Global Platts. 

Although underlying oil demand remained strong going in 2022, coronavirus concerns and geopolitical forces will pressure OPEC and its allies this year. The oil market is expected to find a healthy balance between supply and demand in the first quarter and ease the record-high prices seen in recent months. But any prolonging of the pandemic and a flush of supply from coordinated reserve releases could disrupt global oil demand that is exceeding pre-pandemic levels against the threat of omicron, according to S&P Global Platts. OPEC’s supply uncertainty remains, and future problems could arise if the market becomes tight again in the latter half of this year. 

"We are working on the assumption that there are uncertainties associated with the spread of the omicron strain," Russian Deputy Prime Minister Alexander Novak, who handles the country's OPEC+ affairs, told the Russia 24 television network after the OPEC+ alliance approved another 400,000 b/d oil production boost yesterday. "Nevertheless, observation and analysis shows that, despite the large increase in infections, the hospitalization rate is quite low, and is not affecting a decline in demand. Therefore, we believe that it is necessary to continue to fulfill those obligations that OPEC+ set within the framework of increasing production."

Today is Wednesday, January 5, 2022, and here is today’s essential intelligence.

The Credit Cycle

More Downside Expected For Steel As Evergrande Liquidity Crisis Impact Persists

Efforts by the Chinese government to deleverage its highly indebted property sector in 2021 sent Evergrande, its second-largest developer, into a spiral of default, and many of its peers may soon face similar challenges. That means hard times for steelmakers: On the Shanghai Futures Exchange, steel rebar, mainly used for construction projects, traded at 4,554 Chinese yuan per tonne on Dec. 22 — 28.1% lower than its historic high on May 12. China accounts for 55.9% of global steel demand, and property development consumes nearly 40% of that demand, making the sector one of the largest buyers of steel in the world.

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

Market Dynamics

Insurance-Focused Blank-Check Companies Raise $3.6B From Ipos In 2021

Special purpose acquisition companies with insurance as one of their intended target sectors raised about $3.60 billion from 20 IPOs in 2021, despite the U.S. Securities and Exchange Commission's April crackdown that led to a sharp decline in SPAC filings in the second quarter.

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

Technology & Media

Cable Comes Through A Tough 2021

A steep increase in mobile subscribers, competition in fiber expansion, and shifting consumer habits due to the COVID-19 pandemic contributed to an unstable year for cable stocks in 2021 and set the scene for an uncertain 2022.

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

How Widespread Is Netflix Password Sharing?

Assessing the true extent and impact of login/password sharing for Netflix and other SVOD operators is challenging, but Kagan Consumer Insights surveys of U.S. internet adults shed some light on admitted login sharers. When asked about account type and method of access, 85% of Netflix users said they were paid subscribers, including 20% that had established a paid subscription within the last 12 months. That left just 11% using a shared login and the remainder seasonal subscribers and free trial users.

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

Lack Of Nonfungible Token Insurance Coverage 'Inexcusable' As Market Expands

Nonfungible tokens have grown in popularity in 2021, generating millions in sales, but there is very little insurance for this burgeoning market. There is currently no comprehensive insurance policy covering NFTs, which are pieces of unique digital art certified as authentic by blockchain.

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

ESG in the Time of COVID-19

Hydrogen Plans Gather Steam At Utilities In Final Months Of 2021

Utilities continued to pursue the development of a clean hydrogen economy in the fourth quarter, though a major setback to federal hydrogen policy may present a hurdle for the industry's early adopters.

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

Hydrogen Tax Credit Hangs In Balance As Dems Aim To Revive Build Back Better

One of the most consequential U.S. hydrogen policies remains mired in Democrats' bid to get their Build Back Better agenda back on track as the Senate reconvenes. A proposed hydrogen production tax credit, or PTC, was among the casualties of infighting over the roughly $2 billion climate and social spending bill.

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

ERCOT Says Generation, Transmission Ready For Winter Following On-Site Inspections

Generation and transmission facilities in the Electric Reliability Council of Texas market are ready for winter, ERCOT said Dec. 30 after inspecting more than 300 generation units and 22 transmission facilities representing 85% of the megawatt hours lost during the deadly mid-February winter storm.

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

Push To Electrify Mines Accelerates But Raises Thorny Questions Over Cost

Mining companies are driving away from diesel-powered truck fleets that account for much of their greenhouse gas emissions to low- or zero-carbon alternatives, though the transition will be costly and logistically challenging.

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

The Future of Energy & Commodities

Fuel For Thought: Asian Oil Buyers Have Little Room To Play Around With SPRs

The word "strategic" in the phrase Strategic Petroleum Reserves is there for a reason and no one understands it better than Asia's biggest oil importers. With the energy security aspirations of Asia's biggest four oil importers—China, India, Japan, and South Korea—perpetually vulnerable to global price gyrations, they have increasingly expanded their SPR capacity over the past decades—an effort to ensure they have an emergency oil storage facility that can be used to mitigate oil supply disruptions. But when crude oil prices crossed $85 a barrel earlier this year, Asian oil importers worried this would derail a fragile economic recovery. As a result, for the first time countries like India and China turned to strategic oil reserves to cushion the impact of rising prices.

—Read the full article from S&P Global Platts

OPEC Elects Kuwait's Haitham Al-Ghais As New Secretary General

OPEC will have a new public face this summer with the election of Kuwait's Haitham al-Ghais as its new secretary general, as the bloc and its allies are hoping that a volatile oil market will be tamed enough to allow a return to pre-pandemic production levels.

—Read the full article from S&P Global Platts

INTERVIEW: Gazprom Neft Remains Upbeat On Russian Jet Recovery In 2022

Russian oil company Gazprom Neft's jet fuel subsidiary Gazpromneft-Aero is maintaining its positive forecast for the recovery of Russia's aviation market amid rising domestic tourism growth, CEO Vladimir Yegorov told S&P Global Platts in an interview. Russia's jet recovery has been ahead of the global one, according to Gazpromneft-Aero estimates, despite several waves of coronavirus.

—Read the full article from S&P Global Platts

Indonesia's Coal Export Halt Throws Dry Bulk Shipping Into Disarray

Supramax and Panamax markets in the Pacific region are expected to face disruption with Indonesia, one of the world's largest thermal coal exporters, banning exports in January to ensure sufficient supply for its state-owned electricity companies, according to shipping industry executives.

—Read the full article from S&P Global Platts

INTERVIEW: Pork Sector Modernization To Boost China's Feed Grain Demand: USGC

The modernization of pork production in China, expedited by African swine fever, is likely to boost the country's demand for feed further going forward, US Grains Council senior director for global programs, Cary Sifferath, told S&P Global Platts.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.