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Firms including Woodside, Chevron, Shell and Exxon Mobil, told they could be downgraded within weeks.

Royal Dutch Shell rig operators in Texas. Oil and gas companies have been told they could be downgraded between one and two notches as S&P increases risk rating for the entire sector. Photograph: Bloomberg/Getty Images

Rating agency S&P has warned 13 oil and gas companies, including the some of the world’s biggest, that it may downgrade them within weeks because of increasing competition from renewable energy.

On notice of a possible downgrade are Australia’s Woodside Petroleum as well as multinationals Chevron, Exxon Mobil, Imperial Oil, Royal Dutch Shell, Shell Energy North America, Canadian Natural Resources, ConocoPhillips and French group Total.

S&P said it was also considering downgrading four large Chinese producers – China Petrochemical Corp, China Petroleum & Chemical Corp, China National Offshore Oil Corp and CNOOC.

The rating agency said it had increased its risk rating for the entire oil and gas sector from “intermediate” to “moderately high” because due to the move away from fossil fuels, poor profitability and volatile prices.

It said it also had a negative outlook for two other big oil and gas companies, British multinational BP and Canadian group Suncor, but did not plan to immediately reassess their credit ratings.

“In particular, we note significant challenges and uncertainties engendered by the energy transition, including market declines due to growth of renewables; pressures on profitability, specifically return on capital, as a result of high dollar capital investment levels over 2005-2015 and lower average oil and gas prices since 2014; and recent and potential oil and gas price volatility,” S&P said on Wednesday.

…click on the above link to read the rest of the article…

S&P Opens Down 7%, Triggers Circuit-Breaker – Halted For 15 Mins

March 12, 2020

S&P Opens Down 7%, Triggers Circuit-Breaker – Halted For 15 Mins

It’s a Monday morning replay. S&P cash markets have opened down 6.7%, bounced a little, before tumbling back down to a 7% loss, triggering the first system-wide circuit-breaker, causing markets to halt trading for 15 minutes.

During US trading hours (Cash)

Level 1: 7% fall to 2549.48 before 15:25EDT/19:25GMT will prompt a 15-minute pause.
Level 2: 13% drop to 2385.00 before said time will introduce another 15-minute pause.
Level 3: 20% decline to 2193.10 within the time will shut the markets

NOTE: Only the 20% rule applies to the final 35 minutes of trading.

During US trading hours (Futures)

Level 1: 7% fall to 2546.50
Level 2: 13% drop to 2382.00
Level 3: 20% decline to 2190.00

Where are the circuit-breakers:

S&P Opens Down 7%, Triggers Circuit-Breaker – Halted For 15 Mins

March 9, 2020

S&P Opens Down 7%, Triggers Circuit-Breaker – Halted For 15 Mins

As we noted pre-open, S&P futures were locked limit-down 5%, but as we noted SPY was trading down 7.5% in the pre-open and now that the cash S&P 500 has opened and tumbled 7%…

it is now halted for 15mins as the first major circuit-breaker has kicked in. As a reminder:

If the S&P 500 declines 7%, (208 points), trading will pause for 15 min
If declines 13%, (386 pts) trading will again pause for 15 mins
If falls 20%, (594 pts) the markets would close for the day.

Additionally, Canadian stocks are down 7% at the open, the most sicne 2008; and Brazilian stocks are down 10% at the open, triggering their circuit breaker.

“Contagion Runs The Risk Of Spreading” In India’s Financial Sector, Rating Agency

October 24, 2019

“Contagion Runs The Risk Of Spreading” In India’s Financial Sector, Rating Agency

India, one of the largest emerging markets in the world, is at serious risk of widespread contagion ripping through its banking sector as many large financial companies have already seen their equity value halved over the last 12 months, S&P Global Ratings said in a report on Wednesday, also reported by Bloomberg.

India’s shadow lenders, also called non-banking finance companies, have been under severe pressure since the collapse of Infrastructure Leasing and Financial Services (IL&FS) last Sept., which was on the 10th anniversary of the bankruptcy of Lehman Brothers.

“India’s finance companies are among the country’s largest borrowers. A substantial part of this funding comes from banks. The failure of any large non-banking financial company or housing finance company may deliver a solvency shock to lenders,” said S&P Global Ratings credit analyst Geeta Chugh.

According to the report, the next big banking failure in India could run the risk of disrupting local credit markets, interbank markets, payments, and even damage economic growth.

“This contagion runs the risk of spreading to real estate companies too. Finance companies are the largest lenders to this segment and any failure among such institutions could jeopardize credit flows to developers,” Chugh said.
“The credit profile of a bank could deteriorate sharply due to outsized exposure to weak entities, huge market or operational losses, or significant deposit withdrawals if the depositors lost confidence in the bank,” Chugh added. “A governance deficit could also quickly turn to a trust deficit, hurting the stability of a bank.”

It’s likely that if one Indian bank fell, “the contagion could spread to other banks perceived to be struggling with the same problems as the failing bank,” S&P warned.

…click on the above link to read the rest of the article…

US Equity Futures Trade Near All Time High After ECB Goes All In

September 13, 2019

US Equity Futures Trade Near All Time High After ECB Goes All In

If it was Powell’s intention to have the S&P trade at an all time when he cuts rates by another 25bps next Wednesday, he achieved it.

S&P futures rose alongside Asian and European stocks as shares globally headed for a third weekly gain and a six week high as markets cheered signs of progress in US-China trade talks and the ECB’s just launched open-ended QE. Treasury yields climbed, with the US 10Y rising as high as 1.81%; the dollar slipped while the yuan rose and pound soared on easing no-deal Brexit fears.

The resurgent risk appetite was largely the result of renewed trade war optimism after President Trump said on Thursday he was potentially open to an interim trade deal with China, although he stressed an “easy” agreement would not be possible.

Following a muted Asian session where many markets in the region were closed, we saw a groggy start in European trading after Bloomberg reported that most core European nations did not want to restart the ECB’s money printing program, the main bourses eventually traded well in the green, as basic resources and auto sectors outperformed, adding to what was already set to be a fourth straight week of gains.

“We have quite an interesting reaction to the ECB meeting with the sense of the pushback from the core countries, and that essentially that the ECB has now thrown its last cards in,” said John Hardy, head of FX strategy at Saxo bank. “It looks like we are also getting to some pretty interesting levels for yields. If the consolidation continues, at some point you have to question whether the easing (from the central banks) is actually there.”

…click on the above link to read the rest of the article…

Argentina Is Officially In Default Again: S&P Downgrades Credit Rating To SD

August 29, 2019

Argentina Is Officially In Default Again: S&P Downgrades Credit Rating To SD

The IMF just broke its own record of incompetence: less than a year after its record, $57 billion bailout of Argentina was finalized, S&P just downgraded the country from B- to Selective Default – the equivalent to a default rating – following the government’s “reprofiling” of its debt on August 28, when it unilaterally extended the maturity of all short-term paper due to the continued inability to place short-term paper with private-sector market participants. Some $101 billion in debt is affected.

However, the selective default state will last for just one day, as only a few hours later, S&P will upgrade Argentina from SF to CCC-. As S&P explains, “under our distressed exchange criteria, and in particular for ‘B-‘ rated entities, the extension of the maturities of the short-term debt with no compensation constitutes a default. As the new terms became effective immediately, the default has also been cured. Therefore, we plan to raise the long-term ratings to ‘CCC-‘ and the short-term ratings to ‘C’ on Aug. 30, in line with our policies.”

Here is the full summary of today’s action, per S&P:

Following the continued inability to place short-term paper with private-sector market participants, the Argentine government unilaterally extended the maturity of all short-term paper on Aug. 28. This constitutes default under our criteria, and we are lowering the local and foreign currency sovereign credit ratings to ‘SD’ and the short-term issue ratings to ‘D’.
The administration is also sending legislation to Congress seeking support from the Argentine political class to engage in a re-profiling of the remaining debt, so we are lowering our long-term foreign and local currency issue ratings to ‘CCC-‘ on heightened risk of a default under our criteria.

…click on the above link to read the rest of the article…

Why Morgan Stanley Thinks The S&P Is About To Crash

July 30, 2019

Why Morgan Stanley Thinks The S&P Is About To Crash

Echoing Guggenheim’s fears that US equities are in for a dramatic collapse, Morgan Stanley’s Mike Wilson warns that “…if equity markets fail one more time at our key resistance point, we believe the reversal is likely to be sharper and deeper than one might expect, even if the earnings recession is more benign than we expect.“

Via Morgan Stanley,

Breaking out is hard to do.

The S&P 500 remains the pied piper for global risk markets yet it continues to struggle with current levels for the third time in the past 18 months. While our 2400–3000 call from 18 months ago may look vulnerable, we think this latest surge will fail again, as we don’t expect a Fed cut to rekindle growth the way market participants may be hoping,and now pricing.

Market internals remain weak…

While the S&P 500 has made new highs, leadership remains decidedly defensive, with bond proxies and high-quality stocks disproportionately contributing to performance.

Underperformance of broader indices like the Russell 2000, Wilshire 5000,and equal-weighted S&P 500 suggest poor breadth, which is not a healthy development.

… Because fundamentals remain weak.

We have been consistent in our view that growth would disappoint this year on both the earnings and economic fronts. Earnings forecasts have fallen significantly since the beginning of the year and economic surprises have skewed to the downside.

Big disappointments in capital spending and business surveys suggest growth could slow further in 2H. Our economists are forecasting a material deceleration in 2H US GDP vs 1H.

…click on the above link to read the rest of the article…

Pain Is Inevitable; But Suffering Is Optional

May 26, 2019

Pain Is Inevitable; But Suffering Is Optional

How to avoid becoming collateral damage in the coming crash.

Sometimes you really do find enlightenment at the top of the mountain.

I spent this week hiking in Montana’s Bitterroot mountain range, as a participant in the pilot run of a new personal-growth-through-adventure-travel startup.

In our group was a famous professional cyclist, who had been a superstar on the Tour de France for many years.

He has a fascinating life story, both on and off the bike. His tales of the super-human efforts required to prevail at the most elite level of this punishing sport are mind-blowing.

The relentless and gruelling training covering thousands and thousands of kilometers. The near-starvation state cyclists exist in to maximize their power-to-weight ratio. Endless travel. Horrific crash injuries. Sponsor pressures. The money and politics driving the sport. Overbearing regulators. Cut-throat teammates. And of course, the pervasive doping.

When we asked him how he managed to persevere at the top of such a demanding sport for so long, despite the huge toll it took on his health and his marriage, he thought for a moment then said: “I suppose I’m just really good at suffering”.

It’s clear that, in addition to some truly amazing experiences, his cycling days have left him with a legacy of damage that he’s still working through.

As he shared this with us, one participant wisely advised him to remember: Pain is inevitable. Suffering is optional.

Yes, he’ll still need to deal with the aftereffects of his racing years. But it’s up to him how much power he wants to give them over his happiness and life path from here.

From Mountains To Markets

I’m struck by how relevant the above advice is to investors right now.

It’s becoming increasingly clear that the end of the ten-year bull market has arrived.

…click on the above link to read the rest of the article…

“No One Has Outlawed Recessions” Stockman Sees S&P Fair Value “Way Below 2000”

November 6, 2018

“No One Has Outlawed Recessions” Stockman Sees S&P Fair Value “Way Below 2000”

“If you’re a rational investor, you need only two words in your vocabulary: Trump and sell,” says David Stockman, former President Reagan’s Office of Management and Budget director, warning that a 40% stock market plunge is closing in on Wall Street.

While not the first time Stockman has warned of a catastrophe waiting to happen in markets, he told CNBC’s Futures Now that, after the worst monthly loss for global stocks since the financial crisis, that the early rumblings of that epic downturn are finally here.

“No one has outlawed recessions. We’re within a year or two of one,” adding that:

“fair value of the S&P going into the next recession is well below 2000, 1500 – way below where we are today.”

According to Stockman, Trump’s efforts to get the Fed to stop hiking rates from historical lows is misdirected…

“He’s attacking the Fed for going too quick when it’s been dithering for eight years. The funds rate at 2.13 percent is still below inflation,”

Specifically, Stockman notes the trade war is a major reason why investors should brace for a prolonged sell-off.

“The trade war is not remotely rational,” he said.

If the dispute worsens, it “is going to hit the whole goods economy with inflation like you’ve never seen before because China supplies about 30 percent of the goods in the categories we import.”

Stockman ends on an even more ominous note:

“We’re going to be in a recession, and we’re going to have another market correction which will be pretty brutal,” Stockman said.

“[Trump]’s playing with fire at the very top of an aging expansion.”

For now, all traders can think about is tomorrow – but we suspect Stockman will be right in the end.

Gas companies face Californian wipe-out, say S&P, Moody’s

November 3, 2018

Gas companies face Californian wipe-out, say S&P, Moody’s

Ratings agencies say the state’s bid to go 100% renewable poses a ‘significant threat’ to gas generators’ credit stability

Newport Wedge, California (Photo: Tom Walker/Flickr)

Gas companies in California face credit downgrades, ratings agencies say, after the state pledged to get all of its power from renewable sources by 2045.

On 10 September, California governor Jerry Brown signed a bill which would require 100% of the state electricity’s to come from carbon-free sources.

That would have no immediate effect on most gas generators, according to a report by Standard & Poor’s (S&P) analyst Michael Ferguson this month. However, he said: “We believe that over the long term, with the growth of renewable energy, these utilities face a significant threat to their market position, finances, and credit stability.”

Within a fortnight of the California bill, S&P had revised its ratings outlook for Middle River Power, an equity firm backing a natural gas-fired plant providing electricity for 500,000 people in San Berdinado, from stable to negative. On top of increased competition from renewables, the credit agency cited “a more challenging (…) regulatory environment for natural gas-fired assets over the long term because of aggressive renewable energy goal”.

“This gas plant is going to have to be refinanced,” Ferguson told Climate Home News, “and it’s going to get more and more difficult to refinance over the long-term because they are going to be facing increasing renewable penetration… Longer-term the prospects for [all] gas generation are going to be weaker.”

S&P’s report largely echoes an assessment by its rival Moody’s, released in September. According to Moody’s, the state’s new legislation was “credit negative” for companies Calpine Corporation, NRG Energy, Pacific Gas & Electric Company (PG&E), Southern California Edison Company, Los Angeles Department of Water and Power.

…click on the above link to read the rest of the article…

S&P Reveals $5.8 Trillion In “Hidden” Chinese Debt With “Titanic Credit Risks”

October 16, 2018

S&P Reveals $5.8 Trillion In “Hidden” Chinese Debt With “Titanic Credit Risks”

When it comes to estimating China’s total outstanding debt, there has long been confusion about the real number with most putting the debt/GDP at around 250%, while the IIF last year calculated China’s debt load as high as 300% of GDP.

Now, China watchers can one add another ~40% of debt/GDP to the total because according to S&P, China’s local governments have accumulated 40 trillion yuan ($5.8 trillion) – or even more – in off-balance sheet debt, suggesting the already record surge in defaults is set to accelerate further.

“The potential amount of debt is an iceberg with titanic credit risks,” S&P credit analysts wrote in a report Tuesday, Bloomberg reported, with much of the build-up related to local government financing vehicles, which don’t necessarily have the full financial backing of local governments themselves.

LGFV debt has emerged as a growing risk for China’s economy, because with the national economy slowing, and as a result of a crackdown on shadow lending and a Beijing quota for issuance of local-government bonds not enough to fund infrastructure projects to support regional growth, authorities across the country have resorted to LGFVs to raise financing, according to S&P.

That’s left LGFVs “walking a tightrope” between deleveraging and transforming their businesses into more typical state-owned enterprises, S&P warned.

Meanwhile, debt vulnerabilities continue to rise as a result of the previously reported record surge in Chinese corporate defaults this year, as Beijing seeks to roll back a decades-old practice of implicit guarantees for debt.

And while so far LGFV debt has avoided an event of default, several issues have come close, with local government bailouts taking place only in the last minute, adding to concerns about LGFVs vulnerabilities. Meanwhile, according to S&P the riskiest LGFVs include the following:

…click on the above link to read the rest of the article…

Measuring The Equity Bubble – “You Are Here”

January 19, 2018

Measuring The Equity Bubble – “You Are Here”

On best revisions for GDP and earnings in 2018 after Tax reform, the S&P is now less expensive than before, at just 57% above historical average…

In this brief note, we wanted to update our value indicator for the S&P, after the steep consensus upgrades to US earnings and US GDP that followed the US tax reform.

We assess how big of an improvement should we see after the reform, assuming a GDP growth of 3.40% in 2018, which is the average of the 10 highest analysts’ forecasts surveyed by Bloomberg, and assuming a 26% jump in earnings in 2018, again at the top end of surveys. We conclude that, against such most generous estimates, the ‘Peak PEG’ ratio for the S&P improved by almost 10%, or, rephrased, it is almost 10% off peak.

It follows that the S&P is now above historical averages by a mere 57%.

The Peak PEG ratio, using Peak Earnings and Trend Growth

The ‘Peak PEG’ ratio is a variation of the Shiller P/E and the Hussman P/E indicators. It measures the price-earnings to growth ratio (PEG ratio) not for a single stock but for the market as a whole. The ‘Peak PEG ratio’ is a price to peak-earnings multiple, adjusted for long-run trend growth. It considers the highest (rather than average) earnings over the previous 10 years (top 2 quarters on the last 40) and then divides for growth potential. It uses top earnings so to conservatively assume the best profit generation capability for stocks in a decade to persist, thus defusing a common critic to the Shiller P/E. It uses GDP trend growth so to proxy earnings growth potential, which is highly correlated to it over time.

…click on the above link to read the rest of the article…

S&P Downgrades Venezuela To “Selective Default” After Bondholder Meeting Devolves Into Total Chaos

November 14, 2017

S&P Downgrades Venezuela To “Selective Default” After Bondholder Meeting Devolves Into Total Chaos

Creditors had little expectations from today’s ad hoc meeting with “soon-to-default” Venezuela, and with good reason: not only was the meeting attended by several sanctioned Venezuelan officials, potentially jeopardizing the legal status of any bondholders who voluntarily appeared at the Caracas meeting meant to “restructure and refinance” Venezuela’s massive debt load, but it was nothing but total confusion, with neither Venezuela, nor creditors knowing what is on the agenda, why they were meeting, or what is the endgame. In sum, the meeting resulted in no firm proposals, lasted no more than 30 minutes, consisted largely of an angry rant by an alleged drug dealer who also happens to be Venezuela’s vice president, and ended as chaotically as it started.

Quoted by Reuters, one unnamed bondholder had a perfectly succinct summary of what happened today, or rather didn’t:

“There was no offer, no terms, no strategy, nothing,” the bondholder said, leaving the meeting that lasted a little over half an hour at the ‘White Palace’, departing with a colorful gift-bag containing Venezuelan chocolates and coffee.

Credit walked in as confused as they left, a little over a week after President Nicolas Maduro stunned investors with a vow to continue paying Venezuela’s crippling debt, while also seeking to restructure and refinance it; the two things are literally impossible at the same time. There is another problem: both a restructuring and a refinancing appears out of the question, due to U.S. sanctions against the crisis-stricken nation, which make discussions with the key negotiators who has been put on a sanctions black list, grounds for potential arrest. A default would compound Venezuela’s already disastrous economic crisis.

…click on the above link to read the rest of the article…

Connecticut Capital Hartford Downgraded To Deep Junk, S&P Says “Default Virtual Certainty”

September 26, 2017

Connecticut Capital Hartford Downgraded To Deep Junk, S&P Says “Default Virtual Certainty”

Two months after S&P downgraded the state capital of Connecticut, Hartford, to junk, when it cuts its bond rating from BB+ to BB- citing growing liquidity pressures and weaker market access, the city which has been rumored is preparing to file for bankruptcy protection and which has seen an exodus of corporations and businesses in recent months, just got more bad news when S&P downgraded it by a whopping 4 notches deeper into junk territory, from BB- to CC, stating that “a default, a distressed exchange, or redemption appears to be a virtual certainty.”

“The downgrade to ‘CC’ reflects our opinion that a default, a distressed exchange, or redemption appears to be a virtual certainty,” said S&P Global Ratings credit analyst Victor Medeiros.

The rating agency also warned that it could take additional action to lower the rating to ‘Default’ if the city executes a bond restructuring or distressed exchange, or files for bankruptcy.

In our view, the potential for a bond restructuring or distressed exchange offering has solidified with the news that both bond insurers are open to supporting such a measure in an effort to head off a bankruptcy filing. Under our criteria, we would consider any distressed offer where the investor receives less value than the promise of the original securities to be tantamount to a default.

In short: while Chicago has so far dodged the bullet, the capital of America’s richest state (on a per capita basis), will – according to S&P – be also the first to default in the coming months.

Full S&P note below:

Hartford, CT GO Debt Rating Lowered Four Notches To ‘CC’ On Likely Default

…click on the above link to read the rest of the article…

S&P Downgrades China To A+ From AA- Due To Soaring Debt Growth

September 21, 2017

S&P Downgrades China To A+ From AA- Due To Soaring Debt Growth

Four months after Moody’s downgraded China to A1 from Aa3, unwittingly launching a startling surge in the Yuan as Beijing set forth to “prove” just how stable China truly is, moments ago S&P followed suit when the rating agency also downgraded China from AA- to A+ for the first time since 1999 citing risks from soaring debt growth, less than a month before the most congress for Chiina’s communist leadership in the past five years is set to take place. In addition to cutting the sovereign rating by one notch, S&P analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. are unlikely to avoid default should the nation default on its sovereign debt. Following the downgrade, S&P revised its outlook to stable from negative.

“China’s prolonged period of strong credit growth has increased its economic and financial risks,” S&P said. “Since 2009, claims by depository institutions on the resident nongovernment sector have increased rapidly. The increases have often been above the rate of income growth. Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.”

According to commentators, the second downgrade of China this year represents ebbing international confidence China can strike a balance between maintaining economic growth and cleaning up its financial sector, Bloomberg reported. The move may also be uncomfortable for Communist Party officials, who are just weeks away from their twice-a-decade leadership reshuffle.

The cut will “have a relatively big impact on Chinese enterprises since corporate ratings can’t be higher than the sovereign rating,” said Xia Le, an economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “It will affect corporate financing.”

…click on the above link to read the rest of the article…

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