Yen surges; P&C underwriting losses narrow; surplus to weigh on iron ore prices

In this edition of?Insight Weekly, we take a close look at the impact of the Japanese yen's movements amid diverging monetary policies in Japan and the US. Japan's three megabanks benefited earlier in 2024 from the currency’s decline, which boosted the value of their overseas earnings when converted to yen. However, currency gains for Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group are expected to diminish as the yen's recent appreciation against the US dollar is expected to accelerate. The likely start of the US Federal Reserve's rate-cutting cycle in September has sent the dollar to the lowest level against its G10 currency peers in more than a year. The move would contrast with the Bank of Japan's recent rate hike in late July, with more increases anticipated as the central bank normalizes its monetary policy. While higher interest rates will be supportive of the yen and help curb import-inflation, the tightening of monetary policy settings may also dampen domestic demand and have a negative impact on exports and domestic spending, according to S&P Global Market Intelligence.

Rapidly improving private auto results helped the US property and casualty industry in the second quarter to significantly narrow its underwriting losses on a year-over-year basis. The industry's combined ratio of 101.2% in a quarter where the P&C industry amassed a net underwriting loss of $5.19 billion represented a decline of 5.4 percentage points from the year-earlier period when losses spiked to $15.48 billion. Like the second quarter of 2023, P&C insurers faced elevated catastrophe losses from severe convective storms, but headwinds from the private auto business substantially dissipated, leading to marked improvement on the bottom line.

Iron ore prices may have found a bottom, but more pain lies ahead as next year's surplus may last until 2028, driven by concerning demand in China and returning Ukraine production showing resilience despite the war, analysts say. The IODEX CFR China 62% iron ore price hit a 21-month low of $91.90 per dry metric ton on Aug. 16, according to data from S&P Global Commodity Insights. In the long term, Commodity Insights expects the global seaborne balance to move into a growing surplus, which will weigh on prices to bring them down to an average of $80/dmt by 2028.

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Surging Yen in Focus

Surging yen threatens megabanks' currency gains amid diverging US-Japan policies

Japan's three megabanks are seeing the impact of fluctuating yen exchange rates on their earnings, with recent yen appreciation reducing the boost they previously gained from a weaker currency in the fiscal first quarter.

—Read more on S&P Global Market Intelligence.

US dollar sinks to new low as job market may set Fed's next move

The dollar's bull run has been upended as inflation data has neared the Federal Reserve's 2% target.

—Read more on S&P Global Market Intelligence.

Japan's business activity growth hits 15-month high but future confidence slips lower

Japan's private sector expansion accelerated in August to the fastest since May 2023, driven by improvements in the service sector alongside renewed modest growth of manufacturing output.

—Read more on S&P Global Market Intelligence.

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Deep Dives

In-depth features looking at the impact of major news developments in key industries.

Financials

US bank reserves grow as percentage of gross loans stagnates in Q2 2024

The US banking industry's ratio of reserves to gross loans in the second quarter was unchanged from the first quarter.

—Read more on S&P Global Market Intelligence.

Souring US commercial real estate loans hit German banks' asset quality in Q2

Specialist lenders Deutsche Pfandbriefbank and Aareal Bank, along with Germany's largest lender, Deutsche Bank, flagged more problem loans linked to their US office property books in the second quarter, warning of further asset quality risks in 2024.

—Read more on S&P Global Market Intelligence.

Most large European banks bolster liquidity in Q2 2024

Of the largest 30 banks for which data was available, 21 saw their liquidity coverage ratios increase from a year earlier, S&P Global Market Intelligence data shows.

—Read more on S&P Global Market Intelligence.

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Insurance

Financials Research: P&C industry persevered in Q2 through storms, catastrophic reserve charge

Dramatically better private auto results limited the magnitude of the underwriting losses the US property and casualty industry generated in the second quarter, according to our analysis of newly available statutory financials.

—Read more on S&P Global Market Intelligence.

UnitedHealth's Witty was highest-paid US health insurer CEO in 2023

Andrew Witty received $23.5 million in total compensation in 2023, 352 times greater than the median salary of a UnitedHealth employee.

—Read more on S&P Global Market Intelligence.

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Real Estate

Majority of US REITs beat consensus FFO-per-share estimates for Q2 2024

Seventy-eight out of 116 US equity real estate investment trusts covered in an analysis reported funds from operations per share in excess of their respective consensus estimates for the second quarter of 2024.

—Read more on S&P Global Market Intelligence.

Credit and Markets

Institutional investors dumped NVIDIA stock as it hit record high in Q2 2024

Institutional investors reduced their exposure to the chipmaker by a net 1.2% at the end of the second quarter.

—Read more on S&P Global Market Intelligence.

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Energy and Utilities

RRA Research: Regulators adopt stipulated rate hike, below-average ROE for New Mexico Gas

The adopted settlement provides for New Mexico Gas to implement a $30 million gas rate increase.

—Read more on S&P Global Market Intelligence.

US election, offshore wind woes top-of-mind as European utilities wrap Q2

European utility executives with stakes in the US renewables market laid out expectations for the November election during second-quarter results calls. Offshore wind projects in the US are already weighing on some developer.

—Read more on S&P Global Market Intelligence.

Gas utility operators help drive RNG production facility growth in 2024

Utilities continued to invest in renewable natural gas production facilities through the first half of 2024 while also building interconnections to the supply points and advancing regulatory mechanisms to participate in the RNG value chain.

—Read more on S&P Global Market Intelligence.

Technology, Media and Telecommunications

Tech industry braces for impact of kids' online privacy laws

The pending legislation would require social media platforms to enable their strongest privacy settings for kids by default. It also adds more accountability measures for social media companies and strengthens data protection and marketing limits.

—Read more on S&P Global Market Intelligence.

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Metals and Mining

Long-term pain ahead for iron ore as prices fall amid supply-side pressure

Following a 21-month low on iron ore prices, analysts expect an increasingly oversupplied market out to 2028 due to mounting production and potential structural demand issues in China.

—Read more on S&P Global Market Intelligence.

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The Week in M&A

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Deal Tracker: Private equity buyouts drive North America's July IT M&A

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Gas utilities return to M&A market in small, strategic deals

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Deal Tracker: PE-backed Metronet, Paramount deals drive July media, telecom M&A

Read on S&P Global Market Intelligence

Institutional investors unload SunPower shares in Q2'24 ahead of bankruptcy

Read on S&P Global Market Intelligence

Deal Profile: First Busey to acquire CrossFirst Bankshares in $916.8M all-stock deal

Read on S&P Global Market Intelligence

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The Big Number

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