The huge debt stacks in the countries are turning into a disaster

The huge debt stacks in the countries are turning into a disaster

Three countries have already failed their debt this year: Argentina, Ecuador and Lebanon. Others are at risk, according to Fitch Ratings. This corresponds to the record for a single year (this also happened in 2017). And, in case you are like us and you don’t remember what month it is, it is only May.

Other defaults are likely this year, says Fitch.

What is happening: Fitch has downgraded the debt of 29 countries this year, eight of which have a debt in the super speculative “C” range, given to countries at high risk of default. The credit rating agency also claimed that a dozen other countries are at risk of downgrading.

The most precarious sovereign debt comes from four African nations: Gabon, Mozambique, the Republic of the Congo and Zambia. At risk of joining them in the “Cs” are El Salvador, Iraq and Sri Lanka.

On average, the default rate for those C-rated countries has been 26.5% in the past 25 years, says Fitch. And they are generally automatically defaulted quickly: on average, a country takes only seven months to become default after moving to a “C”.

The problem has worsened recently. Over the past five years, the default rate for countries with the worst ratings has risen to 38.5%. Only five nations downgraded to C have avoided default.

Who is next: Among the countries at greatest risk of insolvency are those that rely on the export of raw materials, especially oil. Energy prices plummeted because practically nobody travels during the pandemic. The demand for oil is so low that some producers are running out of space to store all those unwanted barrels. A poor price war between Saudi Arabia and Russia has not helped things, although recent production cuts have somewhat stabilized prices.

Yet many oil producing nations are in good health. The countries at greatest risk of default have various underlying problems and the collapse in oil prices has pushed them beyond the limit: adding high interest rates and low liquidity reserves it starts to look like a toxic mix.

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Sovereign defaults remain rare: Fitch says that only 14 countries have failed a total of 23 times since the mid-1990s. But they are becoming more common and the coronavirus economy is making them much more likely.

American retailers are about to report earnings

This week, American retailers will show how coronavirus has changed the way people buy.

US retail sales plunged 16.4% last month, the Commerce Department reported Friday. It’s a record drop.

The precipitous fall came when people drastically changed their buying behavior. Few people buy clothes or organize holidays. Gas purchases are falling. But the essentials for the home, such as food, toilet paper and cleaning products, have skyrocketed.

Walmart (WMT) he is prepared to capitalize on that turn. It is the largest grocery store in America, and people have been gathering there for months stocking up on food and basic necessities. Wall Street analysts interviewed by Refinitiv predict that the company’s sales will have increased by 6% in the last quarter. Walmart will report its earnings Tuesday morning before the bell.
Target (TGT) it is also ready to benefit from the same trends. IS Alibaba (BABA) it could get a big boost from the global embrace of e-commerce shopping during home stay orders. Target sales are expected to increase by 8% and Alibaba’s revenue is expected to grow by 14%. Target will report earnings on Wednesday and Alibaba is slated for Friday.
Home Depot (HD) is Lowe (BASS) they are also likely to see an increase in sales. Both were considered essential businesses in recent months and an increase in home purchases before the pandemic prompted some homeowners to look for hardware. Home Depot sales are expected to increase by nearly 5% and Lowe sales are expected to increase by 1%. Home Depot will report earnings on Tuesday and Lowe’s reports on Wednesday.
Not much for Kohl (KSS) is L marks (LB), both will also report earnings this week and are expected to fall. Neither company was doing as well before the pandemic and clothing sales fell off a cliff. Kohl’s sales are expected to drop 1.5% of L Brands’ sales are expected to drop 2.4%.

Come on next

Monday: Report on the US real estate market index NAHB

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Tuesday: Walmart, Kohl’s Earnings and Home Depot, US Housing Report Starts

Wednesday: Earnings of Target, L Brands and Lowe

Thursday: Initial unemployment claims in the United States, Best purchase (BBY) earnings, US home sales report
Friday: Deere (DE) and earn Alibaba

Correction: An earlier version of this story incorrectly claimed Suriname’s geographic location.


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