20171130-穆迪服务-2018_Outlooks_for_Defaults_and_Profits_Imply_Ample_Liquidity_29页_834kb

Moody's Weekly Market Outlook Summary

Core Content

Moody's Weekly Market Outlook provides insights into credit markets, economic forecasts, and default expectations for the US, UK/Europe, and Asia-Pacific regions. The report highlights that despite recent volatility in the high-yield bond market, liquidity remains ample due to strong corporate profits and borrowing activity. It also analyzes key economic indicators and their implications for market trends and monetary policy.

Main Points

• Defaults and Profits Outlook:
  Moody's forecasts that the US high-yield default rate will fall from 3.5% in Q3-2017 to 2.1% in Q3-2018, supported by improving corporate profits and controlled labor costs.
  The report notes that the "Great Junk Bond Scare" of November 2017 did not significantly impact liquidity, indicating that the market's fear was unfounded.

• Credit Spreads:
  High-yield bond spreads have moved from being too thin to too wide, with the midpoint estimated at 342 bp in November 2017, the thinnest since June 2014.
  The spread is expected to narrow further as profits grow and corporate borrowing continues.

• Corporate Borrowing and Leverage:
  US$-denominated corporate bond issuance and new bank loan programs show strong growth, with Q4-2017 expected to see 24% and 26% annual increases, respectively.
  Nonfinancial-corporate debt growth accelerated in Q2-2017, contributing to higher leverage and net interest expense, which may impact default rates if profits contract.

• Economic Indicators:

  • US:

    • New-home sales are expected to decline in October after a strong September boost.
    • Consumer confidence is forecast to rise to its highest level since 2000.
    • The core PCE deflator is expected to increase by 0.2% in October, keeping inflation close to the Fed's target.
    • Third-quarter GDP growth is projected to be revised upward to 3.3% from the initial 3%.
    • The ISM manufacturing index is expected to rise slightly in November.
    • Jobless claims are forecast to decrease to 238,000 in the week ending November 25.

  • Europe:

    • The euro zone's GDP growth is expected to remain strong, with Italy and Spain showing expansion of 0.5% and 0.8% respectively in Q4.
    • Inflation in the euro zone is expected to stay at 1.4% in November, with core inflation at 0.9%, indicating a weak labor market.
    • The European Central Bank is expected to maintain a dovish stance in 2018.
    • Germany's unemployment rate is likely to remain at 5.6%, with strong job creation in the manufacturing sector.

  • Asia-Pacific:

    • The report includes links to Moody's research on various regions, including China, Korea, and Saudi Arabia.
    • Economic data from the Asia-Pacific region is expected to be released, though not detailed in this summary.

Key Information

• Credit Market Trends:

  • High-yield spreads have widened, but this is attributed to increased borrowing rather than a liquidity crisis.
  • Corporate profits are expected to grow in 2018, which will support systemic liquidity and reduce default risk.
  • Net interest expense growth has outpaced profit growth, indicating higher financial leverage.

• Economic Data Highlights:

  • US:
    • Third-quarter GDP is expected to be revised up to 3.3% from 3%.
    • Consumer confidence is forecast to rise to 127.4 in November.
    • Personal income and spending are expected to grow modestly in October.
  • Europe:
    • Italy and Spain's GDP growth is expected to be confirmed in final data.
    • Core inflation in the euro zone is expected to remain low.
    • Germany's retail sales and consumer confidence are projected to show modest improvements.

• Market Outlook:

  • The report emphasizes that the current economic environment supports liquidity and low default rates.
  • It warns that a significant default rate increase would only occur if profits experience a deep and extended contraction.
  • The correlation between net interest expense and fixed-rate bond yields is stronger than with LIBOR, indicating that corporate borrowing dynamics are more influenced by fixed-rate instruments.

Figures and Models

• Figure 1: Shows that the high-yield bond spread has moved from being too thin to too wide, based on an explanatory model using EDF metrics, VIX, and the Chicago Fed's activity index.
• Figure 2: Highlights that the high-yield default rate is expected to ease despite a mild rise in net interest expense to pretax profits.

Contributors and Contact

• John Lonski (Chief Economist, Moody's Capital Markets Research): Provides credit market analysis and forecasts.
• Njundu Sanneh: Covers ratings updates and market data.
• Franklin Kim, Yuki Choi, Tomas Holinka, Barbara Teixeira Araujo, Katrina Ell, Faraz Syed: Regional contributors and analysts.
• Editor: Dana Gordon

Conclusion

Moody's report suggests that the credit markets remain resilient in 2018, with ample liquidity and a favorable outlook for corporate profits. The risk of a significant default rate increase is low unless profits experience a severe contraction. The report also notes that while certain economic indicators like new-home sales and consumer confidence may fluctuate, the overall trend remains positive.