20180510-穆迪服务-Equities_Giveth_and_Taketh_Away_from_Credit_Quality_28页_770kb

Moody's Weekly Market Outlook Summary

Core Content

This report from Moody's Analytics provides a detailed analysis of credit market conditions, equity market dynamics, and economic outlooks for the U.S., Europe, and Asia-Pacific regions. It highlights the interplay between corporate equity buybacks, shareholder compensation, and credit quality, while also forecasting inflation, GDP growth, and other key macroeconomic indicators.

Main Points

Equity and Credit Quality Dynamics

• Equity Buybacks and Credit Quality: Equity buybacks have historically been used by corporations to compensate shareholders, but they do not guarantee market stability. The 2007 period saw record buybacks, yet the market eventually collapsed due to declining profits and rising defaults.
• Shareholder Compensation: Shareholder compensation, including dividends and buybacks, has been a significant factor in credit rating changes. The 2007 peak of 98% of internal funds was much higher than the current 60%.
• Credit Market Spreads:
  • Investment-grade spreads are expected to exceed 123 basis points by year-end 2018.
  • High-yield spreads may approach 425 basis points, compared to a recent 350 bp.
  • The U.S. high-yield default rate is forecast to fall from 3.7% in April 2018 to 1.5% in April 2019.
• Equity Infusion and Rating Changes:
  • Equity infusions (from public or private offerings) have driven credit rating upgrades, while shareholder compensation has led to downgrades.
  • The number of equity infusion upgrades has declined from 45 in Q4-2013 to 38 in Q2-2017, with a current count of 38 in March 2018.
  • The ratio of shareholder compensation to internal funds has dropped from 80% in Q3-2016 to 60% in 2017.

Economic Outlook and Market Data

• U.S. Inflation:
  • April core CPI rose 0.1%, while the Fed's core PCE deflator is expected to overshoot its target.
  • The Fed is likely to raise interest rates more aggressively than anticipated, with three additional hikes penciled in for 2018.
  • A 0.5% overshoot of core inflation is unlikely to be a major issue due to the Fed's ability to manage it.
• U.S. GDP and Employment:
  • The Fed is concerned about the falling unemployment rate and potential inflation overshoot.
  • GDP growth is expected to moderate, with a 1 percentage point slowdown in trend growth.
• U.S. Corporate Bond Issuance:
  • IG issuance is projected to fall by 8.2% to $1.385 trillion in 2018.
  • High-yield issuance is expected to decline by 5.7% to $428 billion.
• Global Oil Prices:
  • Oil prices may remain volatile due to U.S.-Iran tensions and the potential for sanctions.
  • The Fed’s tightening policy and global supply-demand dynamics are key factors influencing oil prices.

Euro Zone Outlook

• Inflation Forecast: Euro zone inflation is expected to average 1.6% in 2018, with France and Germany showing stronger trends.
• GDP and Sentiment:
  • Euro zone GDP growth slowed to 0.4% q/q in Q1 2018.
  • Business surveys and sentiment indicators show a slowdown in momentum.
  • Germany's GDP growth is expected to remain in expansionary territory but at a slower pace.
• ECB Policy:
  • The ECB is cautious about exiting QE and may delay tightening if inflation remains subdued.
  • The ECB also seeks to manage the adverse effects of potential supply shocks on GDP growth.

Asia-Pacific Outlook

• Japan:
  • GDP growth in Q1 2018 is expected to be 0.2%, slower than the previous quarter.
  • The Bank of Japan is likely to delay tightening until reflation gains traction.
• China:
  • Industrial production and retail sales show signs of moderation.
  • Fixed asset investment is supported by public infrastructure spending.
• Malaysia:
  • GDP growth in Q1 2018 is expected to be 5.2%, driven by domestic demand and government spending.
• India:
  • Industrial production is recovering, with a 7.1% y/y increase in March 2018.
  • CPI inflation slowed to 4.3% in March, on the back of easing food prices.
  • The trade deficit is widening due to higher commodity prices and a weaker rupee.

Key Indicators Overview

Key Takeaways

• Equity buybacks and shareholder compensation are closely linked to credit quality and rating changes.
• The U.S. is expected to see continued Fed tightening, driven by inflation concerns and falling unemployment.
• Euro zone inflation is expected to remain around 1.6%, with the ECB likely to delay monetary tightening.
• Asia-Pacific economies, particularly India and Malaysia, show signs of recovery, though challenges like trade deficits and oil prices persist.
• The report underscores the importance of monitoring economic indicators and global events, such as U.S.-Iran tensions, on market conditions.