20170914-穆迪服务-What_Might_Trigger_the_Next_Market_Plunge_28页_756kb

Moody's Weekly Market Outlook Summary

Core Content Overview

This document provides a comprehensive analysis of potential triggers for the next market plunge, focusing on the U.S., Europe, and Asia-Pacific regions. It includes insights from Moody's Capital Markets Research team, with contributions from John Lonski, Njundu Sanneh, Franklin Kim, Yuki Choi, Tomas Holinka, and Barbara Teixeira Araujo. The report also highlights upcoming economic data releases and market outlooks.

Key Views and Insights

U.S. Market Outlook

• Equity Market Valuation: The current overvalued U.S. equity market and low VIX index do not guarantee an impending crash, but a sharp rise in interest rates or a contraction in corporate earnings could lead to a severe correction.
• Historical Context: Since 1982, equity markets have experienced significant drops (at least -10%) during periods of rapid profit growth, often due to sharp interest rate hikes. The 1987 crash, which saw a -27.4% drop, was an exception where fundamentals were strong but the market still plummeted.
• Interest Rates and Yields: Higher bond yields could trigger a market plunge, but history shows that such corrections are often followed by a sharp decline in yields as markets recover.
• 2017-2018 Outlook: The U.S. is expected to see continued growth in core profits, with a projected 4.5% increase in 2018. However, a 3.0% average 10-year Treasury yield in Q4-2018 could lead to a market drop.
• Interest Rate Projections: The Fed is expected to begin balance sheet normalization in October, reducing it from $4.5 trillion to $3 trillion over four years. The Fed may raise interest rates once this year and three times in 2018, with one hike likely in 2020 to reach the long-run equilibrium rate of around 3%.
• Economic Indicators:
  • Jobless Claims: Expected to rise to 309,000 in the week ending September 16, influenced by Hurricane Harvey and Irma.
  • Consumer Price Index (CPI): Likely to rise by 0.3% (headline) and 0.2% (core) in August, with core CPI expected to increase by 1.8% year-over-year.
  • Retail Sales: Projected to rise by 0.1% in August, with auto sales declining but retail sales at auto dealers expected to be supported by repair shop spending.
  • Industrial Production: Expected to decline by 0.3% in August due to Hurricane Harvey's impact on factories and energy production.
  • Housing Market: The NAHB index is expected to drop slightly to 66 in September, but housing starts are forecast to rise to 1.183 million annualized units in August.
  • Bond Markets: Investment-grade bond issuance is expected to grow by 8.6% in 2017, reaching $1.533 trillion, while high-yield issuance is projected to rise by 23.0% to $419 billion, still below the 2014 peak of $435 billion.
  • Credit Spreads: High-yield spreads are expected to rise to 445 bp by year-end 2017, while investment-grade spreads may exceed 117 bp.
  • Defaults: The U.S. HY default rate is forecast to average 2.8% in Q2-2018, down from 3.4% in August 2017.

Europe Market Outlook

• U.K. Economic Outlook: The Bank of England is expected to maintain its current monetary stance, with no immediate rate hike. The BoE is closely monitoring wage growth and Brexit progress, which remain weak.
• Consumer Price Index (CPI): U.K. CPI is expected to rise slightly, but inflation pressures are unlikely to meet the ECB's target in 2017.
• France and Italy CPI: France's CPI is projected to rise to 1% in August, while Italy's remains subdued due to weak wage growth and limited household spending.
• Euro Zone CPI: The euro zone's annual harmonized inflation rose to 1.5% in August from 1.3% in July, signaling some recovery in inflation pressures.
• Brexit Impact: The U.K. faces delays in trade negotiations, with little progress expected before December. A transitional period is likely, and the government is expected to focus on this during its upcoming speech.

Asia-Pacific Market Outlook

• Moody's Analytics/Asia-Pacific Team: The team provides insights on credit markets, with updates from Katrina Ell and Faraz Syed.
• Market Data: The report includes updates on credit spreads, CDS movers, and issuance trends, emphasizing the potential for market volatility.

Key Information

• Credit Spreads: High-yield spreads are expected to rise to 445 bp by year-end 2017, while investment-grade spreads may exceed 117 bp.
• Defaults: The U.S. HY default rate is forecast to average 2.8% in Q2-2018, down from 3.4% in August 2017.
• Bond Issuance: U.S. investment-grade bond issuance is expected to reach $1.533 trillion in 2017, while high-yield issuance is projected to rise to $419 billion.
• Interest Rates: The Fed is expected to begin balance sheet normalization in October, with a few rate hikes planned for 2018 and 2020.
• Earnings and Market Volatility: The report warns that a significant drop in equity prices could occur if core profits growth slows or if interest rates rise sharply, leading to a correction of -10% or more.
• Investor Caution: Investors are advised to be prepared for a potential -20% plunge in a well-diversified portfolio within the next 18 months.

Conclusion

The report underscores the risks of a market plunge driven by interest rate increases or profit contractions, highlighting the importance of monitoring economic indicators and central bank policies. While the current environment suggests a relatively stable market, historical patterns and upcoming data releases may provide signals for potential volatility. Investors are urged to remain cautious and prepare for possible corrections.