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Moody's Weekly Market Outlook Summary

Core Content

Moody's Weekly Market Outlook provides an analysis of global and regional credit markets, economic indicators, and central bank actions, with a focus on the US, Europe, and Asia-Pacific. The report highlights the resilience of the US economy in the face of rising global corporate defaults, while also forecasting key economic data releases for the upcoming week.

Main Points

US Domestic Strength Guards Against Default Surge

• Global Default Rate: The global corporate default rate is expected to rise in 2016 but is projected to remain below the 25-year average of 4.6%.
• US Default Rate: The US high yield (HY) default rate is forecast to rise from 2.2% in July 2015 to 3.0% in the first seven months of 2016.
• Credit Spreads: US HY credit spreads are expected to narrow from 573 bp to 520 bp by year-end 2015, while investment grade (IG) spreads may rise to 164 bp.
• Economic Resilience: Strong domestic demand and persistent profit growth in most industries are supporting the US economy and credit cycle.
• Sector Performance:
  • Health Care: Strong performance with sales and earnings growth.
  • Homebuilding: A significant contributor to economic growth, with housing starts and sales on an upward trend.
  • Energy & Mining: Facing challenges with declining revenues and profits, similar to the energy sector's second-quarter performance.
• Federal Reserve: The Fed is expected to raise interest rates cautiously, reflecting confidence in the US economy but also acknowledging lingering uncertainties.

Key Economic Indicators for the Week Ahead

United States

• S&P / Case-Shiller Home Price Index – June: Expected to show a mid-single-digit annual increase of 5.1%.
• New Home Sales – July: Forecast at 514,000 units, indicating a rebound from June's decline.
• Conference Board Consumer Confidence – August: Projected to rise slightly to 93.0.
• Durable Goods Orders – July: Expected to rise by 0.2% ex-transportation, with a 0.8% gain in manufacturing.
• GDP – Second Quarter (Second Estimate): Forecast at 3.3%, with upward revisions likely due to strong retail and industrial sales.
• Personal Income & Spending – July: Income and spending are forecast to rise by 0.4% each.
• Pending Home Sales Index – July: Expected to rise by 1.0%, suggesting continued housing market recovery.

Europe

• Euro Zone Trade Balances: Improved with increased surpluses and lower energy prices.
• Germany: GDP growth of 0.4% q/q in Q2 2015, with household consumption driving growth.
• France: Business and consumer confidence indices are expected to remain stable or slightly improve, though weak GDP growth and high unemployment persist.
• Italy: Business confidence is forecast to rise slightly to 104.5, while consumer confidence is expected to increase to 107.
• Spain: GDP growth is projected to rise to 2.9% y/y, with domestic demand strengthening and exports benefiting from the weaker euro.
• Greece: A third bailout deal is expected to ease tensions, but concerns about its economic stability remain.
• Euro Zone Monetary Aggregates: M3 money supply growth is expected to decelerate to 4.8% y/y in July.
• Euro Zone Business and Consumer Sentiment: Likely to improve slightly to 105, but growth remains weak and uncertain.

Asia-Pacific

• Japan: Inflation pressures have eased, and the Bank of Japan may need to ease policy further to reach its 2% inflation target.
• Taiwan: Domestic trade and industrial production are expected to continue declining, with weak global demand and Chinese demand as key factors.
• Hong Kong: Trade deficit is forecast to narrow to HK$40.5 billion in July, driven by weak exports and subdued imports.
• South Korea: Consumer confidence is expected to rise slightly to 101, as the impact of the MERS outbreak fades.
• New Zealand: Trade deficit is expected to remain at NZ$150 million, with dairy exports struggling due to weak global prices and Chinese demand.
• Singapore: Industrial production is forecast to grow by 0.5%, with pharmaceutical output helping to push growth into positive territory.

Summary of Key Credit Market Metrics

Outlook and Analysis

• The US economy's strength is a key factor in preventing a broader default surge.
• While the global default rate is rising, it remains below historical averages, indicating a less severe downturn than in 1999 or 2009.
• The housing market is a strong indicator of continued economic expansion, with homebuilding and sales showing positive trends.
• In Europe, the economic recovery is uneven, with Germany showing resilience, while France and Italy face structural and external challenges.
• Asia-Pacific economies are struggling with weak demand and geopolitical uncertainties, though Japan and Singapore show some signs of recovery.