20141218-穆迪服务-Foreign_Deflation_Risks_Menace_2015_s_Benign_Outlook_for_Corporate_Credit_32页_884kb

Moody's Weekly Market Outlook Summary - 2015

Core Content

Moody's Weekly Market Outlook for 2015 highlights the risks to corporate credit from global deflationary pressures and the potential for a more benign outlook as the US economy improves.

Main Views

• Global Economic Slack: The world economy is expected to grow at 3.3% in 2015, significantly below the 4.8% average of 2003-2007. This slack is driven by underutilization of resources in both advanced and emerging markets, which could lead to downward pressure on product prices and wages.

• Deflation Risks: The risk of price deflation extends beyond petroleum, as seen in the recent drop in industrial metals prices. Moody's warns that if deflationary pressures spread, it could impact corporate credit spreads and increase default risk.

• Corporate Credit Outlook: Despite these risks, Moody's expects a generally positive outlook for corporate credit in 2015, with a mild rise in the US high-yield default rate from 1.9% in November 2014 to an average of 2.1% in Q2 2015, and possibly 2.5% by November 2015. However, this is still below the historical average of 4.9%.

• Credit Spreads: High-yield bond spreads are expected to narrow from 554 bp to a range of 425 bp to 475 bp in 2015, driven by improved corporate performance and a positive outlook for profits. Investment-grade spreads are projected to remain somewhat under 141 bp.

• Interest Rates and Yield Curve: The Federal Reserve is expected to begin raising interest rates in 2015, with the first hike likely in the third quarter. The fed funds rate is projected to end 2015 between 0.625% and 0.75%, while the 10-year Treasury yield is expected to average 2.6%, lower than the consensus forecast of 2.9%.

• Inflation Dynamics: Core inflation remains subdued, with the US core PCE price index growing at 1.6% in 2014. This weak inflationary environment will likely constrain rate hikes, as the Fed's inflation target of 2% is not expected to be exceeded in the near term.

• Labor Market and Inflation: The labor market is not generating rapid price growth, as job creation is shifting to lower-paying sectors. This trend limits the upside for consumer spending and inflation, keeping the Fed accommodative.

• Monetary Policy Divergence: Global monetary policy is diverging, with the US adopting a more normalization path compared to Europe, where the ECB is still considering further easing. This divergence may keep US long-term rates lower than expected.

• Sectoral Risks: The energy sector remains a key concern, with its default rate expected to rise from 1.9% to nearly 3% by the end of 2015. However, the overall impact on the high-yield market is expected to be limited due to the sector's smaller share compared to past crises.

• Market Data and Projections: Moody's provides data on credit spreads, CDS movers, and issuance trends. The US high-yield bond issuance is projected to decline slightly in 2014, while investment-grade issuance is expected to rise.

Key Information

• Global Growth Expectations: 2015 world growth at 3.3%, below the 4.8% average of 2003-2007.
• US Industrial Production Growth: Expected to rise to 5.2% in 2015, up from 3.1% in 2014.
• High-Yield Bond Spreads: Projected to narrow from 554 bp to 425–475 bp by year-end 2015.
• Fed Funds Rate: Expected to rise to 0.625–0.75% by year-end 2015, with the first rate hike in Q3 2015.
• 10-Year Treasury Yield: Projected to average 2.6% in 2015, below the consensus forecast of 2.9%.
• Core Inflation: Remains at 1.6% in 2014, with weak expectations for future growth.
• Labor Market Shifts: Growth is moving to lower-paying sectors like healthcare and education, which may limit inflationary pressures.
• Energy Sector Impact: Accounts for 15% of the high-yield market, with a default rate expected to rise to nearly 3% by year-end 2015, but still below the historical average of 4.9%.

Summary Figures

• Figure 1: Industrial Metals Prices Have Held Up Better than Oil Prices. A base metals price index below 1,700 is a concern.
• Figure 2: The 10-year sovereign bond yields in the US are now 141 bp above those of France and Germany.
• Figure 3: Historical correlation between capacity utilization and profit growth is strong, with a 0.77 correlation coefficient.
• Figure 4: Core PCE growth has been weak, averaging 1.5% over the past five years.
• Figure 5: The 5-year 5-year Forward Inflation Expectations rate has dropped to 2.12%, the lowest in four years.
• Figure 6: Employment is shifting toward lower-paying sectors, which may limit wage and price growth.
• Figure 7: Energy sector spreads in Barclays indices are at 813 bp, much higher than the broad market's 527 bp.
• Figure 8: High-yield bond spreads by rating show a widening gap between Caa and Ba rated debt.
• Figure 9: Industrial production growth is expected to outpace capacity growth in 2015, supporting profit growth.

Conclusion

Moody's outlook for 2015 suggests a more favorable corporate credit environment despite ongoing global deflationary risks. The Fed is expected to begin rate normalization, but inflation remains subdued. The energy sector is a key risk, but its impact on the broader high-yield market is anticipated to be limited. Credit spreads are projected to narrow, and the overall corporate credit outlook is positive, supported by improving profit growth and a cautiously optimistic view of economic activity.