MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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Fed’s Zero-Tolerance
Inflation Policy
The Federal Open Market Committee
was crafty with the January post-
meeting statement. It accomplished the
objective of signaling a coming rate hike
but didn’t sound too hawkish, which
would have rattled financial markets.
This held until Fed Chairman Jerome
Powell gave his post-meeting
statement, but we will get to that.
The January meeting teed up the
potential for the first increase in the
target fed funds rate as early as March.
The meat of the changes to the post-
meeting statement concerned forward
guidance. With inflation well above 2%
and a strong labor market, “…the
Committee expects it will soon be
appropriate to raise the target range for
the federal funds rate.” In Fed speak,
“soon” normally means two to three
months, which keeps March in play.
The January statement scrapped the guidance that the Fed would keep interest rates
unchanged until the labor market had reached levels consistent with the FOMC’s
assessment of maximum employment. This means the Fed believes further improvement
in the labor market over the next couple of months will be sufficient to begin raising the
fed funds rate. The statement described the labor market as “strong.” This was absent in
the December statement.
Turning to the balance sheet, the statement said that the Fed would like to hold primarily
Treasuries on its balance sheet in the long run. This isn’t surprising, as the Fed has always
been uncomfortable holding a significant number of mortgage-backed securities. The Fed
has plenty of time to communicate how it would like to achieve this end.
A separate statement of principles on the balance sheet provided no surprises. It noted
that the Fed’s balance sheet will be reduced “over time in a predictable manner.”
WEEKLY MARKET
OUTLOOK
JANUARY 27, 2022
Lead Author
Ryan Sweet
Senior Director-Economic Research
Asia-Pacific
Katrina Ell
Senior Economist
Denise Cheok
Economist
Europe
Ross Cioffi
Economist
Evan Karson
Economist
U.S.
Adam Kamins
Director
Steven Shields
Economist
Ryan Kelly
Data Specialist
Podcast
Table of Contents
Top of Mind ....................................... 4
Week Ahead in Global Economy .. 6
Geopolitical Risks .............................7
The Long View
U.S. ....................................................................... 8
Europe ............................................................... 12
Asia-Pacific .....................................................14
Ratings Roundup ............................ 15
Market Data .................................... 18
CDS Movers .................................... 19
Issuance ........................................... 22
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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Basically, the Fed wants the reduction in its balance sheet to
be similar to watching paint dry. The Fed will use caps on
the scale of runoff on its Treasury holdings. The statement
noted that the fed funds rate remained its primary tool,
reducing the odds that it will use the balance sheet to
replace rate hikes if the yield curve flattens or is at risk of
inverting.
It was going well until…
Financial markets responded favorably to the post-meeting
statement, potentially a sign of relief that the Fed didn’t
sound the alarm or hint that it wants to be overly
aggressive. However, the markets' assessment quickly
changed during the post-meeting presser.
Both the bond market and equity markets reacted to Powell
saying the economy is in a very different place than in 2015
with high inflation and a stronger labor market. Powell
referenced this numerous times during the presser. This
fanned concerns that the Fed was going to suddenly turn
more aggressive. Markets also reacted to Powell saying that
the Fed has plenty of room to raise interest rates without
harming the labor market, which is a hawkish statement.
Powell dodged the question of when the balance sheet will
begin to shrink but said it would be after the first rate hike
and that it would likely take another meeting or two to
discuss before shrinking. This, therefore, points toward the
reduction in the balance sheet beginning in May or July.
Bottom line: Powell didn’t push back against market
expectations for three to four rate hikes this year, but he
signaled the central bank will have zero tolerance for any
upside surprises in inflation.
All told, in our baseline forecast we recently doubled the
number of Fed rate hikes this year from two to four. The rate
hikes are expected at the May, July, September and
December meetings of the FOMC . However, we may need
to bring forward the first rate hike.
Consumers upbeat on jobs, not so much on incomes
Something that stood out this week was that U.S.
consumers rarely have had as rosy an assessment of the
labor market. Unfortunately, that assessment is not having a
positive effect on their expectations about their incomes
over the next six months. The Conference Board’s labor
market differential, or the difference between those saying
jobs are plentiful versus hard to get, narrowed from 44.2 to
43.8. Still, the differential remains among the highest since
the 1990s and in the history of the series. This would
suggest that consumers would be increasingly upbeat about
their incomes over the next six months, but they're not.
This month, 16.7% of respondents expected an increase in
their income, down from 17.5% in December. The share of
respondents expecting their income to decline in the next
six months increased from 11.2% to 12.4%. The difference
between the share of respondents expecting their incomes
to increase minus decrease fell from 6.3 in December to 4.3
in January, the lowest since February 2021.
Since 2000, the correlation coefficient between the labor
market differential and the difference between the share of
respondents expecting incomes to increase minus decline is
0.83. Correlation doesn’t imply causation. Therefore, we
used Granger causality tests to see if there is a causal
relationship between these two series. With no lag, one-
month and two-month lags, the labor market differential
was found to Granger-cause changes in the difference
between the share of consumers expecting incomes to rise
minus decrease. The causality runs in one direction. This
makes the size of the current disparity surprising, particularly
as nominal wage growth has been accelerating.
It looks like there will have been another strong year-over-
year increase in the Employment Cost Index for wages in the
fourth quarter. Wages and salaries for all workers jumped
1.5% in the third quarter, nearly doubling the precrisis peak
of 0.9% in the first quarter of 2020. This makes it odd that
consumers are not overly upbeat about their income
prospects, especially since households tend to think of their
income in nominal rather than in real terms, known as
money illusion. Money illusion likely holds for most
consumers. Where it may not apply is among the more
educated, which the Conference Board’s survey might skew
toward.
Money illusion makes the gap between consumers'
assessment of the labor market and income prospects even
more puzzling. It is possible that the composition of the
Conference Board Survey may skew toward higher-earning
consumers, but that might not be enough to explain a good
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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chunk of the gap. Another possibility is that money illusion
holds except when inflation is too high to ignore because of
its financial impact. Having inflation at 7% on a year-ago
basis, compared with the 2.1% average growth in 2018 and
2019, is costing the average household $250 per month.
Looking across income cohorts, the cost of inflation differs.
For example, those age 35 to 44 are spending $303 more
per month, while those age 45 to 54 are spending an
additional $305 each month. Those age 65 and older are
spending an extra $194 per month.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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TOP OF MIND
Is Opportunity Knocking for the Midwest?
BY ADAM KAMINS
Last week, Intel announced a massive investment in as many
as eight new semiconductor factories near Columbus OH .
While the macroeconomic implications of enhanced
domestic chipmaking capacity are significant, so are the
regional effects.
Investment in the Columbus area is nothing new; like a
handful of midwestern economies, including Indianapolis
and Minneapolis , it has translated modestly favorable
demographics into solid growth. But there are broader signs
of hope for a region that is frequently overlooked. Despite
its many structural disadvantages, from cold weather to a
reliance on declining blue-collar industries, there is an
increasingly compelling case that the region finds itself in an
enviable position.
Low costs
With inflation reaching levels not seen in 40 years and
house prices skyrocketing, costs are front of mind for firms
and individuals. As remote options give workers some
flexibility to choose where they wish to live, costs are
supplanting distance to one’s place of work as households
make location decisions.
While portions of the South and Mountain West have
utilized lower costs as a draw, many once-affordable areas
are becoming significantly more prohibitive. States including
Colorado and Texas , while still less pricey than their coastal
counterparts, have seen living costs move decisively higher
over the past decade or two.
But the same does not hold for most of the Midwest, where
the Moody's Analytics
is well below the
national average. In fact, of the region’s 12 states, each
boasts below-average costs, with the Midwest serving as
home to five of the 10 least expensive in the nation.
Similarly, median family incomes as a share of the typical
monthly mortgage payment are significantly higher than in
any other region. There was a time in which the South came
close for affordability, but that is no longer the case after
years of rising demand in the Sun Belt .
While it would be foolish to believe that workers will use
newfound flexibility to move en masse to the Midwest,
increased flexibility still matters. Many smaller towns that
have struggled to retain residents because of a lack of high-
wage white-collar opportunities could experience reduced
out-migration, especially if large coastal firms pay similar
wages to employees regardless of their location. The
resulting infusion of money into otherwise-struggling
economies could provide a broader boost to areas that have
long struggled to keep up with their larger peers.
Skilled workers are out there
Unlike tech hubs on the coasts and, more recently, places
including Austin TX and Boise ID , the Midwest is not
propelled by a seemingly boundless supply of young college
graduates. But the region’s workforce is stronger than
college attainment data alone suggest.
For one, a heavy blue-collar dependence means that an
above-average share of workers are skilled even if they are
not highly educated. Large factory towns leverage on-the-
job training at the hands of a firm or a union to generate
high-wage opportunities. This model does not translate to
easy comparisons across regions, but it means that simple
metrics showing workforce quality may understate the
competitiveness of the Midwest.
Further, while educational attainment is subpar in the
region, there are some clusters of educated workers. The
Minneapolis and Chicago metro areas boast plentiful college
graduates, driving banks and corporate headquarters to
maintain a healthy presence in each place. Smaller finance
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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hubs including Des Moines IA and Omaha NE also appeal to
educated young adults.
But the fundamental reason why opportunities exist in the
region is that it boasts economies where the trade-off
between worker quality and costs can be partially bypassed.
On top of some of the other examples described, Cincinnati ,
Indianapolis , Kansas City and of course Columbus are all
well-positioned when comparing living costs to college
attainment. As a result, almost all large midwestern metro
areas boast a more educated workforce than their living
costs alone might suggest.
Based on a calculation that looks at the distance of both
measures from the mean, the Plains region stands out for
enjoying the most significant advantage. But the Great
Lakes are next on the list, highlighting the region’s ability to
combine worker quality and low costs.
Production haven
The same dynamics that inspired Intel to invest in a
domestic factory in Ohio may drive additional growth in
high-skill manufacturing in the coming years. Federal
funding for semiconductor manufacturing was facilitated in
large part by supply-chain issues that required substantial
government investment. Increased tensions with China and
lessons from the pandemic make additional domestic
production likely. And while the Midwest is hardly
considered a hotbed for chipmakers, that could easily
change.
The region’s abundant cheap land, natural resources, and
central location still make it an appealing location for
factories. In fact, Intel bypassed its home state of Oregon
partly because of limited land and zoning issues; it also has
struggled with the impact of droughts in Arizona , home to
another major chip fab. Neither is an issue in central Ohio ,
with plentiful water and lots of available space to build.
With an ample pool of workers in pockets of the region and
governments that have historically been willing to ante up
to attract employers, new investment could be plentiful in
the years ahead. This is especially true if climate change
factors more heavily into location decisions in the years
ahead given the region’s relatively low exposure to large-
scale disasters such as hurricanes and wildfires.
If the hoped-for investment in goods-producing industries
arrives, it should provide a more durable edge for the
Midwest than similar growth in office jobs. Take the
example of Intel. While it expects to create high-skill, high-
wage tech jobs, those positions will be oriented around
goods production. This is traditionally not as appealing from
a growth perspective as office-based tech positions, but an
increasingly diffuse white-collar workforce means that the
Intel factories could create more spillover than a new
Google or Facebook office, for example.
This is because production positions tend to be far more
tethered to the physical location of the establishment at
which they are based. That is good news for a region where
manufacturing jobs represent a higher share of tech
positions than they do anywhere else.
Put it together and there is a realistic narrative in which the
Midwest becomes home to a critical mass of stable, high-
wage jobs. Whether Intel’s move is a harbinger or a pleasant
exception to the rule remains to be seen, but portions of a
region that has long been derided as the Rust Belt could be
on the precipice of breakthrough.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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The Week Ahead in the Global Economy
U.S.
The busy U.S. economic calendar next week will focus on
the January employment report, which will be negatively
affected by the Omicron variant. Initial claims suggest job
growth weakened noticeably in January, but this may
understate the impact. COVID-19 cases averaged 803,000
during the January payroll reference period, compared with
127,000 during the December reference period. There has
been a solid relationship between the number of people not
at work because they are sick and COVID-19 cases. If this
relationship holds then the number of people not at work
because of their own illness will be close to 2.2 million in
January, compared with 1.68 million in December.
There is also a negative correlation between the number of
people not at work because they’re ill and private job
growth. Since the pandemic began in February 2020, the
correlation coefficient is -0.46, but it has strengthened
recently. In fact, the correlation coefficient is -0.86 between
the number of people not at work because they are sick and
private job growth since 2021. If more than 2 million are not
at work because their own illness, private employment likely
will fall for january.
Other key data released next week include the February ISM
manufacturing survey, productivity and costs, initial claims
for unemployment insurance benefits and the ISM
nonmanufacturing survey.
Europe
Key releases will be the euro zone’s preliminary estimates of
fourth-quarter GDP and January inflation rate. Output in the
fourth quarter likely grew at 0.4% q/q following the third
quarter’s 2.2% rise. A slower growth rate was always in the
cards as base effects from reopening after lockdown wore
off. That said, supply disruptions were considerably worse
than expected, and the Continent’s energy crisis led to sky-
high energy prices; moreover, lockdowns and social
distancing returned toward the end of the year given Delta
and Omicron outbreaks. The result will be a significant
slowdown in consumption, investment, and exports. Risks
tilt to the downside. There is no small chance that output
may contract in the final quarter. Even so we expect a quick
turnaround this spring as the pandemic abates.
We expect euro zone inflation to come in at 5% y/y for
January, the same as in December. The energy component
will remain a significant contributor, but will ease from the
previous month, due to the fall in natural gas prices. Oil
prices picked up considerably and this will prevent a large
decline in the segment. Cost-push on core basket inflation
likely persisted, but there will be a significant reduction in
base effects as the influence of Germany’s temporary 3-ppt
VAT cut drops out of the year-ago comparison, and this too
will prevent a jump in the inflation rate.
Central bank meetings at the Bank of England and the
European Central Bank will also catch headlines. We aren’t
expecting any big moves from the ECB . There will be no
change to the interest rate or asset purchase policies. We
may, however, get confirmation that the ECB is considering
changes to its reserve tiering system. By contrast, we expect
the BoE will hike its policy repurchase rate target 25 bps to
0.5%. Inflation in the U.K. has not peaked yet, and the bank
will need to consider the impact on inflation expectations.
Meanwhile, the euro zone’s unemployment rate was likely
unchanged at 7.2% in December. The bloc’s labor market
has made a solid recovery, with the unemployment rate
lower than before the pandemic. However, further progress
will be hard come-by this winter given the damage the
return of the pandemic has done to the service sector.
Euro-zone retail sales likely slowed in December, growing
just 0.2% m/m after a 1% gain in November. Spending
slowed in the wake of November sales and in the
reintroduction of social distancing and lockdown measures.
Yet, the holiday season likely supported retail demand.
Asia-Pacific
All eyes will be on the RBA’s February monetary policy
meeting. The central bank is expected to announce the end
of its quantitative easing program and bring forward the
timing of when the cash rate will begin increasing. The
upside surprise in December quarter inflation data, alongside
the strong December employment report are behind the
more abrupt adjustment to normalizing monetary policy
settings being expected. Subdued wage growth remains a
thorn in the side of the central bank. A key item to watch in
the February statement will be whether the RBA holds onto
the view that they won’t move on the increasing the cash
rate until wage growth sees sustained acceleration.
South Korea’s CPI likely cooled a little in January but will
remain above comfort levels keeping the impetus on the
Bank of Korea to continue hiking interest rates. South
Korea’s exports likely remained upbeat through January,
providing an ongoing an important support to the economy,
as domestic demand has been challenged by elevated daily
infections.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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Geopolitical Calendar
Date
Country
Event
Economic
Importance
Financial Market Risk
9-Mar
South Korea
Presidential election
Medium
Medium
27-Mar
Hong Kong
Chief executive election
Low
Low
10-Apr
France
General elections
Medium
Medium
9-May
Philippines
Presidential election
Low
Low
29-May
Colombia
Presidential elections
Medium
Low
Jun
Switzerland
World Economic Forum annual meeting
Medium
Low
29-30 Jun
NATO
NATO Summit, hosted by Madrid
Medium
Medium
Jun/Jul
PNG
National general election
Low
Low
2-Oct
Brazil
Presidential and congressional elections
High
Medium
Oct/Nov
China
National Party Congress
High
Medium
7-Nov
U.N.
U.N. Climate Change Conference 2022 (COP 27)
Medium
Low
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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THE LONG VIEW: U.S.
Weaker-Than-Expected Job Growth Misleads
BY RYAN SWEET
CREDIT SPREADS
Moody's long-term average corporate bond spread is 119
basis points, 6 basis points wider than the 109 basis points
at this time last week and wider than the 113 basis point
average in December. Over the past 12 months, the highest
average corporate bond spread had been 113 basis points,
while the low was 95 basis points. The long-term average
industrial corporate bond spread widened by 7 basis points
to 108. This is above the prior high over the past 12 months
of 102 basis points and above the low of 86 basis points.
The recent ICE BofA U.S. high-yield option adjusted bond
spread widened over the past week by 14 basis points to 325
basis points. This below its recent high of 367 basis points in
early December. The Bloomberg Barclays high-yield option
adjusted spread has bounced around recently and is
currently 315 basis points, compared with the 295 basis
points at this time last week. The high-yield option adjusted
bond spreads approximate what is suggested by the
accompanying long-term Baa industrial company bond yield
spread but a little tighter than implied by a VIX of 32.
Defaults
Defaults remain very low. According to the latest Moody’s
monthly default report, the global speculative-grade default
rate fell to 1.7% for the trailing 12 months ended in
December, from 2.0% the prior month. The rate has fallen
steadily since touching a cyclical peak of 6.9% at the end of
2020 and remains below the pre-pandemic level of 3.3%.
Under our baseline scenario, Moody's Credit Transition
Model predicts that the global speculative-grade default
rate will fall to a cyclical low of 1.5% in the second quarter
of 2022 before gradually rising to 2.4% at year end.
We also expect default risk to remain low for speculative-
grade companies as a whole because many have refinanced
their debt in the last two years at very low interest rates,
therefore mitigating their near-term default risks. However,
some low-rated companies that are under liquidity or
solvency stress could be vulnerable to default in the event of
tighter liquidity, higher borrowing costs, and profit erosion.
U.S. Corporate Bond Issuance
First-quarter 2020’s worldwide offerings of corporate bonds
revealed annual advances of 14% for IG and 19% for high-
yield, wherein US$-denominated offerings increased 45%
for IG and grew 12% for high yield.
Second-quarter 2020’s worldwide offerings of corporate
bonds revealed annual surges of 69% for IG and 32% for
high-yield, wherein US$-denominated offerings increased
142% for IG and grew 45% for high yield.
Third-quarter 2020’s worldwide offerings of corporate
bonds revealed an annual decline of 6% for IG and an
annual advance of 44% for high-yield, wherein US$-
denominated offerings increased 12% for IG and soared
upward 56% for high yield.
Fourth-quarter 2020’s worldwide offerings of corporate
bonds revealed an annual decline of 3% for IG and an
annual advance of 8% for high-yield, wherein US$-
denominated offerings increased 16% for IG and 11% for
high yield.
First-quarter 2021’s worldwide offerings of corporate bonds
revealed an annual decline of 4% for IG and an annual
advance of 57% for high-yield, wherein US$-denominated
offerings sank 9% for IG and advanced 64% for high yield.
Issuance weakened in the second quarter of 2021 as
worldwide offerings of corporate bonds revealed a year-
over-year decline of 35% for investment grade. High-yield
issuance faired noticeably better in the second quarter.
Issuance softened in the third quarter of 2021 as worldwide
offerings of corporate bonds revealed a year-over-year
decline of 5% for investment grade. U.S. denominated
corporate bond issuance also fell, dropping 16% on a year-
ago basis. High-yield issuance faired noticeably better in the
third quarter.
Fourth-quarter 2021’s worldwide offerings of corporate
bonds fell 9.4% for investment grade. High-yield US$
denominated high-yield corporate bond issuance fell from
$133 billion in the third quarter to $92 billion in the final
three months of 2021. December was a disappointment for
high-yield corporate bond issuance, since it was 33% below
its prior five-year average for the month.
In the week ended January 31, US$-denominated
investment grade corporate bond issuance was $42.7 billion ,
bringing year-to-date issuance to $157.5 billion . High-yield
US$-denominated corporate bond issuance was $6.0 billion ,
bringing year-to-date issuance to $26.5 billion .
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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U.S. ECONOMIC OUTLOOK
There were some noticeable changes to our January U.S.
baseline forecast, particularly assumptions around fiscal and
monetary policy. The Federal Reserve’s hawkish shift isn't
just rhetoric, and it is gearing up to start removing monetary
policy accommodation more quickly than we had assumed
in the December baseline. There remains an enormous
amount of uncertainty about Biden’s Build Back Better
agenda, but we don't think it’s dead, so we are leaving a
version of it in the baseline forecast.
Fiscal policy uncertainty climbs
The Build Back Better agenda is down but not out following
the spectacular collapse in negotiations between Senator
Joe Manchin and the White House in late December. During
the holidays, there was no sign of talks. However, this likely
reflects a desire on both sides to ratchet down tensions that
came to a boil right before the holidays. We expect
congressional Democrats and the White House will make
progress on a revised version of a BBB package that is
acceptable to Manchin by the president's State of the Union
address in February. However, if no progress is made by
then, we will most likely pull the plug on our BBB
assumptions in the baseline forecast.
It would not be a game changer for the economy if the BBB
failed to become law, but it will diminish the economy’s
growth prospects and ding the fortunes of lower- and
middle-income households. Our outlook for real GDP
growth in 2022 would be reduced by 0.75 percentage point,
since BBB is front-loaded—with budget deficits in the near
term and surpluses in the longer run that roughly net out
over the 10-year budget horizon. Longer run, the economy’s
potential growth would be reduced by several basis points
per year as the BBB agenda lifts labor force participation by
lowering the cost of work, particularly for lower-income
minority women.
However, Manchin has reportedly proposed a package
costing a similar amount but with policies that do not
sunset within the budget horizon. The senator argues that
future lawmakers will not have the political fortitude to
allow policies to actually expire, or to pay for them if they
do not, and thus their cost will be substantially more than
budgeted. To accommodate the senator’s concern and pass
BBB legislation, we assume the Biden administration and
congressional Democrats will scale back the number of
policies included in a BBB law and eliminate sunsets. The
baseline forecast assumes a $1.8 trillion BBB package that
permanently funds an expansion of healthcare coverage,
clean-energy and climate investments, and universal
preschool, among others. The bill will be nearly paid for by
higher taxes on corporations and well-to-do households.
The BBB package is assumed to pass by the end of the first
quarter of 2022, with implementation occurring in the
following quarter.
COVID-19 assumptions
When we updated the December baseline, information
about the Omicron variant was lacking but it quickly
became clear that a significant revision to our COVID-19
assumptions would be needed in January.
We adjusted our epidemiological assumptions to anticipate
that total confirmed COVID-19 cases in the U.S. will be
107.1 million, nearly 50 million more than in the December
baseline. The seven-day moving average of daily confirmed
cases has jumped recently and is north of 700,000. The date
for abatement of the pandemic, where total case growth is
less than 0.05% per day, changed slightly; it is now May 13,
a few of months later than in the prior baseline.
We have replaced the concept of herd immunity with
“effective immunity,” which is a rolling number of infections
plus vaccinations to account for the fact that immunity is
not permanent. The forecast still assumes that COVID-19
will be endemic and seasonal.
Goodbye 2021, hello 2022
Each passing wave is expected to be less disruptive. That
doesn’t mean that the economic costs are negligible. We
reduced our forecast for first-quarter GDP growth 3.3
percentage points to 2.1% at an annualized rate. Risks are
actually weighted toward a smaller hit to growth, as it will
not be as significant as Delta because of autos. Delta roiled
global supply chains, and that had an enormous impact on
U.S. auto production and sales. Autos subtracted 2
percentage points from GDP growth during the Delta wave,
something that is unlikely to be repeated during the
Omicron wave. So far, COVID-19 cases in the Asia-Pacific
region haven’t surged like they have in North America and
Europe .
Omicron will be a temporary drag on growth, and we
revised growth higher in the second quarter from 3.3% to
6.1% at an annualized rate. Growth in the second half of the
year saw very modest revisions. For all of 2022, we expect
GDP to rise 4.1%, a little lighter than the 4.4% in the
December baseline but still nearly double the economy’s
potential. A big support to GDP growth this year will be the
replenishment of inventories. The Bloomberg consensus is
for GDP to increase 3.9% this year.
There was a small upward revision to GDP growth in 2023.
We now look for it rise 3.1%, compared with 2.9% in the
December baseline. The consensus is for GDP growth next
year to be 2.5%.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
10
Global supply-chain issues remain a downside risk to the
near-term forecast. The issues with U.S. supply chains are
both supply- and demand-related. On the demand front,
wealth effects associated with rising asset prices,
unprecedented fiscal stimulus, and fewer opportunities to
spend on services led to an enormous increase in consumer
goods spending. Control retail sales—total sales excluding
autos, gasoline, building materials and restaurants—are
8.3% above what would have been if the pre-pandemic
trend had continued. This has magnified the issues with U.S.
supply chains. The good news is that our U.S. Supply-Chain
Stress Index has improved recently.
Business investment and housing
Fundamentals remain supportive for business investment as
corporate credit spreads remain tight and corporate profit
margins are fairly wide. Also, banks are easing lending
standards and corporate credit spreads are very tight,
supporting investment-grade and high-yield corporate bond
issuance.
We have real business equipment spending rising 9.7% this
year and 5.2% next. On net, this is stronger than the
December baseline that had real business equipment
spending rise 9.9% this year and 5.2% next.
The biggest downside risk is a sudden tightening in financial
market conditions or a sudden and significant bout of
economic policy uncertainty early this year because of the
BBB and the Fed gearing up to remove some policy
accommodation.
The real nonresidential structures forecast was not revised
significantly this year. We still have it rising 17%. But we did
revise the forecast higher for real nonresidential structures
investment next year, with it now forecast to rise 11.5%,
compared with 10.1% in the December baseline. Real
nonresidential structures investment will recoup all of the
decline during the pandemic in 2023. There were no
material changes to the forecast for commercial real estate
prices this year or next.
New data and revisions to prior months led us to revise the
forecast for housing starts higher. Housing starts are now
forecast to total 1.82 million units, compared with 1.765
million in the December baseline. Risks are heavily weighted
to the downside. There are likely only so many homes that
can be built each year because of labor-supply constraints
and lack of buildable lots. Some of the labor-supply issues
will ease as the pandemic winds down, but the reduction in
immigration is particularly problematic for homebuilders'
ability to find workers. Revisions to the forecast for new-
and existing-home sales this year were minor.
We didn’t make material changes to the forecast for the
FHFA All-Transactions House Price Index to increase 8.9%
this year, compared with 8.7% in the December baseline.
House price growth moderates noticeably in 2023, as prices
are forecast to rise 2.1%. This is attributable to rebalancing
of supply and demand.
Seasonals mask improving labor market
U.S. job growth has been weaker than expected in each of
the past two months, but this is misleading because
seasonal adjustment issues have been enormous weights.
The December employment report was strong. Indeed, not
seasonally adjusted employment increased by 72,000, the
first increase for any December since 1999. Normally, not
seasonally adjusted employment declines by a few hundred
thousand in December. The Bureau of Labor Statistics'
seasonal adjustment was sliced in half this December. If the
adjustment was similar to that used before the pandemic,
nonfarm employment would have risen closer to 500,000.
Looking across industries, the seasonal adjustment for
leisure/hospitality stands out. This December, the seasonal
adjustment was a drag on leisure/hospitality employment
for the first time for any December since 1998. Normally,
the seasonal adjustment is positive. The seasonal
adjustment for retail didn’t seem odd, which was a little
surprising, as that was our initial thought where the issues
would be concentrated. One industry we’re keeping a close
eye on is child day care services, which had employment fall
in December and is 11% below its pre-pandemic level.
Putting seasonal adjustment issues aside, the December
employment report was strong. This is clear in the
household survey, as the unemployment rate fell from 4.2%
in November to 3.9%. There was a modest increase in the
labor force. The prime-age employment-to-population ratio
increased from 78.8% to 79%, leaving it on track to hit its
pre-pandemic level by this spring. The number of people not
in the labor force increased for the first time since August.
About 63% of people not in the labor force are 55 years and
older. Odds are that the steady increase among those 55
and older who are not in the labor force is due to
retirements.
Forecast changes were modest in January. We expect
average monthly job growth to be 360,000 this year,
compared with 352,000 in the December baseline. Job
growth slows next year, when the economy will be at or
beyond full employment, and average job growth is
expected to be 161,000, compared with 145,000 in the
December baseline. We still have the unemployment rate
averaging 3.5% in the fourth quarter of this year, but we cut
the forecast for next year. The unemployment rate is now
expected to average 3.3% in the fourth quarter of 2023,
compared with 3.5% in the prior baseline. There were also
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
11
no revisions to the forecast for productivity growth this year
or next. Productivity is still expected to be stronger than its
pre-pandemic trend.
Time has come
There were some material changes to the forecast for
growth in the core PCE deflator. It is now expected to peak
later and higher than in the December baseline. Year-over-
year growth in the core PCE deflator is now expected to
peak this quarter, slightly north of 4.5%. The peak in the
December baseline was the fourth quarter of last year.
Growth in core inflation is forecast to moderate throughout
this year, but waves of COVID-19 lend upside risk to the
forecast as further disruptions to global supply chains could
cause inflation to remain higher for longer. For the Fed, the
post-meeting statement no longer includes the note that
the Fed will aim to achieve inflation moderately above 2%
for some time—a recognition that its mandate has been
met. Therefore, the Fed is aiming to get growth in the core
PCE deflator down to 2%. We have year-over-year growth in
the core PCE deflator returning to the Fed’s target in mid-
2023.
There was a material change to the forecast for monetary
policy. We doubled the number of Fed rate hikes this year
from two to four. The rate hikes are expected to occur at the
May, July, September and December meetings of the Federal
Open Market Committee. A probabilistic forecasting
approach, which is based on the subjective probabilities of a
fed hike versus a cut, would have the first hike occurring
earlier than May. We didn’t alter our estimate of the long-
run equilibrium fed funds rate, which remained at 2.5%. The
change in the January baseline is that the fed funds rate
reaches 2.5% in mid-2024, compared with early 2025 in the
December baseline.
We still expect the tapering process to end in March. Risks
are that the Fed allows the balance sheet to shrink—a
process known as quantitative tightening—later this year.
The balance sheet is currently $8.7 trillion , or around 37% of
nominal GDP. We don’t draw too many comparisons with
the pending reduction in the balance sheet to that last time
the Fed tried to shrink its balance sheet. If the Fed does
shrink its balance sheet, the reduction will be more
aggressive, likely $750 billion per year, $250 billion more
than last time.
Removing monetary policy accommodation isn’t going to
go smoothly. The Fed has signaled that it will allow its
balance sheet to contract shortly after the first rate hike. It is
unclear how rate hikes and quantitative tightening will
interact with each other, which makes the odds of a policy
error uncomfortably high.
There were no significant changes to the 10-year Treasury
yield. The forecast is that the Dow Jones Industrial Average
peaks this quarter. The rest of the contours of the forecast
did not change, as we expect the Dow to steadily decline
throughout this year and bottom in 2023.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
12
THE LONG VIEW: EUROPE
German Firms See Weaker Hiring Ahead,
ECB Likely to Stand Pat
BY EVAN KARSON and ROSS CIOFFI
companies’ hiring plans cooled slightly this month,
according to the Ifo Institute’s employment barometer. The
composite series, which aggregates survey information
about German businesses’ near-term hiring plans, dropped
50 basis points to 102.4 in January. While the employment
barometer’s lower reading signals weaker hiring intentions,
Germany’s
still looks poised for another month
of modest-to-moderate job growth. Historically,
establishment employment rose in 97.1% of the months
that the employment barometer exceeded 102.
Hiring plans reportedly weakened in construction , trade and
services, but no sector’s employment barometer dipped into
contractionary territory. Meanwhile, the employment
barometer for manufacturing bucked the aggregate trend
and ticked higher for the third month in a row.
Unfortunately, supply-chain disruptions and shortages of
raw materials will stymie more robust hiring over the next
few months. Rising energy prices also present a near-term
hurdle for factory job growth as producers adjust their
budgets to cover steep electricity and fuel costs.
Job growth will slow in the first quarter of the new year
tamps down hiring in the service sector and
supply bottlenecks restrain additions in manufacturing. Even
though Germany’s labor market experienced a softer-than-
average contraction during the depths of the pandemic, the
recovery has left something to be desired.
matched its 2019 level in the third quarter of
2021, while German headcounts had recouped only half of
their pandemic losses.
Upside risks for employment growth will turn rosier over the
course of the year as warm weather and declining infections
support headcounts in leisure/hospitality. However,
Germany’s labor market will remain an underachiever in the
bloc given poor demographics and manufacturing’s sectoral
decline.
ECB to hold the course
Looking ahead to the
's meeting next
week, we are not expecting changes to monetary policy in
the
. The ECB will restate its plan to conclude the
Pandemic Emergency Purchase Program in March and
temporarily expand the ordinary Asset Purchase Program in
the following months. Although inflation in the euro zone
has been soaring above the ECB’s 2% target, we do not
expect the bank to announce a rate hike this year. The ECB's
view is still that the current cycle of above-target inflation is
fundamentally temporary, and we agree. As the pandemic
abates, supply conditions will improve, and base effects will
phase out of the year-ago inflation calculation. We expect
the inflation rate to finish the year below target.
Even without rate hikes, the ECB will gradually tighten policy
this year. Pandemic-era supports such as the PEPP and
Targeted Long-Term Repo Operations-III program will be
wound down this year. In line with the announcement at the
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
13
December meeting, monthly purchases under the PEPP will
slow until it concludes in March. From September to
November, monthly PEPP purchases averaged €70 billion,
down from €80 billion over the second and earlier part of
the third quarters. In December, the monthly purchase
dropped to €50 billion, and purchases will likely average €50
billion during the first quarter of 2022.
Although the current energy crisis and the Omicron
outbreak have disrupted the euro zone’s recovery, this will
be temporary, and activity will pick up quickly in the spring.
Moreover, even if the current cycle of above-target inflation
is temporary, we expect the inflation rate to accelerate
again in 2023 and 2024. All of this warrants a gradual
increase in longer-term sovereign yields and less
intervention by the monetary authority.
The other lever the ECB will tighten before hiking rates is its
targeted longer-term refinancing operations scheme, a
program that lends to commercial banks at ultra-low rates if
those funds are then used to make loans to the real
economy. Currently, the TLTRO-III scheme is lending with a
rate potentially as low as -1% (the deposit rate minus 50
basis points). This highly favorable rate will revert to the
deposit facility rate in June, and there is no plan to
announce future TLTRO auctions. TLTROs are a significant
support, and to compensate for the tightening effect, the
ECB will likely expand the share of excess reserves that are
exempt from the negative deposit rate according to its
tiering system.
This is especially important now, given the massive buildup
of reserves at the central bank. Currently, the tier-multiplier
is at 6, which means that six times the required reserves,
plus the required reserves themselves, are exempt from the
negative deposit rate. If the ECB increases the multiplier, an
even larger share of banks’ deposits will be exempt. ECB
members have already spoken about the need to recalibrate
the tiering system. It is possible that the ECB will officially
announce its intention to recalibrate the tier next week, but
details will not be announced until later meetings.
At next week’s Bank of England meeting, we expect the
governing council to hike the
’s repo rate target by 25
basis points to 0.5%.
has become a concern in the
U.K. , spurred by this winter’s energy crisis and supply effects
stemming from the global pandemic and Brexit. Soaring
energy prices have been a top concern across Europe this
winter. Ofgem, the U.K.’s Office of Gas and Electricity
Markets, regulates the cap on electricity and gas prices, and
this has kept utility bills under control for most households
in the past six months. But the cap will be renegotiated in
April and will be lifted significantly to account for the past
months of sky-high gas prices on international futures
markets. The result will be that headline inflation rates will
continue rising in the first half of 2022; the BoE expects the
inflation rate to peak around 6% this spring.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
14
THE LONG VIEW: ASIA-PACIFIC
Singapore Acts as Monetary Tightening Spreads
BY DENISE CHEOK
Monetary tightening is gearing up to the key issue in APAC
in the first half of 2022. Singapore has been the latest to act.
The Monetary Authority of Singapore surprised by
tightening its monetary settings in an off-cycle meeting on
25 January. The appreciation of the Singapore dollar
nominal effective exchange rate, referred to as S$NEER,
slope was "raised slightly". The width and the midpoint of
the band was left unchanged.
Singapore’s monetary policy is centred around exchange
rate management because of the country’s trade exposure.
The central bank aims to maintain price stability by
managing the Singapore dollar against a trade-weighted
basket of currencies within an undisclosed policy band.
Raising the slope of the band will allow the country to
mitigate rising imported inflation. MAS began normalising
monetary policy in its October meeting unexpectedly,
increasing the slope of the policy band to a slight
appreciation, from the previous neutral band.
MAS’s move comes as headline inflation soared by 4% y/y
in December, the latest in a string of readings that far
surpassed market expectations. We had previously expected
the central bank to tighten monetary policy in its April
meeting. But the sharp uptick in prices in the last quarter of
2021 caused MAS to revise its inflation projections for 2022,
something that is seldom done so early in the year. Headline
CPI is now expected to rise 2.5% to 3.5%, from the initial
forecast of 1.5% to 2.5%. MAS Core Inflation is projected to
increase 2% to 3%, up from the earlier range of 1% to 2%.
Headline inflation in the last few months was caused by
rising car prices and more recently an increase in airfare
prices from more COVID-19 tests being required due to the
Omicron variant. What prompted the central bank to act,
however, is the uptick in food and energy prices caused by
COVID-19-related supply-chain disruptions as well as
extreme weather conditions in major trade partners.
Domestic conditions are likely to further fuel inflation
growth, with the resident unemployment rate close to pre-
pandemic levels and rising wage pressures.
The outcome for April’s meeting is now up in the air,
although MAS could act again if inflation remains near the
upper bound of its projections in the coming months.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
15
RATINGS ROUNDUP
Improvement in U.S. Corporate Credit Quality
BY STEVEN SHIELDS
U.S.
U.S. corporate credit quality improved this week with
upgrades accounting for eleven of the fifteen rating changes
issued by Moody’s Investors Service. Rating upgrades
comprised an even larger share of the debt affected in the
period at 93%. The largest upgrade was issued to Thermo
Fisher Scientific Inc. with $32.8 billion of debt affected by
the change. The medical device firm saw its senior
unsecured rating raised to A3 from Baa1. According to
Moody’s Senior Vice President, Michael Levesque, “The
upgrade to A3 reflects our expectation for strong business
performance, excellent global scale and diversity, and
financial policies that support a higher rating.”
Moody’s also raised the ratings for several housing-related
companies. Builders Firstsource Inc. saw its senior secured
one-notch to Ba1 and both senior unsecured ratings raised
to Ba2 from Ba3. Meanwhile Toll Brothers Finance Corp.’s
senior unsecured note ratings were raised to Baa3 from Ba1.
The change to investment grade reflects Toll's conservative
financial strategy, with a commitment to operating with
lower debt leverage, and the accomplished strengthening of
its credit metrics, with further improvement to transpire
over the next 12 to 18 months.
Lastly, Moody’s Investors Service upgrade Owens Corning’s
senior unsecured rating to Baa2 from Baa3 and revised the
outlook to positive from stable. The upgrade to the outlook
mirrors Moody’s expectation the company will maintain
robust operating performance which is expected to translate
to lower leverage.
Europe
Activity was light across Europe with Moody’s issuing only
two changes over the period. The downgrade issued to DNB
Bank ASA comprised the bulk of debt affected in the period
at approximately $4.5 billion . The Norwegian Bank saw its
junior secure ratings reduced to A3 from A2 and the outlook
on its long-term senior unsecured and deposit ratings was
changed to negative from stable. The downgrade reflects
Norway's adoption of a subordination cap in its Minimum
Requirement for own funds and Eligible Liabilities, lowering
the regulatory requirements for senior non-preferred debt
and senior preferred debt buffers compared with the current
regulation. Consequently, Moody's expects DNB to issue less
SNP debt in the next two years than previously thought,
reducing investor protection in the case of failure.
Meanwhile UniCredit Bank AG’s senior unsecured rating was
upgraded from Baa1 to A2. The two-notch upgrade reflects
Moody's assessment that the six bonds transferred to UCB
qualify as senior unsecured debt under German law and
hence the ratings are aligned with the bank's A2 senior
unsecured debt rating.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
16
RATINGS ROUND-UP
0.0
0.2
0.4
0.6
0.8
1.0
0.0
0.2
0.4
0.6
0.8
1.0
Apr01
Aug04
Dec07
Apr11
Aug14
Dec17
Apr21
FIGURE 1
Rating Changes - US Corporate & Financial Institutions: Favorable as a % of Total Actions
By Count of Actions
By Amount of Debt Affected
* Trailing 3-month average
Source: Moody's
FIGURE 2
BCF
Bank Credit Facility Rating
MM
Money-Market
CFR
Corporate Family Rating
MTN
MTN Program Rating
CP
Commercial Paper Rating
Notes
Notes
FSR
Bank Financial Strength Rating
PDR
Probability of Default Rating
IFS
Insurance Financial Strength Rating
PS
Preferred Stock Rating
IR
Issuer Rating
SGLR
Speculative-Grade Liquidity Rating
JrSub
Junior Subordinated Rating
SLTD
Short- and Long-Term Deposit Rating
LGD
Loss Given Default Rating
SrSec
Senior Secured Rating
LTCF
Long-Term Corporate Family Rating
SrUnsec
Senior Unsecured Rating
LTD
Long-Term Deposit Rating
SrSub
Senior Subordinated
LTIR
Long-Term Issuer Rating
STD
Short-Term Deposit Rating
Rating Key
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
17
FIGURE 3
Rating Changes: Corporate & Financial Institutions - US
Date
Company
Sector
Rating
Amount
($ Million)
Up/
Down
Old
LTD
Rating
New LTD
Rating
IG/S
G
1/19/2022
UGI CORPORATION-AMERIGAS PARTNERS,
L.P.
Industrial
SrUnsec/LTCFR/PDR
1875.00
D
Ba3
B1
SG
1/19/2022
BUILDERS FIRSTSOURCE, INC.
Industrial
SrSec/SrUnsec/LTCFR/
PDR
2627.50
U
Ba2
Ba1
SG
1/19/2022
ASSUREDPARTNERS, INC
Financial
SrSec/BCF
D
B1
B2
SG
1/20/2022
LINDBLAD EXPEDITIONS HOLDINGS, INC. -
LINDBLAD EXPEDITIONS , LLC
Industrial
PDR
U
Caa1
B3
SG
1/20/2022
DEL MONTE FOODS HOLDINGS LIMITED-DEL
MONTE FOODS, INC.
Industrial
SrSec/LTCFR/PDR
500.00
U
Caa1
B3
SG
1/20/2022
HOYA MIDCO, LLC
Industrial
LTCFR/PDR
U
B1
Ba3
SG
1/20/2022
ASP PRINCE INTERMEDIATE HOLDINGS, INC.-
PMHC II, INC.
Industrial
SrSec/BCF/LTCFR/PDR
U
Caa1
B3
SG
1/21/2022
OWENS CORNING
Industrial
SrUnsec
2986.83
U
Baa3
Baa2
IG
1/24/2022
TOLL BROTHERS, INC. -TOLL BROTHERS
FINANCE CORP.
Industrial
SrUnsec
2000.00
U
Ba1
Baa3
SG
1/24/2022
TALEN ENERGY SUPPLY, LLC
Utility
SrUnsec
1340.34
D
Caa1
Caa2
SG
1/24/2022
JACOBS ENTERTAINMENT, INC
Industrial
SrSec/LTCFR/PDR
385.00
U
B3
B2
SG
1/24/2022
TESLA, INC.
Industrial
LTCFR/PDR
U
Ba3
Ba1
SG
1/24/2022
TORTOISEECOFIN BORROWER LLC
Financial
SrSec/BCF/LTCFR/PDR
D
B1
B3
SG
1/25/2022
THERMO FISHER SCIENTIFIC INC.
Industrial
SrUnsec
32791.81
U
Baa1
A3
IG
1/25/2022
NAVEX TOPCO, INC.
Industrial
SrSec/BCF/LTCFR/PDR
U
B2
B1
SG
Source: Moody's
FIGURE 4
Rating Changes: Corporate & Financial Institutions - Europe
Date
Company
Sector
Rating
Amount
($ Million)
Up/
Down
Old
LTD
Rating
New
LTD
Rating
O
d
w
IG/
SG
Country
1/24/2022
UNICREDIT S.P.A.-UNICREDIT BANK AG
Financial
SrUnsec
390.75
U
Baa1
A2
IG GERMANY
1/25/2022
DNB BANK ASA
Financial
MTN
4497.61
D
A2
A3
IG NORWAY
Source: Moody's
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
18
MARKET DATA
0
200
400
600
800
0
200
400
600
800
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Spread (bp)
Spread (bp)
Aa2
A2
Baa2
Source: Moody's
Figure 1: 5-Year Median Spreads-Global Data (High Grade)
0
400
800
1,200
1,600
2,000
0
400
800
1,200
1,600
2,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Spread (bp)
Spread (bp)
Ba2
B2
Caa-C
Source: Moody's
Figure 2: 5-Year Median Spreads-Global Data (High Yield)
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
19
CDS MOVERS
CDS Implied Rating Rises
Issuer
Jan. 26
Jan. 19
Senior Ratings
John Deere Capital Corporation
A3
Baa1
A2
Amazon.com, Inc.
Aa2
Aa3
A1
Caterpillar Financial Services Corporation
A1
A2
A2
U.S. Bancorp
Aa3
A1
A2
Philip Morris International Inc.
A1
A2
A2
Consolidated Edison Company of New York , Inc.
A2
A3
Baa1
Tenet Healthcare Corporation
B1
B2
Caa1
Waste Management, Inc.
A3
Baa1
Baa1
Abbott Laboratories
Aa1
Aa2
A2
Kinder Morgan, Inc.
Baa2
Baa3
Baa2
CDS Implied Rating Declines
Issuer
Jan. 26
Jan. 19
Senior Ratings
CenterPoint Energy, Inc.
Baa2
A3
Baa2
PepsiCo, Inc.
A2
A1
A1
Philip Morris International Inc.
A2
A1
A2
General Electric Company
Baa3
Baa2
Baa1
Eli Lilly and Company
Aa2
Aa1
A2
FirstEnergy Corp.
Baa3
Baa2
Ba1
Emerson Electric Company
Baa1
A3
A2
Danaher Corporation
A3
A2
Baa1
Archer-Daniels-Midland Company
A2
A1
A2
United Rentals ( North America ), Inc.
Ba2
Ba1
Ba2
CDS Spread Increases
Issuer
Senior Ratings
Jan. 26
Jan. 19
Spread Diff
Kohl's Corporation
Baa2
328
196
132
Staples, Inc.
Caa1
1,097
1,019
78
United States Steel Corporation
B1
406
329
77
K. Hovnanian Enterprises, Inc .
Caa3
697
640
58
SLM Corporation
Ba1
367
314
53
American Airlines Group Inc.
Caa1
801
748
53
Macy's Retail Holdings, LLC
Ba3
306
254
52
Rite Aid Corporation
Caa2
1,047
1,002
45
United Airlines , Inc.
Ba2
453
410
43
Pitney Bowes Inc.
B1
546
506
40
CDS Spread Decreases
Issuer
Senior Ratings
Jan. 26
Jan. 19
Spread Diff
Talen Energy Supply, LLC
Caa2
4,014
4,096
-82
Vornado Realty L.P.
Baa2
126
135
-9
Textron Inc.
Baa2
139
147
-8
Mattel, Inc.
B1
128
136
-8
Domtar Corporation
Ba3
436
442
-7
Walgreen Co.
Baa2
56
63
-7
Martin Marietta Materials, Inc.
Baa2
52
58
-6
Embarq Corporation
Ba2
282
288
-6
Halliburton Company
Baa1
74
78
-3
Universal Health Services, Inc.
Ba2
129
132
-3
Source: Moody's, CMA
CDS Spreads
CDS Implied Ratings
CDS Implied Ratings
CDS Spreads
Figure 3. CDS Movers - US ( January 19, 2022 – January 26, 2022)
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
20
CDS Movers
CDS Implied Rating Rises
Issuer
Jan. 26
Jan. 19
Senior Ratings
Dexia Credit Local
A2
Baa2
Baa3
Landesbank Hessen-Thueringen GZ
Aa3
A2
Aa3
adidas AG
Aa3
A2
A2
BNP Paribas
Aa3
A1
Aa3
Barclays PLC
Baa1
Baa2
Baa2
ABN AMRO Bank N.V.
A1
A2
A1
CaixaBank, S.A.
A3
Baa1
Baa1
Nationwide Building Society
A2
A3
A1
KBC Group N.V.
Baa2
Baa3
Baa1
Banco Comercial Portugues, S.A.
Ba2
Ba3
Ba1
CDS Implied Rating Declines
Issuer
Jan. 26
Jan. 19
Senior Ratings
Deutsche Bank AG
Baa1
A3
A2
ING Bank N.V.
Aa2
Aa1
A1
Equinor ASA
Aa2
Aa1
Aa2
Raiffeisen Bank International AG
A2
A1
A2
Telia Company AB
Aa3
Aa2
Baa1
BASF (SE)
Aa2
Aa1
A3
UBS AG
A1
Aa3
Aa3
Santander Financial Services plc
Aa2
Aa1
A1
Danone
Aa2
Aa1
Baa1
Credit Suisse AG
Baa1
A3
A1
CDS Spread Increases
Issuer
Senior Ratings
Jan. 26
Jan. 19
Spread Diff
Boparan Finance plc
Caa1
1,411
1,377
34
Novafives S.A.S.
Caa2
671
644
27
Iceland Bondco plc
Caa2
600
575
25
Ardagh Packaging Finance plc
Caa1
293
274
19
Banca Monte dei Paschi di Siena S.p.A .
Caa1
281
263
18
Premier Foods Finance plc
B3
214
198
15
Stena AB
Caa1
403
389
15
FCE Bank plc
Baa3
116
103
13
Atlantia S.p.A .
Ba3
116
104
12
Wienerberger AG
Ba1
107
95
11
CDS Spread Decreases
Issuer
Senior Ratings
Jan. 26
Jan. 19
Spread Diff
Piraeus Financial Holdings S.A.
Caa2
520
540
-20
Dexia Credit Local
Baa3
44
59
-15
UPC Holding B.V.
B3
171
186
-15
Vedanta Resources Limited
B3
803
809
-6
Landesbank Hessen-Thueringen GZ
Aa3
36
42
-5
ISS Global A/S
Baa3
82
86
-5
adidas AG
A2
35
40
-5
Sappi Papier Holding GmbH
Ba2
332
337
-5
Permanent tsb p.l.c.
Baa2
217
222
-5
Alliander N.V.
Aa3
34
38
-4
Source: Moody's, CMA
CDS Spreads
CDS Implied Ratings
CDS Implied Ratings
CDS Spreads
Figure 4. CDS Movers - Europe ( January 19, 2022 – January 26, 2022)
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
21
CDS Movers
CDS Implied Rating Rises
Issuer
Jan. 26
Jan. 19
Senior Ratings
Westpac Banking Corporation
Aa3
A1
Aa3
Hyundai Capital Services, Inc .
A1
A2
Baa1
Vietnam , Government of
Baa3
Ba1
Ba3
Kia Corporation
A3
Baa1
Baa1
Chugoku Electric Power Company, Inc. (The)
Aaa
Aa1
Baa2
Nippon Yusen Kabushiki Kaisha
A2
A3
Ba3
Japan , Government of
Aaa
Aaa
A1
China , Government of
A3
A3
A1
Australia , Government of
Aaa
Aaa
Aaa
India , Government of
Baa3
Baa3
Baa3
CDS Implied Rating Declines
Issuer
Jan. 26
Jan. 19
Senior Ratings
Macquarie Bank Limited
A1
Aa3
A2
SK Hynix Inc.
Baa3
Baa2
Baa2
Japan , Government of
Aaa
Aaa
A1
China , Government of
A3
A3
A1
Australia , Government of
Aaa
Aaa
Aaa
India , Government of
Baa3
Baa3
Baa3
Commonwealth Bank of Australia
Aa2
Aa2
Aa3
Indonesia , Government of
Baa3
Baa3
Baa2
Korea , Government of
Aa1
Aa1
Aa2
Sumitomo Mitsui Banking Corporation
Aa1
Aa1
A1
CDS Spread Increases
Issuer
Senior Ratings
Jan. 26
Jan. 19
Spread Diff
SK Hynix Inc.
Baa2
78
66
13
Pakistan , Government of
B3
414
403
11
Halyk Savings Bank of Kazakhstan
Ba2
297
286
11
Development Bank of Kazakhstan
Baa2
156
146
10
SoftBank Group Corp.
Ba3
292
287
5
Suncorp-Metway Limited
A1
50
46
4
ICICI Bank Limited
Baa3
95
91
4
Hutchison Whampoa International (03/33) Ltd.
A2
47
43
4
Philippines , Government of
Baa2
66
63
3
Malayan Banking Berhad
A3
65
63
3
CDS Spread Decreases
Issuer
Senior Ratings
Jan. 26
Jan. 19
Spread Diff
Flex Ltd.
Baa3
74
78
-4
SK Innovation Co. Ltd.
Baa3
91
94
-4
Kia Corporation
Baa1
51
53
-2
Commonwealth Bank of Australia
Aa3
28
29
-1
Westpac Banking Corporation
Aa3
35
36
-1
National Australia Bank Limited
Aa3
30
31
-1
Australia and New Zealand Banking Grp. Ltd .
Aa3
28
29
-1
Kansai Electric Power Company, Incorporated
A3
21
22
-1
Qantas Airways Ltd.
Baa2
149
150
-1
Hyundai Capital Services, Inc .
Baa1
38
39
-1
Source: Moody's, CMA
Figure 5. CDS Movers - APAC ( January 19, 2022 – January 26, 2022)
CDS Implied Ratings
CDS Implied Ratings
CDS Spreads
CDS Spreads
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
22
ISSUANCE
0
700
1,400
2,100
2,800
0
700
1,400
2,100
2,800
Jan Feb Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Issuance ($B)
Issuance ($B)
2018
2019
2020
2021
2022
Source:
Moody's / Dealogic
Figure 6. Market Cumulative Issuance - Corporate & Financial Institutions: USD Denominated
0
200
400
600
800
1,000
0
200
400
600
800
1,000
Jan Feb Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Issuance ($B)
Issuance ($B)
2018
2019
2020
2021
2022
Source:
Moody's / Dealogic
Figure 7. Market Cumulative Issuance - Corporate & Financial Institutions: Euro Denominated
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
23
ISSUANCE
Investment-Grade
High-Yield
Total*
Amount
Amount
Amount
$B
$B
$B
Weekly
42.647
6.020
50.244
Year-to-Date
157.489
28.535
189.845
Investment-Grade
High-Yield
Total*
Amount
Amount
Amount
$B
$B
$B
Weekly
24.833
3.775
28.654
Year-to-Date
93.064
7.448
101.107
* Difference represents issuance with pending ratings.
Source: Moody's/ Dealogic
USD Denominated
Euro Denominated
Figure 8. Issuance: Corporate & Financial Institutions
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
24
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Report Number: 1317839
Contact Us
Editor
Reid Kanaley
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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
25
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