Yahoo Finance Russia’s Invasion of Ukraine Rattles Global Markets (Capital Market Research) (Weekly Market Outlook)
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
1
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Russia’s Invasion of Ukraine
Rattles Global Markets
The significant escalation of the
Ukraine - Russia conflict rattled equity
markets and led to an increase in global
oil prices, which likely had some risk
premium already embedded. West
Texas Intermediate and Brent crude oil
prices both increased and are trading
near, or above, $100 per barrel. The
conflict will have a significant impact on
economic growth in Eastern Europe , as
it is the most reliant on Russian imports.
The effect on the U.S. economy is tied
to equity markets and oil prices.
Earlier this month, we ran two scenarios
through our Global Macroeconomic
Model. In the first scenario, West Texas
Intermediate crude oil prices jump to
$100 per barrel, and the second has oil
prices hitting $150 . In each scenario,
increases in oil prices occur in the
second quarter and remain there in the
third quarter before returning to the baseline. This movement in oil prices would be
consistent with a sudden but temporary supply shock.
The more economic costs increase, the higher oil prices rise. In the $100 -per-barrel oil
price scenario, GDP growth in the second quarter is reduced by 0.1 of a percentage point,
but it reduces GDP growth in the third quarter by 0.5 of a percentage point and 0.2 of a
percentage point in the final three months of the year. If oil prices are $150 per barrel in
the second and third quarters, the hit to GDP growth this year is more noticeable. GDP
growth in the second quarter is reduced by 0.2 of a percentage point, 1 percentage point
in the third quarter, and 0.4 percentage point in the final three months of the year. Year-
over-year growth in the CPI is 0.5 of a percentage point higher than in the baseline in the
second quarter and 0.6 of a percentage point in the third quarter.
WEEKLY MARKET
OUTLOOK
FEBRUARY 24, 2022
Lead Author
Ryan Sweet
Senior Director-Economic Research
Asia-Pacific
Shahana Mukherjee
Economist
Illiana Jain
Economist
Europe
Barbara Teixeira Araujo
Economist
Ross Cioffi
Economist
Olga Kuranova
Economist
U.S.
Steven Shields
Economist
Ryan Kelly
Data Specialist
Podcast
Table of Contents
Top of Mind ............................................ 3
Week Ahead in Global Economy ... 6
Geopolitical Risks ................................ 7
The Long View
U.S. ............................................................................. 8
Europe .................................................................... 12
Asia-Pacific ..........................................................13
Ratings Roundup ................................ 15
Market Data ......................................... 18
CDS Movers .......................................... 19
Issuance..................................................22
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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Higher oil prices will boost inflation and increase the cost at
the pump. Wholesale gasoline futures, which lead U.S. retail
gasoline prices by two weeks, point toward prices at the
pump reaching $3.75 per gallon, compared with $3.58 in
the week ended February 18. If oil prices continue to climb,
then $4 -per-gallon gasoline will become a reality. Our rule
of thumb is that for every $10 increase in oil prices, retail
gasoline prices rise by 30 cents per gallon.
U.S. corporate bond market not immune
U.S. high-yield corporate bond issuance has come to a
grinding halt as geopolitical tensions, wider spreads,
heightened volatility in equity markets and fund outflows
have taken a toll. The Barclays/Bloomberg high-yield
corporate bond spread has widened by 76 basis points since
the beginning of the year to 359 basis points, the widest
since early 2021. Though high-yield corporate bond spreads
are well below their historical average of 496 basis points,
the abruptness of the widening in spreads is hurting
issuance, contributing to the more-than-4% decline in junk
bond total returns this year.
Investors have been pulling money out of high-yield funds
for more than a month. Issuance doesn’t look like it’s going
to improve soon as the pipeline is very lean and geopolitical
tensions have intensified. So far, the issues in the high-yield
corporate bond market are attributed to interest rates rather
than defaults, with the latter near historic lows. High-yield
corporate bond issuance normally doesn’t thrive when there
is a lot of volatility in equity markets. The VIX has jumped
recently and is at 30, which foreshadows further widening in
high-yield corporate bond spreads.
The Russian-Ukraine conflict will continue to impact the U.S.
high-yield corporate bond market, but the implications for
the broader domestic banking system are minimal. U.S.
banks have a small exposure to Russian banks, according to
the Bank for International Settlements. Therefore, U.S.
sanctions are unlikely to ripple through the domestic
banking system, keeping the risk of contagion low. The
Russian- Ukraine conflict is weighing on U.S. equity markets,
but there has also been a significant increase in Russia’s five-
year credit default-swap spreads.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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TOP OF MIND
Navigating Uncertainty
BY SHAHANA MUKHERJEE
The global economy is now in expansion following the record
pandemic-induced recession. Unprecedented fiscal stimulus in
the U.S. and trade-led growth in China pushed the world
economy toward peak growth in the last quarter of 2021. The
economic situation, however, has changed for some
economies. China’s economy is contending with headwinds
as concerns over a cooling property market and the potential
for spillovers into the domestic financial sector weigh on
market expectations and the country’s growth prospects.
Most advanced and emerging economies are better
positioned relative to mid-2021. But recovery remains
uneven. Disruptive resurgences, suboptimal policy support,
differences in vaccine rollout, and susceptibility to supply-
chain disruptions have resulted in growing divergence
amongst the leading economies (including the U.S. , China ,
Japan , India , and the five largest European countries). We
forecast that the large European countries will join the U.S. ,
China and India in exceeding precrisis levels of GDP in 2022,
while other countries, including Japan , will recover over the
next two years.
Inflation prompts monetary policy pivot
Unprecedented levels of fiscal and monetary policy stimulus
had anchored the global economic rebound in 2021. But a
combination of firming domestic recoveries, tight labour
markets, and supply-side disruptions is fueling inflation,
prompting some central banks to dial back on these support
measures several quarters ahead of earlier predications.
Consumer price inflation in the U.S. rose to 7.1% year on
year in December, marking the steepest rise in 40 years.
Concerned about the growing impact of higher prices on
households’ real purchasing power, the Federal Reserve
maintained its hawkish tone at its January meeting, but
adjusted its forward guidance to signal higher potential for
the first increase in the fed funds rate to come as early as
March.
The pivot to an accelerated rollback in pandemic-related
monetary policy stimulus contrasts with the position held by
the Fed until just a few months ago, when the central bank
had not yet started to taper its $120 billion in monthly asset
purchases, and it was still unclear whether an interest rate
liftoff would occur in 2022. Financial market conditions
were described as accommodative in the latest policy
statement and there is confidence in the strength of the
labour market recovery. But the Fed’s statement also
imparted a sense of urgency to respond to price pressures by
winding up the tapering process with priority. Consequently,
on the balance sheet front, the Fed decided to continue
reducing the monthly pace of its net asset purchases,
bringing them to an end in early March.
We expect the Fed to raise rates four times this year, once
each quarter, with the first increase of 25 basis points at its
March meeting, and quantitative tightening likely to begin
this summer. Our estimate of the long-run equilibrium fed
funds rate remains unchanged at 2.5%, and we expect the
fed funds rate to reach this level by the end of 2024.
How aggressively the Fed moves this year will depend on
how stubborn current inflation is and how financial
conditions evolve following the rate hikes and tighter
liquidity settings.
100
105
110
115
120
125
130
135
15
16
17
18
19
20
21
Merchandise world trade
Industrial production
Trade and Production Have Rebounded
Sources: CPB World Trade Monitor, Moody’s Analytics
Global trade and industrial production, volume, 2010=100
Nov 2018 – Trade war
Jan 2020 – COVID-19
Data through Nov 2021
Growth to Moderate in 2022
Source: Moody’s Analytics
Real GDP growth, Aug baseline forecast, % change
-8
-6
-4
-2
0
2
4
6
8
World North
America
South
America
Asia
Euro
zone
Other
Europe
Eastern
Europe
Middle
East &
Africa
2019 2020 2021E 2022F 2023F
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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Inflation has also intensified in other advanced economies
such as the U.K. , prompting the Bank of England to decrease
its stock of government bond purchases and hike the policy
rate twice since November to 0.5%, marking an earlier start
to policy normalisation.
But policymakers in some regions are maintaining a more
cautious approach towards tightening. The European Central
Bank left its policy rate unchanged at -0.5% at its February
meeting and kept its forward guidance on the timing of rate
hikes unaltered. The ECB’s asset purchases under the
Pandemic Emergency Purchase Program would continue at a
moderately slower pace and be discontinued beyond March,
but purchases under its regular Asset Purchase Program
would increase for at least two quarters beyond this period
to balance out the transition.
In comparison, the Reserve Bank of Australia announced the
end of its bond purchase program effective February 10, in
response to rising inflation and stronger employment
conditions. But the central bank maintained status quo on
the cash rate, which remains at a record-low 0.1%,
acknowledging the elevated uncertainty regarding the near-
term inflation path.
Emerging market vulnerability
Emerging economies, however, face other challenges. On
one hand, runaway inflation in Brazil , Mexico , and other
parts of Latin America has necessitated aggressive rate hikes
to tame inflation expectations; on the other hand, emerging
Asian economies are facing other concerns. Consumer
inflation in India has risen since September, but the rise has
been more moderately paced relative to other economies
and headline inflation has yet to breach the upper limit of
the Reserve Bank of India’s inflation target range of 2% to
6%. Indonesia , in contrast, has seen a much slower rise in
consumer prices in Asia , with the headline rate (at 2.2%)
breaking into the central bank’s inflation target range of 2%
to 4% only in January.
With private consumption yet to return to pre-pandemic
levels in some of these emerging economies, an impending
and coordinated rise in international borrowing costs will
build pressure on central banks to act. Though some central
banks in Asia are on a better economic footing with respect to
their foreign exchange market reserves and current account
positions, depreciation pressures could persist for longer and
prompt an off-cycle move, particularly by countries faced
with a more uncertain near-term growth outlook.
A premature move towards policy normalization or
tightening can also prove particularly painful for emerging
markets where investment has yet to stabilise from repeated
disruptions or in markets where the risk of crowding out
private investment runs high.
Several emerging market Asian economies are likely to maintain
accommodative fiscal policy settings to support domestic
recoveries. While this is a positive and will bolster their medium-
term growth outlook, one risk is that such a position could
exacerbate or prolong inflation pressures, particularly in
countries where central banks have taken no sizeable measures
to trim their expansionary monetary stance. How fiscal and
monetary policies interact against the backdrop of yet-to-settle
pandemic-related disruptions will have a sizeable bearing not
only on emerging market recoveries in 2022 and 2023 but also
on their medium-term budget deficits and debt burdens.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
20
21
22F
23F
24F
25F
Australia
U.S.
U.K.
Euro zone
Canada
Earlier Start to Policy Normalization
Benchmark monetary policy rate or target rate, %
Source: Moody’s Analytics
-2
-1
0
1
2
3
4
5
6
Japan
Hong Kong
China
Indonesia
Vietnam
Malaysia
Thailand
Taiwan
Singapore
Australia (Q4)
Korea
India
Philippines
New Zealand (Q4)
Apr 2021
Dec 2021
Inflation Gathers Pace in Some Economies
Sources: National statistical offices, RBA, Moody’s Analytics
CPI, % change yr ago, SA, Dec 2021 except as noted
0
50
100
150
200
Turkey
Indonesia
Brazil
Vietnam
India
Philippines
Thailand
China
Divergence in Foreign Reserves
Sources: World Bank , Moody’s Analytics
Total reserves, % of total external debt in 2020
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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China’s property market woes
The People’s Bank of China has responded to concerns over
slowing growth by pivoting to conditionally more
accommodative monetary policy meant to direct financial
support to key areas. Such a position contrasts with the global
momentum toward policy normalization and has the potential
to exacerbate conditions for local high-yield corporate bond
issuers to the extent that the move stokes capital outflows.
But in the context of the broader vulnerabilities linked with
the local property market, such a policy stance is more likely
to be interpreted as an initiative that could materially
alleviate the sector’s financial strain by mobilizing more
affordable refinancing options. This will play a role in
anchoring investor confidence in the medium term and will be
seen as a net positive beyond the current market volatility.
Supply disruptions remain pertinent
Supply-chain disruptions caused by virus-related factory and
port closures emerged across various industries and
intensified in the second half of last year. These have
become one of the key drivers of the recent surge in
inflation. While supply-side bottlenecks have eased a bit and
the worst is likely behind us, it remains a concern. The
spread of the Omicron variant has resulted in reinstated
restrictions and new quarantine requirements, which,
together with large-scale staff illnesses, have disrupted
distribution and logistics in some industries. With the future
waves still relevant and major manufacturing hubs such as
China still maintaining a strict zero-COVID policy, there is a
risk of further disruptions resulting from temporary factory
closures or shipment delays.
Unless the existing backlog in distribution clears, this could
exacerbate freight and input costs, constrain productivity for
manufacturers globally, and fuel cost-push inflation for an
extended period of time. The disruption to global auto
production caused by the semiconductor shortage is likely
to have peaked, but the difficulties of increasing supply or
finding alternative sources for chips will keep conditions
tight throughout the year.
Outlook
GDP growth will steadily decelerate over the next year as
policy support fades, pent-up demand cools, and supply-chain
stress remains. Global GDP growth is fore-cast at 4% in 2022
and 3.5% in 2023, after peaking at 5.6% in 2021. The U.S. is
expected to keep powering global growth, with GDP growth
of 3.7% in 2022 and 3% in 2023. China’s GDP is forecast at
5.2% in 2022 and 5.8% in 2023, and India’s GDP is forecast
to grow by 8.6% in 2022 and 5.9% in 2023. Euro zone GDP
growth is forecast at 3.9% in 2022 and 2.9% in 2023, while
Japan will grow 2.1% in 2022 and 2.2% in 2023.
Downside risks still dominate
The spread of the Omicron variant will undermine the
spending appetite and weigh on the March-quarter growth,
but it is not expected to derail the recovery momentum.
Higher vaccination rates mean that several economies are
better positioned now to see a swifter rebound in mobility
and consumption. Economies reliant on tourism and higher-
education immigration, however, will likely see a delayed
resumption, with more barriers preventing international
borders from fully reopening.
China’s property market weakness is another short-term risk
that could expose the country and Asia’s high-yield
corporate bond market to an extended period of volatility
and higher risk premiums.
Supply bottlenecks, the global semiconductor shortage,
rising energy prices, and inflation pressures add uncertainty
to the timing and pace of global recovery. Finally, the
reopening of international borders increases exposure to
newer and poten-tially vaccine-resistant strains of the virus,
which could create significant difficul-ties in getting
economies on a sustained recovery path.
Supply Troubles Hit Japan Auto Exports
Real exports index, Jan 2019=100, SA
Sources: BoJ, Moody’s Analytics
40
60
80
100
120
140
Jan-19
Jul-19
Jan-20
Jul-20
Jan-21
Jul-21
Total exports
Motor vehicles
IT goods
Capital goods
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
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The Week Ahead in the Global Economy
U.S.
It will be an other busy week for U.S. economic data. The
focus will be on the February employment report. This will
be the last employment report before the March meeting of
the Federal Open Market Committee . Odds are that the
February data won’t alter the Fed’s plan as it has zero
tolerance for upside surprises on inflation. Other key data
released next week include both the ISM manufacturing and
nonmanufacturing surveys for February. Advance data on
the goods deficit and inventories for January could have
implications for our high-frequency GDP model’s tracking
estimate of first-quarter GDP growth, currently 1.4% at an
annualized rate. February vehicle sales could also impact
first-quarter GDP. Revisions to productivity growth and unit
labor costs should be fairly modest.
Europe
The preliminary estimate of the euro zone’s Harmonized
Index of Consumer Prices will top headlines next week. We
expect the inflation rate accelerated to 5.3% year over year
from 5.1% in January. Although natural gas prices were
stable through much of the month, oil prices continued
climbing at a quick pace. The persistence of supply-chain
disruptions and elevated energy costs likely convinced more
firms to hike consumer prices. Indeed, the euro zone’s
February composite PMI reported the sharpest rise in the
survey’s history of average prices charged.
We also forecast another step-down in the euro zone’s
unemployment rate, to 6.9% in January from 7% in
December. The labor market has been heating up in recent
months. The unemployment rate is at its lowest in years at
the same time that the vacancy rate was at its highest on
record in the fourth quarter of 2021.
We expect a soft rebound in retail sales this January, by
0.9% month over month after the 3% drop in December.
We fear that rising consumer prices and the outbreak of
Omicron infections, which peaked during the month, held
back consumers. Indeed, the consumer confidence reading
slumped to -8.5 in January, and declined another 0.3 point
in February. Confidence will perk up and households will go
back to spending as the pandemic abates, though higher
prices will weigh on purchasing power.
Russia’s unemployment rate likely came in at 4.3% in
January, unchanged over the past four months. Good
prospects for the gas and oil sectors likely supported
employment. Italy’s unemployment rate likely was
unchanged, at 9%, in January as firms looked through the
current outbreak of COVID-19 during their hiring plans.
Germany’s February unemployment rate likely came in at
5.1%, unchanged from the previous month for similar
reasons. German retail sales, meanwhile, will recover by just
1.7% month over month in January following the 5.5%
decline in December.
Italy’s final estimate of fourth-quarter GDP growth likely
came in at 0.6% quarter over quarter, slowing from the
2.6% reading in the third quarter. We expect private
consumption slowed considerably and that this was
accompanied by a weaker trade balance on account of
import growth outpacing exports.
Asia-Pacific
Australia’s fourth-quarter GDP will be the highlight on the
economic calendar. We expect GDP to have expanded 1%
quarter over quarter after a 1.9% contraction in the
September quarter. The severe Delta outbreak disrupted
Australia’s recovery in the third quarter as retail and
contact-sensitive services witnessed a notable setback in
demand. An accelerated vaccine rollout and the easing of
state-level restrictions in the largest states of New South
Wales and Victoria have subsequently supported a strong
rebound in spending since October, although an intensifying
Omicron wave cut short this recovery. We expect some
improvement in private consumption and a lift from capital
expenditure to have driven the fourth-quarter expansion,
although the pickup will be moderated by a narrower trade
surplus.
The Reserve Bank of Australia is expected to hold the cash
rate steady at its monetary policy meeting. The central bank
ended its bond purchases program earlier this month and
has maintained that a hike in the cash rate will be
considered when inflation is sustainably within the 2% to
3% inflation target range. We expect the RBA to remain
patient in this instalment, allowing more space for domestic
demand to meaningfully revive following the Omicron-led
disturbance to this quarter’s growth.
India’s GDP is likely to have expanded 6.7% year over year in
the fourth quarter, building on the 8.4% growth in the prior
quarter. Domestic conditions were largely stable in the
closing months of the year, and household confidence was
lifted by higher vaccination rates and a notable
improvement in mobility in major consumer pockets. The
slower growth in manufacturing is expected to have
weighed on output growth, but this will be partially offset by
a more notable pickup in services.
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 election
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.
High-Yield Issuance Falls as Spreads Widen
BY RYAN SWEET
CREDIT SPREADS
Moody's long-term average corporate bond spread is 143
basis points, 7 bps wider than the 136 bps at this time last
week and wider than the 115 bps average in January. The
long-term average industrial corporate bond spread widened
by 5 bps to 130. It averaged 103 bps in January.
The recent ICE BofA U.S. high-yield option-adjusted bond
spread widened over the past week by 4 basis points to 372
bps. The Bloomberg Barclays high-yield option-adjusted
spread has bounced around recently and is currently 359
bps, compared with 354 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 that
implied by a VIX of 34.
The ISM manufacturing survey points toward some widening
in high-yield U.S. corporate bond spreads, but nothing
suggests that issuance would take a significant hit. To
highlight this, we calculated z-scores. These measure the
standard deviations above or below the mean for both the
ISM manufacturing survey and the Bloomberg/Barclays
high-yield corporate bond spread. This points toward some
widening in the high-yield corporate bond spread.
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% 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 $92 billion in the final
three months of 2021. December was a disappointment for
high-yield corporate bond issuance, since it was 33% below
its prior five-year average for the month.
In the week ended February 18, US$-denominated high-
yield issuance totaled $0.15 billion , bringing the year-to-
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
9
date total to $44.04 billion . Investment-grade bond
issuance rose $35 billion in the current week, bringing its
year-to-date total to $239.4 billion . Total US$-
denominated issuance is currently between that seen in
2018 and 2019.
U.S. ECONOMIC OUTLOOK
There were some minor adjustments to our forecast
between the January and February baselines. Bottom line:
the most likely economic outlook is sanguine, characterized
by full employment and comfortably low inflation by early
next year. But it depends on the Federal Reserve successfully
calibrating monetary policy, and this tightening cycle will be
significantly different than the last one.
Smaller fiscal package
In the February vintage of the baseline forecast, Democrats
pass a $1.2 trillion Build Back Better package of social safety
net and climate investments in the first half of 2022. Some
implementation will occur by the end of the second quarter.
Most notably, this is less than the $1.8 trillion package
assumed in prior baselines.
We dropped the following investments: $210 billion for
home care, $150 billion for affordable housing, $135 billion
for an expanded Earned Income Tax Credit, and $30 billion
for higher education. As a result, the remaining initiatives
are $560 billion for clean energy and the climate, $430
billion for healthcare coverage, $215 billion for universal
preschool, and $45 billion for a fully refundable Child Tax
Credit. The first three are provisions that West Virginia
Democrat Joe Manchin has said he would support, while a
fully refundable CTC would be a consolation prize for
Democrats , who had sought to extend the enhanced CTC
from the American Rescue Plan. Under our new assumption,
gross BBB investments represent 0.1% of GDP in 2022,
0.3% in 2023, and 0.4% in 2024 before peaking at nearly
0.5% in 2026.
The cost of the BBB investments are nearly paid for by
higher taxes on corporations and well-to-do households, as
well as prescription drug savings. Because the dollar figure of
BBB investments is lower than before, we have also
jettisoned some of the pay-fors that we previously assumed.
Specifically, we dropped a 15% corporate minimum tax on
large corporations, as well as new surtaxes on the top 0.02%
of earners.
Besides the two examples mentioned above, the rest of our
BBB pay-fors are the same as before. The February forecast
still includes the following changes to the personal tax code:
ensuring high-income business owners pay either the 3.8%
Medicare tax or the 3.8% net investment income tax, and
limiting business loss deductions for noncorporate
taxpayers. In addition, IRS funding would increase to
improve tax compliance. On the corporate side, a new
excise tax would apply to stock buybacks, and U.S.
multinationals would face higher taxes on global intangible
low-taxed income, among other international tax changes.
Finally, we assume prescription drug savings would come
from repealing a Trump-era rule that would eliminate safe
harbor from a federal anti-kickback law for rebates paid by
pharmaceutical manufacturers to health plans and
pharmacy benefit managers in Medicare Part D.
That said, the longer it takes Democrats to rally around BBB,
the closer we get to discarding BBB altogether from the
baseline forecast. For now, we still assume Democrats will
strive to pass some version of BBB in a bid to rally their base
ahead of the 2022 midterm election. The State of the Union
address on March 1 is an opportunity for Democrats to
outline a resurrected BBB that President Biden can then tout
during his address.
If we do not get any BBB clarity by the SOTU address, the
March forecast will likely water down our assumption of a
$1.2 trillion package to one costing about $600 billion .
Moreover, we would delay the start of implementation from
the second to the third quarter. An approximately $600
billion BBB package would largely revolve around green
energy tax credits and climate investments. It could also
include modest amounts of social safety net spending.
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. Long term, 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.
COVID-19 assumptions
We adjusted our epidemiological assumptions to anticipate
that total confirmed COVID-19 cases in the U.S. will be 82.9
million, noticeably less than the January baseline
assumption that cases would total 107.1 million. However,
the number of assumed cases is still well above that
assumed before the Omicron variant. The seven-day moving
average of daily confirmed cases has dropped sharply
recently and is around 250,000, below its recent peak of
807,000. The date for abatement of the pandemic, where
total case growth is less than 0.05% per day, changed
slightly; it is now April 4, a few weeks earlier than in the
January baseline.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
10
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.
A little less balmy
The new fiscal policy assumptions about the Omicron
variant of COVID-19 led to a downward revision to the
forecast for real GDP growth this year; it is now expected to
be 3.7% at an annualized rate, compared with 4.1% in the
January baseline. The bulk of the downward revision was in
the first quarter, as real GDP is expected to rise 0.5% at an
annualized rate. Our high-frequency GDP model now has
first-quarter GDP on track to rise 0.8% at an annualized
rate. Risk bias, or the difference between our high-frequency
GDP model’s estimate of fourth-quarter GDP growth and
our official forecast, is 0.3 percentage point. It's early in
tracking first-quarter GDP, as there isn’t a lot of source data
released.
We expect GDP growth to bounce back in the second
quarter, similar to the pattern seen during the Delta wave.
The forecast is for GDP to rise 6% at an annualized rate in
the second quarter, but it will be south of 3% at an
annualized rate in the second half of the year. We look for
GDP to rise 3% next year, a touch lighter than the 3.1% in
the January baseline. The Bloomberg consensus is for real
GDP to increase 3% this year and 2.5% in 2023.
Inventories and global supply-chain issues remain a
downside risk to the near-term forecast. The level of real
GDP is currently 0.6% lower than if the recession didn’t
happen and the pre-pandemic trend had continued; that
gap will be closed later this year, but inventories are a risk.
Inventories played an enormous role in the gain in fourth-
quarter GDP. Inventories jumped by $173.6 billion at an
annualized rate in the fourth quarter after falling in each of
the prior three months. Inventories added 4.9 percentage
points to fourth-quarter GDP growth, among the largest
gains since the 1980s.
The sizable inventory build could be an issue for first-quarter
GDP growth because it is unlikely to be duplicated. For GDP,
it’s the change in the change in inventories that matters. In
other words, inventories would need to increase more than
that seen in the fourth quarter to add to first-quarter GDP
growth. That seems unlikely because of the Omicron variant
and its impact on supply chains.
Also, supply chains remain a downside risk. 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. The good news is that
our U.S. Supply- Chain Stress Index has improved recently
along with our Asia-Pacific region SCSI.
Business investment and housing
Fundamentals remain supportive but less so than in January,
for business investment as corporate credit spreads have
widened. However, corporate profit margins are fairly wide,
and banks are easing lending standards.
We have real business equipment spending rising 8.2% this
year, compared with 9.7% in the January baseline. The
forecast is for real business equipment spending to increase
5.4% in 2023, a touch stronger than the 5.2% gain in the
January baseline forecast.
Risks are weighted to the downside, as financial markets
could tighten more than we anticipate and corporate credit
spreads widen further. The correlation coefficient between
monthly changes in the high-yield corporate bond spread
and changes in the S&P 500 is -0.71 since 2000. The
relationship is still strong if we look at it on a weekly basis.
Using no and various lags, the Granger causality tests
showed changes in the S&P 500 caused changes in the
high-yield corporate bond spread. The causal relationship
runs in one direction. Also, now that interest rates are rising
and the market value of global bonds with negative yields is
declining, it could put some upward pressure on U.S. long-
term rates and cause some widening in high-yield corporate
bond spreads as investors have less pressure to search for
yield.
The real nonresidential structures investment was cut this
year and next. We now look for real nonresidential
structures investment to rise 11% this year (17% in the
January baseline) and 10.7% in 2022 (11.5% in the January
baseline). The downward revision to the forecast was broad-
based across components, including structures investment
in commercial/healthcare and manufacturing. We did revise
higher the forecast for structures investment in mining
exploration, shafts and wells because of the rise in energy
prices. The Bureau of Economic Analysis uses the American
Petroleum Institute’s weighted average of footage drilled
along with rotary rig counts from Baker Hughes in its
current-quarter estimate of private fixed investment in
mining exploration, shafts and wells. This segment now
accounts for more than 10% of nominal private fixed
investment in nonresidential structures. Therefore, a sudden
rise in energy prices would lead to an increase in the number
of active rotary rigs. Separately, growth in the Commercial
Property Price Index was revised higher by 30 basis points
this year and next, to 1.7% and 2.3%, respectively.
Revisions to housing starts were small. Housing starts are
expected to be 1.84 million, compared with 1.82 million in
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
11
the January baseline. Revisions to housing starts next year
were also modest. 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, as mortgage
rates haven’t risen either fast or high enough to cut
noticeably into sales.
We nudged up the forecast for the FHFA All-Transactions
House Price Index this year, with it rising 9.8%, compared
with 8.9% in the January baseline. House price growth
moderates noticeably in 2023, as prices are forecast to rise
2.4%, a touch stronger than the 2.1% in the January
baseline. This is attributable to rebalancing of supply and
demand.
Labor market weathers Omicron
The January jobs report delivered an upside surprise with
gains totaling 467,000, which far exceeded expectations.
After much concern, the impact of the Omicron virus
variant on job growth was minimal, as January’s total fell
only slightly short of the impressive 555,000 average gain in
2021. Given that the Omicron wave has already begun to
fade, the stage is set for substantial payroll gains to continue
this year.
The January employment data are incorporated into the
February baseline forecast. They led to minor tweaks to the
forecast. We have job growth averaging 384,000 per month
this year, better than the 360,000 in the January baseline
forecast. There wasn’t any material change to the forecast
for the unemployment rate this year, but it's now expected
to bottom at 3.3% next year, compared with 3.2% in the
baseline forecast.
We assume a full-employment economy is one with a 3.5%
unemployment rate, around a 62.5% labor force
participation rate, and a prime-age employment to
population ratio of 80%. All of these conditions will be met
by late this year or early next.
Marching toward March
The Federal Open Market Committee used its January
meeting to tee up the potential for the first increase in the
target fed funds rate as early as March. The post -meeting
statement noted that it “will soon be appropriate” to raise
the target range for the fed funds rate. The inflation criteria
for raising interest rates had already been met, but the Fed
was waiting for further improvement in the labor market,
and the market appears closer to meeting the threshold. The
statement described the labor market as “strong.” This was
absent in the December statement. It looks as if the tapering
process will end a week earlier; the statement said the
process will be wrapped up in early March rather than mid-
month. The statement subtly hints that the balance sheet
will eventually shrink.
Given Fed communication, new data on inflation, and job
growth, we have pulled our first rate hike forward to March.
We expect the Fed to raise the funds rate three additional
times this year, once each quarter, by 0.25 percentage point
each time. The Fed is also expected to begin quantitative
tightening this summer. That is, the central bank will not
replace the Treasury and mortgage securities it owns as they
mature or prepay, allowing its balance sheet to slowly
shrink, and putting upward pressure on longer-term rates.
We didn’t make significant changes to the forecast for the
10-year Treasury yield.
The forecast for the Dow Jones Industrial Average was
unchanged between the January and February baseline
forecasts. It still calls for stocks to steadily decline this year,
bottoming in early 2023.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
12
THE LONG VIEW: EUROPE
Russia’s Invasion Worsens Energy Crisis
BY BARBARA TEIXEIRA ARAUJO AND
OLGA KURANOVA
Financial markets were rattled on Thursday after Russian
President Vladimir Putin launched a broad military offensive
targeting Ukraine . The attack came as a surprise and took
place on multiple fronts, prompting Western leaders to
threaten to impose further sanctions on Russia in the
coming hours or days. These will have grave consequences
for the financial markets and the economy.
The scale of the economic disruption will depend on the
extent of the sanctions, which could range from export
bans—most notably in energy and commodities markets—
to Russia being cut off from the SWIFT global interbank
payments system. Although Ukraine and Russia will be hit
the hardest, most global economies will feel the pain.
The per-barrel price of Brent crude has already surged more
than 6% to $102.85 , the first time it has breached the $100
mark since 2014. The price of U.S. WTI crude rose by almost
6% to $97.47 . Most shocking was the jump in European gas
prices, which climbed by around 40% to reach €115 MWh.
Although oil and gas flows from Russia to Europe have not
been disrupted yet, Western nations will likely impose
further harsh sanctions on Russia, prompting a decline or
eventually a full stop in gas imports from Russia .
Oil prices were already high as international futures markets
rose considerably during January. The average per-barrel
futures price for Brent crude was up 14.4% from December
to January. Consumers’ gas prices also increased. Although
market natural gas prices actually declined in January, some
companies continued to pass through higher prices to
consumer electricity bills, which is not immediate. Indeed,
households’ utility contracts in much of Europe are
negotiated on a fixed-price basis, and some companies
managed to hike their rates only in January, with further
hikes planned for coming months.
Rising oil prices will fortify Russia’s economy, but longer-
term consequences of a war could crimp the nation’s status
as a key exporter. Russia is the world’s third-biggest oil
producer and second-biggest producer of natural gas:
Almost two-thirds of Russia’s natural gas exports flow to
Europe along with around half of its global oil sales. This
revenue will help Russia’s economy and compensate in part
for any upcoming embargo on exports. However, the tide is
turning for Europe’s dependency on Russian energy, and this
could have longer-term consequences for the nation. As part
of the backlash against Russia's actions, Germany refused to
certify the Nord Stream 2 pipeline earlier this week. On
Thursday, U.S. President Biden announced sanctions against
the firm in charge of building the gas pipeline. Overall
European sentiment has recently prioritized diversifying
away from Russian-provided energy.
In the near term, higher gas and oil prices will likely push up
inflation across Europe , which is already seeing record-high
prices for food and energy. In the short term, Ukraine will
suffer the brunt of the fallout, as activity in the country is
disrupted across the board. Meanwhile, several European
nations that depend on food and industrial exports from
Russia and Ukraine will also feel the squeeze. The extent to
which the broader world economy will be impacted depends
on the level of measures implemented by Western leaders.
It is difficult to gauge how things will evolve in the coming
days, but we expect that oil and gas prices will continue to
increase, and this will worsen the energy price crisis
throughout Europe . Commodity prices, especially that of
aluminum, will also reach record highs, as investors fear a
disruption in supplies from Russia , which is a major metal
producer. Elsewhere, volatility will remain the word of the
day, with stocks under pressure and money flowing to safe
havens.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
13
THE LONG VIEW: ASIA-PACIFIC
Central Banks Return to Normalisation
BY SHAHANA MUKHERJEE AND ILLIANA JAIN
Interest-rate decisions dominated headlines in the Asia-
Pacific region. The Bank of Korea decided to leave its
benchmark policy rate unchanged, at 1.25%, at its February
meeting. This was in line with our expectations after the 25-
basis point rate increase in January.
The central bank noted that the global economy had
continued to recover despite the disruptions caused by
Omicron and other variants of the COVID-19 virus.
Importantly, this process has been anchored by improving
vaccination rates. That said, pandemic-related uncertainty,
inflation pressures, monetary policy changes, and
geopolitical factors will continue to shape global growth and
financial markets.
South Korea’s growth prospects have largely held up in the
face of multiple COVID-19 resurgences, partly because
robust global demand has generated a consistently strong
export performance. The country’s unique position in the
global semiconductor industry will continue to be a key
source of strength in coming quarters. And private
consumption and facilities investment, which had
moderated because of outbreaks and associated supply
disruptions, are expected to gradually pick up and bolster
growth beyond the current quarter.
The Bank of Korea’s gradual restoration of the benchmark
policy rate to its pre-pandemic level of 1.25% was intended
to tame inflation pressures and the buildup of financial
imbalances in the interest of long-term financial stability.
But this normalisation of interest rates also showed
confidence in the strength of the economic recovery.
Tackling inflation is one of the BoK’s main priorities, even
with the virus keeping the domestic economic recovery
from hitting its full stride. January’s headline inflation
remained uncomfortably high at 3.6%, while core inflation
gained pace, rising to 3% from 2.7% previously. With energy
prices staying high, the impact of pandemic-related
uncertainty on global growth yet to settle, and geopolitical
developments causing near-term volatility in oil prices, the
potential for inflation to remain above 3% in the coming
months is high. We see this as one of the main drivers that
will lead to further rate hikes in 2022.
Moody’s Analytics forecasts South Korea’s inflation to hold
above 3% this quarter and drop nearer to 2% only in the
second half of this year. Assuming that the U.S. Federal
Reserve moves with a 25-basis point rate hike in March, we
expect the BoK to implement a total of three rate hikes in
2022, which will take the benchmark policy rate to 1.75% by
the end of 2022. The upcoming presidential election and the
ending of Lee Ju-Yeol’s term as BoK governor add some
uncertainty regarding the timing of the next rate hike.
Elsewhere, the Reserve Bank of New Zealand raised its
official cash rate by 25 basis points to 1% in February. This
increase, which follows others in October and November,
returns the benchmark policy rate to its pre-pandemic level.
The central bank also said that it will gradually reduce its
bond holdings under its asset purchase program through
bond maturities and managed sales. The rate hike was
consistent with our expectations and in line with the central
bank’s guidance on its intention to progress monetary
tightening. The unwinding of quantitative easing shows that
the RBNZ is getting serious about tackling inflation and that
interest rates may increase faster than anticipated this year.
New Zealand is imposing more restrictions to slow the
spread of the Omicron variant. It is also preparing for a
staged reopening of its borders, starting later this month. It
is worth noting that self-isolation restrictions are likely to
remain in place until late 2022 for some arrivals. The central
bank observed that although domestic spending and
investment have been strong, recent conditions have been
difficult for those businesses most exposed to pandemic-
related restrictions. Additionally, the central bank said
Omicron will disrupt economic activity, with the severity of
disruptions closely tied to health outcomes.
Prolonged border closures have progressively tightened the
labour market in New Zealand , placing upward pressure on
wages. The outlook for net migration and its implications for
labour supply is uncertain.
But it was not surprising that the central bank upwardly
revised its March-quarter CPI inflation forecast to 6.6% year
over year from the 5.7% cited in the prior policy statement.
The revision was attributed to domestic capacity
constraints—the economy is operating well above
potential—and higher prices for imported goods, the result
of supply-chain disruptions. Fuel prices have risen
dramatically and are likely to stay high, as supply-side issues
remain.
The central bank said it had considered increasing the
benchmark by 50 basis points but opted for 25 basis points,
partly because of the uncertainty about Omicron. In
addition to the rate hike, the sales of its bond holdings will
put pressure on long-term interest rates. Notably, the cash
rate is expected to peak at a higher rate than expected in
the previous statement.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
14
We expect the RBNZ to stay committed to its tightening
stance, with the pace of normalisation to be faster than
previously expected. The next monetary policy review
should provide more insight on how the economy reacts to
the Omicron variant and the monetary policy tightening in
place so far.
PBoC holds fire on LPR
As expected, the People’s Bank of China left interest rate
settings unchanged at its February meeting. The one-year
loan prime rate was kept steady at 3.7% and the five-year
loan prime rate at 4.6%. This decision was anticipated by
markets after the PBoC left the interest rate on one-year
medium-term lending facility loans unchanged, at 2.85%, in
last week’s announcement. The decision to maintain the
status quo follows rate cuts announced last month, on the
medium-term lending facility rate and subsequently the
one-year and three-year loan prime rates, which were part
of a broader policy push to counter China’s slowing growth.
Fears surrounding property market weakness and the
potential for strong spillovers to the domestic financial
system remain pertinent. The PBoC’s commitment to an
accommodative monetary policy that is flexible but
targeted will help alleviate liquidity shortfalls in certain
sectors. Therefore, the PBoC is expected to continue with its
calibrated approach to monetary policy management for a
large part of this year. The pickup in new bank lending in
January to CNY3.98 trillion from CNY1.13 trillion in
December was partly due to seasonal factors but was
nonetheless favourable. So was January’s inflation reading at
0.9%, which will create some room for easing. More
liquidity injections are expected, and we do not dismiss the
possibility of additional cuts in the reserve requirement ratio
or the medium-term lending facility rate in the first half of
this year.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
15
RATINGS ROUNDUP
Positive Week for U.S. Credit Ratings
BY STEVEN SHIELDS
U.S.
U.S. credit rating activity was overwhelmingly positive in the
latest week. For the period ended February 18, credit
upgrades accounted for fourteen of the eighteen ratings
issued by Moody’s Investors Service and two-thirds of the
affected debt. Rating change activity spanned a diverse set
of industrial groups. Of the changes, Pioneer Natural
Resources Company’s senior unsecured bond rating was
raised to Baa1 from Baa2. In the ratings actions, Moody’s
Analyst John Thieroff said, “Pioneer's very strong
competitive position in the premier North American oil-
producing basin and financial policies will allow the
company to maintain modest financial leverage.” The
improved rating comes on the heels of an eventful year for
Pioneer with the company closing on the acquisitions of
Parsley Energy and DoublePoint Energy. Meanwhile, Xerox
Holdings Corporation headlined U.S. credit downgrades with
its corporate family and senior unsecured ratings lowered to
Ba2 from Ba1. The rating action reflects Moody's
expectation that revenue growth in 2022 will remain
challenged by supply-chain disruptions and the slowdown in
return-to-office trends. It also reflects Xerox's willingness to
fund significant share buybacks in the fourth quarter and
engage in aggressive financial policies considering its weak
21Q4 operating results.
Europe
Western European rating change activity was negative with
only two credit ratings issued in the period. Electricite de
France was the largest change in the region with Moody’s
Investors Service downgrading EDF’s long-term issuer rating
and senior unsecured ratings to Baa1 from A3. This rating
action follows the firm’s action plan announcement to
mitigate low nuclear output over the next two years and
reflects Moody's view that EDF's risk profile has become
more volatile because of unstable and unpredictable nuclear
output associated with fleet ageing, increased exposure of
earnings to volatile wholesale electricity prices, and
detrimental political intervention to protect end-customers
in a context of elevated power prices.
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
2/16/2022
OLD NATIONAL BANCORP-FIRST MIDWEST
BANK
Financial
LTIR/LTD/Sub/PS
485.00
U
Baa2
A3
IG
2/16/2022
PITNEY BOWES INC.
Industrial
SrUnsec/SrSec/BCF/
LTCFR/PDR
1653.06
D
B1
B3
SG
2/16/2022
TORO COMPANY (THE)
Industrial
SrUnsec
225.00
U
Baa3
Baa2
IG
2/16/2022
DIVERSIFIED HEALTHCARE TRUST
Industrial
SrUnsec/LTCFR
2850.00
D
B1
B3
SG
2/16/2022
RESIDEO TECHNOLOGIES, INC. - RESIDEO
FUNDING INC.
Industrial
SrUnsec/SrSec/BCF/
LTCFR/PDR
300.00
U
B1
Ba3
SG
2/16/2022
CHINOS INTERMEDIATE 2 LLC
Industrial
SrSec/BCF/LTCFR/PDR
U
B3
B2
SG
2/17/2022
CARPENTER TECHNOLOGY CORPORATION
Industrial
SrUnsec/LTCFR/PDR
700.00
D
Ba3
B2
SG
2/17/2022
REGIONS FINANCIAL CORPORATION
Financial
SrUnsec/LTIR/LTD/Sub/
PS
4700.00
U
Baa2
Baa1
IG
2/17/2022
PIONEER NATURAL RESOURCES COMPANY
Industrial
SrUnsec/LTIR/Sub/PS
5735.79
U
Baa2
Baa1
IG
2/17/2022
GATES GLOBAL LLC
Industrial
SrUnsec/SrSec/BCF/
LTCFR/PDR
568.00
U
Caa1
B3
SG
2/17/2022
ENGINEERED MACHINERY HOLDINGS, INC.
Industrial
SrSec/BCF/LTCFR/PDR
U
SG
2/17/2022
XEROX HOLDINGS CORPORATION
Industrial
SrUnsec/LTCFR/PDR
3700.00
D
Ba1
Ba2
SG
2/18/2022
D.R. HORTON, INC. - FORESTAR GROUP INC. Industrial
SrUnsec/LTCFR/PDR
700.00
U
B1
Ba3
SG
2/18/2022
PRO MACH GROUP, INC. (OLD)-PRO MACH
GROUP, INC.
Industrial
SrSec/BCF/LTCFR/PDR
U
B2
B1
SG
2/18/2022
CAA HOLDINGS, LLC-CREATIVE ARTISTS
AGENCY, LLC
Industrial
SrSec/BCF/LTCFR/PDR
U
B3
B2
SG
2/18/2022
EIF CHANNELVIEW HOLDINGS II, LLC-EIF
CHANNELVIEW COGENERATION, LLC
Industrial
SrSec/BCF
U
Ba3
Ba1
SG
2/18/2022
MR. COOPER GROUP INC. -NATIONSTAR
MORTGAGE HOLDINGS INC.
Financial
SrUnsec/LTIR
2700.00
U
B2
B1
SG
2/22/2022
ENERGY TRANSFER LP-SUNOCO LP
Industrial
SrUnsec/LTCFR/PDR
2600.00
U
B1
Ba3
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
IG/
SG
Country
2/18/2022
ANACAP FINANCIAL EUROPE S.A. SICAV-RAIF Financial
SrSec
358.13
D
B2
B3
SG LUXEMBOURG
2/21/2022
ELECTRICITE DE FRANCE
Utility
SrUnsec/LTIR/JrSub
63904.99
D
A3
Baa1
IG FRANCE
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
Feb. 23
Feb. 16
Senior Ratings
Meritor, Inc.
Baa2
B1
B1
PepsiCo, Inc.
Aa1
Aa2
A1
3M Company
Aa3
A1
A1
Merck & Co., Inc.
Aa3
A1
A1
Charles Schwab Corporation (The)
A2
A3
A2
Becton, Dickinson and Company
Baa1
Baa2
Baa3
Waste Management, Inc.
A2
A3
Baa1
Cargill, Incorporated
A1
A2
A2
Emerson Electric Company
A3
Baa1
A2
Welltower Inc.
A1
A2
Baa1
CDS Implied Rating Declines
Issuer
Feb. 23
Feb. 16
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
Feb. 23
Feb. 16
Spread Diff
Talen Energy Supply, LLC
Caa2
4,421
4,168
253
American Airlines Group Inc.
Caa1
836
774
63
CSC Holdings , LLC
B3
471
409
62
Rite Aid Corporation
Caa2
1,191
1,145
46
Lumen Technologies, Inc.
B2
513
469
44
TEGNA Inc.
Ba3
512
474
38
Nabors Industries, Inc .
Caa2
630
592
38
R.R. Donnelley & Sons Company
B3
215
180
35
International Game Technology
B2
313
279
34
Xerox Corporation
Ba2
296
267
29
CDS Spread Decreases
Issuer
Senior Ratings
Feb. 23
Feb. 16
Spread Diff
Meritor, Inc.
B1
85
300
-215
American Axle & Manufacturing, Inc .
B2
447
494
-46
Dillard's, Inc.
Baa3
112
125
-13
Realogy Group LLC
B2
373
381
-9
Macy's Retail Holdings, LLC
Ba3
311
317
-6
TJX Companies, Inc. (The)
A2
47
53
-6
Emerson Electric Company
A2
53
59
-5
Sysco Corporation
Baa1
75
80
-5
Avery Dennison Corporation
Baa2
50
54
-4
Commercial Metals Company
Ba2
192
197
-4
Source: Moody's, CMA
CDS Spreads
CDS Implied Ratings
CDS Implied Ratings
CDS Spreads
Figure 3. CDS Movers - US ( February 16, 2022 – February 23, 2022)
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
20
CDS Movers
CDS Implied Rating Rises
Issuer
Feb. 23
Feb. 16
Senior Ratings
Spain , Government of
Aa3
A1
Baa1
CaixaBank, S.A.
A3
Baa1
Baa1
Portugal , Government of
Aa3
A1
Baa2
UniCredit S.p.A .
Baa2
Baa3
Baa1
Svenska Handelsbanken AB
Aa1
Aa2
Aa2
Anheuser-Busch InBev SA /NV
Baa1
Baa2
Baa1
Banco Sabadell, S.A.
Baa2
Baa3
Baa3
BNP Paribas Fortis SA/NV
Aa3
A1
A2
NXP B.V.
A2
A3
Baa3
Banco BPI S.A.
Baa3
Ba1
Baa2
CDS Implied Rating Declines
Issuer
Feb. 23
Feb. 16
Senior Ratings
Carlsberg Breweries A/S
A2
Aa3
Baa2
Societe Generale
A2
A1
A1
Natixis
A2
A1
A1
Danske Bank A/S
A2
A1
A3
UniCredit Bank AG
Aa3
Aa2
A2
Credit Suisse Group AG
Baa3
Baa2
Baa1
Bayerische Motoren Werke Aktiengesellschaft
Baa1
A3
A2
ENGIE SA
A2
A1
Baa1
Norddeutsche Landesbank GZ
Baa2
Baa1
A3
E.ON SE
A3
A2
Baa2
CDS Spread Increases
Issuer
Senior Ratings
Feb. 23
Feb. 16
Spread Diff
Casino Guichard-Perrachon SA
Caa1
895
731
164
Novafives S.A.S.
Caa2
1,055
898
157
Boparan Finance plc
Caa1
1,400
1,324
76
Alpha Services and Holdings S.A.
Caa1
363
288
75
CMA CGM S.A.
B2
420
356
64
Piraeus Financial Holdings S.A.
Caa2
572
515
57
Vue International Bidco plc
Ca
627
597
31
TDC Holding A/S
B2
173
144
29
Vedanta Resources Limited
B3
825
800
24
Telefonaktiebolaget LM Ericsson
Ba1
113
92
22
CDS Spread Decreases
Issuer
Senior Ratings
Feb. 23
Feb. 16
Spread Diff
NXP B.V.
Baa3
49
51
-3
Finland , Government of
Aa1
7
9
-2
Swedish Export Credit Corporation
Aa1
7
10
-2
Sweden , Government of
Aaa
7
9
-2
Banco Sabadell, S.A.
Baa3
83
84
-1
British Telecommunications Plc
Baa2
103
104
-1
Denmark , Government of
Aaa
7
8
-1
ASML Holding N.V.
A2
44
45
-1
United Kingdom , Government of
Aa3
10
11
0
Ireland , Government of
A2
15
16
0
Source: Moody's, CMA
CDS Spreads
CDS Implied Ratings
CDS Implied Ratings
CDS Spreads
Figure 4. CDS Movers - Europe ( February 16, 2022 – February 23, 2022)
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
21
CDS Movers
CDS Implied Rating Rises
Issuer
Feb. 23
Feb. 16
Senior Ratings
Mitsubishi Corporation
Aaa
Aa1
A2
Oversea-Chinese Banking Corp Ltd
Aa3
A1
Aa1
Telstra Corporation Limited
A1
A2
A2
Shinhan Bank
Aa1
Aa2
Aa3
Woori Bank
Aa1
Aa2
A1
Korea Expressway Corporation
Aa2
Aa3
Aa2
SP PowerAssets Limited
Aa2
Aa3
Aa1
Flex Ltd.
Baa2
Baa3
Baa3
Nomura Securities Co., Ltd.
Baa1
Baa2
A3
Kia Corporation
A3
Baa1
Baa1
CDS Implied Rating Declines
Issuer
Feb. 23
Feb. 16
Senior Ratings
Westpac Banking Corporation
A1
Aa3
Aa3
Suncorp-Metway Limited
A3
A2
A1
JFE Holdings, Inc.
A2
A1
Baa3
ITOCHU Corporation
Aa1
Aaa
A3
Hitachi, Ltd.
Aa1
Aaa
A3
Japan , Government of
Aaa
Aaa
A1
China , Government of
A3
A3
A1
Australia , Government of
Aaa
Aaa
Aaa
India , Government of
Baa3
Baa3
Baa3
Indonesia , Government of
Baa3
Baa3
Baa2
CDS Spread Increases
Issuer
Senior Ratings
Feb. 23
Feb. 16
Spread Diff
Halyk Savings Bank of Kazakhstan
Ba2
337
315
23
Pakistan , Government of
B3
425
415
10
SoftBank Group Corp.
Ba3
341
332
9
Development Bank of Kazakhstan
Baa2
148
140
8
SK Hynix Inc.
Baa2
86
79
8
Tata Motors Limited
B1
246
239
7
Holcim Finance ( Australia ) Pty Ltd
Baa2
101
95
6
Kazakhstan , Government of
Baa2
82
78
5
Indonesia , Government of
Baa2
95
91
4
JFE Holdings, Inc.
Baa3
45
42
4
CDS Spread Decreases
Issuer
Senior Ratings
Feb. 23
Feb. 16
Spread Diff
Flex Ltd.
Baa3
80
89
-9
Bank of East Asia, Limited
A3
68
71
-3
Woori Bank
A1
28
28
-1
Japan , Government of
A1
17
17
0
Korea , Government of
Aa2
27
27
0
Chubu Electric Power Company, Incorporated
A3
23
23
0
Nomura Holdings, Inc.
Baa1
74
74
0
Shinhan Bank
Aa3
29
29
0
Kyoto , City of
A1
24
24
0
Korea Expressway Corporation
Aa2
35
35
0
Source: Moody's, CMA
Figure 5. CDS Movers - APAC ( February 16, 2022 – February 23, 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
34.955
0.150
35.283
Year-to-Date
239.393
44.041
294.016
Investment-Grade
High-Yield
Total*
Amount
Amount
Amount
$B
$B
$B
Weekly
20.527
0.000
20.527
Year-to-Date
150.374
12.951
164.322
* 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: 1320395
Contact Us
Editor
Reid Kanaley
Americas
+1.212.553.1658
clientservices@moodys.com
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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
25
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