Fed Trying to Play Catch-Up (Capital Market Research) (Weekly Market Outlook)
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
1
Moody’s Analytics and Moody’s Investors Service maintain separate and independent economic forecasts. This publication uses the
forecasts of Moody’s Analytics. Moody’s Analytics markets and distributes all Moody’s Capital Markets Research materials.
Moody’s Analytics does not provide investment advisory services or products. For further detail, please see the last page.
Fed Trying to Play Catch-Up
As widely expected, the Fed made its
opening bid to curb inflation by raising
the target range for the fed funds rate
by 25 basis points and signaling that
ongoing rate hikes are likely appropriate.
The dot plot suggested a more
aggressive tightening cycle than what is
in our baseline forecast, but we don’t
put a lot of stock in the dot plot beyond
the current year because there is
significant uncertainty in the outlook
and the Fed’s view of the appropriate
path for the fed funds rate can change
noticeably.
Also, the dot plot has a shaky track
record. The dot plot in 2013 and 2014
showed an earlier increase in the target
range for the fed funds rate than
actually occurred. Even after the Fed
began raising rates in late 2015, the dot
plot overstated the aggressiveness of
the tightening cycle.
There were not many surprises in the post-meeting statement as the central bank
described job gains as strong and inflation as elevated. It noted that elevated inflation
reflects supply and demand imbalances related to the pandemic, higher energy prices,
and broader price pressures. Some of these, including the pandemic and higher energy
prices, are temporary but broader price pressures that may prove stickier and highlight
the Fed’s growing nerves about the inflation outlook. The Fed also removed the reference
that the path of the economy depends on the pandemic.
There weren't any new details about the Fed’s plan for reducing the size of its balance
sheet, which Powell signaled would be the case when he testified earlier this month.
However, the statement did say that the committee expects to begin reducing the size of
the central bank's balance sheet at a “coming meeting.”
There was one dissent, by St. Louis Fed President James Bullard , who favored a 50-basis
point rate hike. This dissent isn’t surprising, as he has been lobbying for a more aggressive
WEEKLY MARKET
OUTLOOK
MARCH 17, 2022
Lead Authors
Ryan Sweet
Senior Director-Economic Research
Chris Lafakis
Director
Asia-Pacific
Tim Uy
Economist
Europe
Ross Cioffi
Economist
U.S.
Michael Ferlez
Economist
Matt Orefice
Data Specialist
Podcast
Join the Conversation
Apple Podcasts
Google Podcasts
Spotify
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 ............................ 14
Market Data .................................... 18
CDS Movers .................................... 19
Issuance ........................................... 22
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
2
initial move for a while but the military conflict between
Russia and Ukraine took that off the table as financial
market conditions have tightened, doing some of the Fed’s
work.
The statement said the “invasion of Ukraine by Russia is
causing tremendous human and economic hardship.” It also
said that the implications for the U.S. economy are “highly
uncertain,” but in the near term, the invasion and related
events are likely to create additional upward pressure on
inflation and weigh on economic activity. The Fed updated
its Summary of Economic Projections. It cut the forecast for
GDP growth this year from 4% to 2.8%. There was no
change to the forecast for GDP growth in 2023 and 2024,
and the Fed kept its estimate of potential GDP growth at
1.8%. There were no changes to the forecast for what the
unemployment rate will average in the fourth quarter of this
year and next, both remaining at 3.5%. The Fed nudged up
the unemployment rate in the fourth quarter of 2024 from
3.5% to 3.6%.
As expected, the Fed raised its inflation forecasts for this
year. Year-over-year growth in the headline PCE deflator this
year is now expected to be 4.3%, compared with 2.6% in
the December Summary of Economic Projections. The Fed
also revised the forecast for inflation next year by 0.4
percentage point to 2.7%. There was also a material upward
revision to growth in the core PCE deflator this year, raising
it from 2.7% to 4.1%. The Fed expects core inflation to get
closer to its target next year but is above its 2% target
throughout the forecast horizon of the Summary of
Economic Projections.
The yield curve flattened after the release of the post-
meeting statement and new Summary of Economic
Projections. The bond market is skeptical that the Fed can
address high inflation without upending the economy. The
Fed will want to avoid inverting the yield curve. Though
there are reasons to be skeptical about the message that
comes from the yield curve, there is potentially a
psychological impact ahead of the yield curve inverting
before a recession. Most of our probability of recession
models suggest that the odds of a recession in the next 12
months have risen recently.
The flattening in the yield curve could limit how much the
Fed raises the target range for the fed funds rate, since it will
not want to invert the yield curve. The Fed has options. It
could opt to allow the balance to decline, which is a form of
monetary policy tightening and would put upward pressure
on long-term rates. The statement suggested that the
balance sheet will start to decline at an upcoming meeting.
We are going to need to adjust our assumptions about the
path of the fed funds rate. The forecast is for what the Fed
will do, not what it should do. Inflation isn’t going to
moderate as quickly because of recent increases in global oil
prices. An easing in U.S. supply-chain stress is critical to the
outlook for inflation to moderate, but new potential issues
have emerged that may cause supply-chain issues to
intensify. China is dealing with a wave of COVID-19 and the
country has a zero-tolerance policy. This lends additional
upside risk to near-term inflation. Therefore, the Fed will
remain laser-focused on getting inflation down.
The March baseline forecast has four rate hikes this year but
it would likely be appropriate to add an additional one or
two. Powell said in his post-meeting statement that there
ar
e “seven remaining meetings, and there's seven rate
hikes.”
Powell knows the Fed is behind the curve and will
need to catch up, which is a trick to do without undermining
the economy. Also, financial market conditions have and will
likely continue to tighten. This will do some of the
policymakers' work for them.
All told, the Fed is embarking on a fairly aggressive
tightening cycle and it will be difficult to engineer a soft
landing. In fact, it appears the Fed has some doubts that it
will pull it off as it expects a small increase in the
unemployment rate in 2024. Historically, an increase in the
unemployment rate of 30 basis points on a three-month
moving average basis has signaled a recession.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
3
TOP OF MIND
Energy Shock: The Good, the Bad and the Ugly
BY CHRIS LAFAKIS
Russia’s invasion of Ukraine could cause a recession. The
principal channel through which it impedes the global
economy is energy prices. Every recession in the past 50
years has been preceded by an oil price spike, and it is déjà
vu all over again. Brent crude oil hit an intraday high of $139
per barrel before retreating to $100 per barrel as peace talks
ramped up.
We have constructed three economic scenarios based on
potential paths that the military conflict in Ukraine could
take. The good scenario is our baseline forecast, in which
Russia’s invasion ends by this spring and oil prices retreat to
$84 by the end of this year. U.S. gasoline prices retreat
below $4 per gallon. The bad scenario is a Limited
Disruption scenario in which the military conflict drags into
2023 and oil prices remain above $100 for the rest of the
year. Gas prices stay above $4 . The ugly scenario is one in
which Moscow escalates its military assault, forcing the
West to ban Russian energy imports. In that scenario, gas
prices rise above $5 per gallon.
Every $1 increase in the price of oil costs U.S. consumers $3
billion over the course of a year. While consumers are
expected to pay $70 billion more for energy this year under
the good scenario, they could pay $150 billion more in the
ugly scenario. That alone could mean the difference
between a 2.7% economy and a 1.95% economy. The
damage would be far greater in this scenario when
considering the impact on sentiment, financial markets,
inflation expectations and monetary policy. The Fed is
expected to raise interest rates at least three times this year
to combat inflation. Overreacting could cause a recession
now, but not taming inflation could cause a recession later.
A protracted military conflict would seriously complicate the
Fed’s ability to fulfill its charter, which is to deliver
maximum employment at stable prices.
How much will Russian output decrease?
In all three of our scenarios, fewer Russian barrels of oil are
available to the global oil market. The hit to global supply is
1 million barrels per day in the good scenario, 2 million bpd
in the bad scenario, and 3 million bpd in the ugly scenario.
There are three principal channels through which Russian oil
supply is curtailed.
The first of these channels is explicit export bans. The U.S. ,
U.K. and Canada have banned Russian energy imports,
reducing demand for oil by 383,000 bpd. Europe is opposed
to a Russian energy ban, which is understandable given its
high reliance on it[2]. While Russia accounts for just 8% of
U.S. oil and product imports, a third of Europe’s oil and 40%
of its natural gas comes from Russia . Europe is already
paying 10 times more for natural gas than it did a year ago.
The U.S. is quickly stepping up its capacity to export
liquefied natural gas; it became the largest LNG exporter in
the world in January, and two-thirds of this arrives in Europe ,
but the U.S.’s displacement of Russia cannot happen
overnight.
Even though Europe hasn’t banned Russian imports, much
of its private sector is effectively self-sanctioning. This is the
second channel. Companies are deciding that they do not
want the reputational risk that they would assume if they
bought Russian oil. This is highlighted by Shell , which
announced a large purchase of Russian oil before facing a
public backlash that caused it to reverse course and cancel
the purchase.
The third channel is reductions in Russia’s capacity to
produce oil and gas. BP, Shell , Exxon and Total are among
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
4
the Western oil giants that have exited their Russian
investments or canceled joint ventures with Russian energy
companies. These decisions, in tandem with severe financial
sanctions that the West has levied upon Russia , such as
barring most of its banks from the SWIFT financial network,
will choke Russian energy companies. Without financing,
they will not be able to invest in new wells needed to offset
depletion of their existing wells. Moreover, many of the
products that Russia needs to refine its oil are produced only
in Europe , and Europe has banned the export of these
products to Russia . A lack of financing and critical imports
will reduce Russia’s capacity to even produce oil and oil
products, let alone export them.
We estimate that in the baseline scenario, 1.6 million bpd of
Russia’s 7.2 million bpd of oil and refined product exports
would be displaced. More severe self-sanctioning raises this
figure to 3.2 million bpd in the Limited Disruption scenario.
In the Lengthy Conflict scenario, all countries that have
levied economic sanctions on Russia in response to its
invasion ban Russian energy imports, amounting to 4.8
million bpd. That would push oil prices to $150 per barrel
(see Table 1). This loss of supply would be offset by three
primary factors:
»
Lower global oil demand
»
Russian exports rerouted from the West to
more favorable countries such as China
»
Increased production outside of Russia
These offsets would help to limit the fallout on oil prices
(see Table 2). But the world would still need more oil.
Where will oil come from?
In all scenarios, the withdrawal of Russian barrels from the
international market would be met by a combination of
inventory depletion and increased production by the U.S. ,
Saudi Arabia , and the United Arab Emirates (see Table 3).
No producer can increase production faster than OPEC , and
Saudi Arabia and the UAE hold 82% of the cartel’s
immediate spare capacity. The U.S. has the fastest capacity
to respond outside of OPEC , and it is also the world’s
marginal producer. The greater price signal in the two
adverse scenarios illicits a greater supply response from the
three countries.
Still, should the invasion drag into 2023, there is a good
chance that the world will have to dip into its oil reserves to
satisfy demand. The good news is that inventories are sturdy
enough to hold up even in the Lengthy Conflict scenario.
There are about 3.7 billion barrels of commercial crude oil
stored across the world, around 2.3 billion barrels in global
strategic petroleum reserves, and an additional 2 billion
barrels of oil product inventories. Even if the world were to
run a deficit of 2 million bpd this year, as it did in 2021 when
the global economy recovered from COVID-19, global oil
inventories would only fall from 8 billion to 7 billion barrels.
Iranian support
After playing a long and delicate geopolitical dance, Iran has
signaled it is prepared to re-enter into a nuclear deal with
the U.S. The U.S. has long cultivated such a deal, but it was
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
5
not apparent that Iran was a willing partner until the past
two weeks. Iran has already adjusted to economic sanctions.
If it were to strike a deal with President Biden, it would risk
another painful adjustment should a Republican president
unilaterally cancel the resurrected deal. Iran’s choice was a
hard one to make, but it appears to have opted for
diplomacy.
Striking a deal with Iran would deliver the U.S. a trump card
that would substantially offset the rise in oil prices caused by
Russia’s military assault. Saudi Arabia has already begun to
signal its displeasure, but it would be difficult to envision the
Kingdom withholding barrels as Iran came on line, as it would
be effectively surrendering market share. If a deal is struck
soon, Iranian barrels would start hitting the market in the
third quarter. Iran is capable of exporting up to 2.5 million bpd
of oil and products. It is the only producer large enough to fill
the void of Russia’s withdrawal. The alternative, should Putin
decide not to back down, would be inventory depletion, $100
oil, and a global economy on red alert.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
6
The Week Ahead in the Global Economy
U.S.
It will be a fairly quiet week on the U.S. economic data front.
Among the key data released will be new-home sales,
durable goods orders, and the final March University of
Michigan consumer sentiment survey. Since U.S. consumers
don’t like higher gasoline prices, consumer confidence fell
for the third straight month, and for five of the last six
months, to another cyclical low in March as gasoline prices
continued to rise and the stock market kept falling,
according to the preliminary report from the University of
Michigan. Its sentiment index fell to 59.7 in March from
62.8 in February. The drop was led by expectations. We
don’t anticipate a noticeable improvement in the final
estimate for March. New-home sales and durable goods
could have implications for first-quarter GDP growth.
Europe
We expect the U.K.’s consumer price inflation rate sped up
to 5.7% year over year in February from 5.5% in January.
This will be the result of stronger core inflation and energy
prices. Core inflation will be supported by a boost in demand
for services and goods following the retraction of pandemic-
era social-distancing measures at the end of January. Energy
prices remain somewhat contained by the country’s electric
and gas price cap, but this will be recalculated in April, and
provide a massive impulse. Retail sales likely tracked another
gain in February, 0.7% month over month, adding to the
solid 1.9% rise in January. Sales will have been supported by
the easing of social-distancing measures.
Russia’s industrial production was likely up by 8% year over
year in February, slowing from the 8.6% rise in January. The
effects from the military conflict in Ukraine will not show up
yet in the February release. In March, however, we are
expecting a significant drop in output.
We expect estimates of Spain’s fourth-quarter GDP to
report a downward revision to the growth rate, to 1.8%
quarter over quarter, rather than 2%. This comes as retail
sales were revised considerably lower in December. Private
consumption, as a result was likely even weaker than
estimated in the preliminary release.
Finally, we expect the number of job seekers in France fell to
2.95 million in February from 2.98 million in January. With
the recovery from the pandemic in progress, we foresee
gains to employment during the month.
Asia-Pacific
The Philippine central bank will keep its policy rate steady at
2% at its March meeting. Bangko Sentral ng Pilipinas has
some added breathing space to keep rates on hold because
inflation has cooled from its August peak of 4.4% year over
year. In February, headline CPI growth was 3%, unchanged
from January’s pace. The central bank is keeping a close
watch on inflation expectations; Russia’s invasion of Ukraine
has heightened upside risks from high global energy and
food prices. Monetary policy is expected to start normalising
in the September quarter. Movement restrictions to slow
the spread of the Omicron variant of COVID-19 have hurt
domestic demand in the opening months of 2022.
Hong Kong’s inflation likely remained relatively subdued in
February at 1.6% year over year after January’s 1.2%.
Movement controls aimed at slowing Omicron infections
are suppressing demand-side pressures, particularly for
consumer services. The subdued housing market is also
dragging on price growth, particularly given its relatively
large weighting in the CPI basket, overwhelming the pass
through of higher energy costs.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
7
Geopolitical Calendar
Date
Country
Event
Economic Importance Financial Market Risk
28-29-Mar
ASEAN
U.S. -ASEAN summit
Low
Low
10-Apr
France
General elections
Medium
Medium
8-May
Hong Kong
Chief executive election
Low
Low
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
8
THE LONG VIEW: U.S.
Forecast Updates: Europe’s Default Rate Jumps
BY RYAN SWEET
CREDIT SPREADS
Moody's long-term average corporate bond spread is 158
basis points, 6 bps wider than the 152 bps at this time last
week and wider than the 136 bps average in February. The
long-term average industrial corporate bond spread widened
by 7 bps to 144. It averaged 154 bps in February.
The recent ICE BofA U.S. high-yield option-adjusted bond
spread widened from 394 to 421 bps. The Bloomberg
Barclays high-yield option-adjusted spread has bounced
around recently and is currently 386 bps compared with
384 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 and that implied by a VIX of 27.
Defaults
The trailing 12-month global speculative-grade default rate
rose to 2% at the end of February from 1.8% in January. In
Europe , the default rate jumped to 2.1% from 1.2%. Under
our baseline scenario, Moody's Credit Transition Model
predicts that the global speculative-grade corporate default
rate will decline to 1.7% in the second quarter before rising
to 2.8% at the end of February 2023. That rate would still
be well below the long-term average of 4.1%.
Our baseline forecasts assume that the U.S. high-yield
spread will widen from about 400 basis points currently to
548 bps over the next four quarters. This widening would be
partially offset by improvement in the U.S. unemployment
rate, which we assume will decline to 3.5% by the end of
February 2023 from the current rate of 3.8%. Our baseline
forecasts are underpinned by positive factors such as good
corporate fundamentals, low refinancing risk in the near
term, and the transition of the global economy from a
tentative recovery toward more stable growth, bolstered by
improvement in the COVID-19 health situation. However,
risks have grown following the invasion of Ukraine and the
subsequent sanctions on Russia . Although we expect the Fed
to raise interest rates at a pace that will not severely disrupt
the U.S. economic recovery and financing conditions, the
Russia - Ukraine conflict could add substantial risk to the
default outlook through multiple channels, especially in
Europe .
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 $92 billion in the final
three months of 2021. December was a disappointment for
high-yield corporate bond issuance, since it was 33% below
its prior five-year average for the month.
In the week ended March 11, US$-denominated high-yield
issuance totaled $4 billion , bringing the year-to-date total
to $51.5 billion . Investment-grade bond issuance rose $69.2
billion in the current week, bringing its year-to-date total to
$396.3 billion . Total US$-denominated issuance is currently
tracking that seen in 2018 and 2019.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
9
U.S. ECONOMIC OUTLOOK
There were some adjustments to our forecast between the
February and March baselines, as the latest incorporates
new assumptions around the effect of the military conflict
between Russia and Ukraine . There are many scenarios on
how the Russian invasion of Ukraine will unfold, each darker
than the next, but the most likely scenario is that Russian
troops will go no farther than Ukraine and any disruptions to
oil, natural gas and other commodity markets will be limited
and temporary. If so, the impact of the Russian invasion on
the U.S. economy will be on the margins.
The U.S. banking and trade exposure to either Russia or
Ukraine is very small. The primary channels through which
the military conflict will adversely impact the U.S. economy
is oil prices and financial market conditions. Europe’s
economy will be hit harder, but its economic recovery will
continue. Russia , however, will suffer a debilitating recession,
and for Ukraine’s economy this is a catastrophe.
Smaller fiscal package
President Biden renamed his economic agenda from “Build
Back Better” to “Building a Better America.” Prior to Biden’s
first State of the Union, we revised our BBA assumptions in
the March forecast. We no longer assume Democrats pass a
$1.2 trillion package of social safety net and climate policies
through budget reconciliation, but rather a $600 billion
legislation. We jettisoned the following two provisions that
had been included in the February forecast: $400 billion in
Affordable Care Act premium credits and $200 billion in
universal preschool investments.
The BBA package would pass by the end of the third quarter,
with implementation starting in the fourth quarter. It would
center around $330 billion in clean energy tax credits and
$230 billion in direct federal spending to address climate
change. The reconciliation bill would also modestly expand
the Child Tax Credit by $40 billion by making it fully
refundable on a permanent basis. The BBA would be a
virtual nonevent for the economy in 2022, but its gross
fiscal support would amount to 0.1% of GDP in 2023, peak
at 0.25% in 2026, and settle at less than 0.2% by the end of
a 10-year budget horizon.
Because we have rolled back the number of BBA
investments, the March forecast also assumes a smaller
number of pay-fors. We removed the following offsets that
were previously part of the February forecast: a new excise
tax applying to stock buybacks, higher taxes on global
intangible low-taxed income for U.S. multinationals, and
other international tax changes.
The March 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. Finally, prescription
drug savings would solely come from repealing a Trump-era
rule eliminating 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.
We do not assume Democrats implement other prescription
drug reforms such as allowing the federal government to
negotiate drug prices in Medicare or requiring drug
companies to pay rebates when annual increases in drug
prices for Medicare and private insurance exceed the rate of
inflation.
In sum, the BBA would include $700 billion in tax increases
on well-to-do households, as well as prescription drug
savings. As a result, it would lead to a net deficit reduction
of $100 billion over the next 10 years. Our BBA assumption
in the March forecast is broadly in line with recent
comments by Senator Joe Manchin.
COVID-19 assumptions
We adjusted our epidemiological assumptions to anticipate
that total confirmed COVID-19 cases in the U.S. will be 81
million, less than the 82.9 million in the February baseline.
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 dropped sharply
recently and was around 39,000, below its recent peak of
807,000 and among the lowest since July. The date for
abatement of the pandemic, where total case growth is less
than 0.05% per day, changed slightly, as it has already
occurred. We had expected it to abate on April 4.
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.
Oil bites into GDP
The March baseline factors in the recent jump in energy
prices, and that led us to revise our forecast lower for U.S.
GDP growth by 0.2 of a percentage point to 3.5% this year.
We nudged up the forecast for GDP growth in 2023 from
3% to 3.1%.
The bulk of the downward revision was in the second
quarter, when real GDP is expected to rise 4.8% at an
annualized rate, compared with the 6.1% in the February
baseline forecast. We now expect oil prices to peak in the
second quarter, with West Texas Intermediate crude oil
prices averaging $100 per barrel. Our rule of thumb is that
every $10 increase in the per barrel price of oil increases U.S.
retail gasoline prices by 30 cents a gallon. Every penny
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
10
increase in retail gasoline prices reduces consumer spending
by about $1.5 billion over the course of a year.
GDP growth in the second half of this year will average 2.7%
at an annualized rate. The Bloomberg consensus is for real
GDP to increase 3.6% this year and 2.4% in 2023.
Oil prices, financial market conditions, inventories, and
global supply-chain issues remain downside risks to the
near-term forecast. While inventories played an enormous
role in the gain in fourth-quarter GDP, they are on track,
along with net exports, to be a significant drag on growth
early this year. Our high-frequency GDP model’s tracking
estimate of first-quarter GDP growth keeps heading south,
but it has nothing to do with recent geopolitical events.
Currently, first-quarter GDP is on track to rise 0.5% at an
annualized rate.
Business investment and housing
Fundamentals have turned less supportive for business
investment as corporate credit spreads continue to widen.
However, corporate profit margins are fairly wide, and banks
are easing lending standards.
We have real business equipment spending rising 7.3% this
year, compared with 8.2% in the February baseline. The
forecast is for real business equipment spending to increase
5.6% in 2023, a touch stronger than the 5.4% gain in the
February baseline forecast.
Risks are weighted to the downside for nonenergy business
investment, 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.
The real nonresidential structures investment is now
expected to increase 14.4% this year, compared with the
11% gain in the February forecast. Some of the upward
revision is the boost to business investment from higher
energy prices, primarily in mining exploration, shafts and
wells. 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 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; it is now expected to increase 8.6% this
year, compared with 5.2% in the February baseline. We
raised the forecast next year from 2% to 7.7%.
Revisions to housing starts were small. Housing starts are
expected to be 1.81 million, compared with 1.84 million in
the February 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 11.5%, compared
with 9.8% in the February baseline. House price growth
moderates noticeably in 2023, as prices are forecast to rise
2.3%, a touch weaker than the 2.4% in the February
baseline. This is attributable to rebalancing of supply and
demand.
Labor market
The February employment data are incorporated into the
March baseline forecast. They led to minor tweaks to the
forecast. We have job growth averaging 367,000 per month
this year, compared with the February baseline forecast of
384,000. There weren't material changes to the forecast for
the unemployment rate this year, as it is still expected to
average 3.4% in the final three months of this year and
3.4% in the fourth quarter of next year.
We assume a full-employment economy is one with a 3.5%
unemployment rate, around a 62.5% labor force
participation rate, and an 80% prime-age employment-to-
population ratio. All of these conditions will be met by late
this year or early next.
Fed sticks to its plan
Federal Reserve Chair Jerome Powell was explicit during his
semiannual testimony to the House Committee on Financial
Services. He took away all uncertainty about the outcome of
March’s Federal Open Market Committee meeting by
throwing his support behind a 25-basis point rate hike and
saying that plans to reduce the size of the balance sheet will
not be finalized.
Normally, Fed chairs avoid tipping their hands, as it could be
seen as front-running the FOMC . However, Russia’s invasion
of Ukraine has caused a lot of volatility in financial markets
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
11
and created new uncertainty. Therefore, Powell likely
wanted to reduce any uncertainty about the Fed’s intention
at its upcoming meeting. Powell did leave the door open for
larger rate hikes at future meetings.
He sounded optimistic that the Fed can engineer a soft
landing, where it raises interest rates enough to curb
inflation but not enough to tip the economy into recession.
Powell floated the idea that this tightening cycle will end
above his estimate of the neutral fed funds rate of 2% to
2.5%.
We maintained our assumption that the Fed raises the
target range for the fed funds rate four times this year, 25
basis points each time. Markets are pricing in more hikes,
just south of seven hikes over the next 12 months. The
tightening in financial market conditions did some of the
Fed’s work for it. The primary channel through which
monetary policy impacts the economy is financial markets.
With financial market conditions tightening, the Fed doesn’t
need to do as much this year.
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.
Risks are weighted toward more rate hikes this year. Higher
energy prices are going to cause inflation to peak higher
than we had previously expected. We look for year-over-
year growth in the consumer price index to be 7.4% in the
first quarter, compared with 7% in the February baseline.
The inflation forecast follows a similar trajectory as past
baseline forecasts, just higher. Inflation moderates through
the remainder of the year, returning to the Fed’s target in
the first half of next year. Key to this forecast is that oil
prices average $100 per barrel in the second quarter, with
that being the peak. Also, supply-chain issues are expected
to ease, leading to significant disinflation in goods prices.
We didn’t make significant changes to the forecast for the
10-year Treasury yield. The forecast is that the Dow Jones
Industrial Average incorporates the recent developments.
The new baseline will have the Dow Jones Industrial Average
lower than its February baseline. The recent decline
accounted for the bulk of the decline we expected to occur
throughout the year. Therefore, the March baseline has
another leg lower in equity prices, which we expect will
remain within a tight range through the end of next year.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
12
THE LONG VIEW: EUROPE
Euro Zone Inflation Hits Record
BY ROSS CIOFFI
Inflation in the euro zone hit a record high in February at
5.9% year over year. Energy prices remained the key mover
in the release, although prices increased considerably for
food and core goods as well. Unfortunately, price pressures
will continue heating up in March, as the military conflict in
Ukraine has further shocked energy and nonenergy
commodity prices.
For most of February, the story was about oil prices, as Brent
crude prices rose significantly across the month. This
boosted electricity prices and prices at the pump.
Meanwhile, rising production costs resulting from supply-
chain disruptions and soaring energy bills were behind the
price increases of core industrial goods, particularly those of
personal vehicles, and furniture and household appliances.
Such durable goods have been under immense pressure
given more than a year of sky-high shipping rates and acute
shortages of key inputs in global markets. Clothing and
footwear price inflation rebounded in February, which did a
lot to support core inflation. But here it is less a story of
robust demand or tight supply, although we do expect
demand for clothing to recover in step with the abatement
of the pandemic. Rather, there are also some base effects at
work. Finally, services inflation remained moderate in
comparison this February, with prices rising only 0.1% m/m.
Part of the reason is that the sector was still stifled by the
pandemic and lingering social distancing measures. As
demand for traveling is unleashed this spring and summer,
we should see stronger inflation pressures return to services.
Bank of England tightens monetary policy
The Bank of England lifted interest rates by 25 basis points
to 0.75% in its March meeting, in line with expectations.
The decision was not unanimous; one member voted for the
status quo given worries over the negative impact that
higher commodity prices resulting from the Russia - Ukraine
military conflict will have on purchasing power and growth.
Rates are back where they were before the start of the
pandemic. Unsurprisingly, the BoE also raised its inflation
forecasts. It now expects inflation to peak at 8% in the
second quarter as a result of higher prices and supply
disruptions due to the Ukraine military conflict. The BoE will
raise rates further this year, but not as fast as markets
expect, given the weaker economic outlook on the back of
higher inflation and lower overall sentiment.
Turkey keeps monetary policy loose
Turkey’s central bank decided against changing its policy
rate, leaving it at 14%. Inflation sped up significantly in
January and February, to 48.7% year over year and 54.4%,
respectively. Global inflation pressures worsened in these
months, and the drop in the lira made import inflation even
stronger. The price environment has negative implications
for real consumption and investment. The inflation
dynamics call for higher monetary policy rates, but we do
not expect the central bank to hike rates at the next
meeting either.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
13
THE LONG VIEW: ASIA-PACIFIC
Omicron Slows Supply Chains
BY TIM UY
Global supply chains are under significant strain as the West
deals with the ramifications of the Russia - Ukraine military
conflict and the East deals with lockdowns and restrictions
associated with COVID-19. Expect freight rates, delivery
delays and import prices to rise in the near term.
No rest for the weary
Before the surge of the Omicron variant of COVID-19 at the
start of the year in the western hemisphere, there had been
signs that supply-chain stresses could be waning and a
return to normal could be on the horizon. Freight rates and
container costs started to come down before Omicron
started surging in the West in January, and by February had
them rising again. Given the inelastic nature of shipping
supply and port equipment at the world’s disposal, any
disruption to the logistical flow of goods and services owing
to these external forces are bound to derail already-impaired
supply chains.
The military conflict between Russia and Ukraine has since
replaced the Omicron variant as the leading source of
supply-chain stress in the West as COVID-19 numbers have
come down and travel and mobility restrictions lifted. Not
only has the conflict been a source of direct disruption to
trade in key commodities—palladium, titanium, nickel,
copper, oil, natural gas, helium and neon—but government
policies and sanctions that have been introduced since the
start of the conflict have forced carriers to reroute
operations and carry less freight between the eastern and
western hemispheres.
Turning to the East
While the Omicron wave has subsided in the West, it is still
raging in many places in the East. China saw its largest
number of cases in a single day since the start of the
pandemic on Monday and has now put more than 50
million residents in various cities across the country under
lockdown to contain the crisis. Hong Kong , which has seen
cases surge and COVID-19 deaths hit all-time highs, has
been hard-pressed to contain the spread of the virus.
Similarly, South Korea is facing its greatest surge in cases yet
and, as with Hong Kong , has not implemented a full-scale
lockdown, accepting the reality of living with COVID-19 as
an endemic state.
Japan is coming off its Omicron peak and is considering
lifting mobility restrictions next week. Malaysia , Singapore ,
Thailand and Indonesia are also coming off Omicron peaks
and have likewise indicated their intention to live with
COVID-19 rather than impose stronger restrictions and
lockdown measures.
What this means for global supply chains
Much will hinge on what happens in China . Most of the
other countries have largely tried to keep things business-as-
usual, keeping factories running, albeit subject to some
precautionary measures. China so far has instituted short-
term lockdowns to quell COVID-19 outbreaks and largely
succeeded in quashing any clusters that have formed in
different parts of the country. While locally disruptive, this
does not have substantial impact to global supply chains if
the lockdowns remain localized and do not stay on for an
extended period of time.
Shenzhen , a technology hub often touted as China’s Silicon
Valley, is under lockdown for a week even as its key port of
Yantain remains open. It remains to be seen whether these
ports that are critical to the global logistics network will
remain open if the growth in COVID-19 cases in China
continues. A weeklong lockdown in Shenzhen , while
detrimental to the local economy, does not impact global
supply chains nearly as much as the long-term closure of
key ports like Shanghai , Yantian or Ningbo . Any pause in
production due to the weeklong shutdown such as in
Foxconn , a key supplier to many companies including Apple,
can be made up for by redirecting production to other sites,
while important port closures would keep containers stuck
in those ports at a time when there is a serious dearth in
available shipping material and capacity.
The big picture: More uncertainty ahead
Although the global supply-chain picture is clouded with
uncertainty, we can expect to see continued stress in the
system in the next few months. Energy prices and key
commodity prices are likely to remain elevated if the
military conflict continues, and this will feed into higher
input costs and transportation costs. Border closures,
mobility restrictions, and changing customs requirements
are all impeding the flow of goods and services worldwide,
leading to lower production and higher prices.
Some industries will be at greater risk than others,
particularly those reliant on highly integrated global supply
chains. Time is the all-important factor in whether these
recent events—the military conflict and the Omicron
surge—will have a devastating effect on global supply
chains. Short-term disruptions can be mitigated with
creative sourcing and inventory management, but a drawn-
out affair would make it much harder for supply chains to
fully recover.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
14
RATINGS ROUNDUP
Europe Dinged by Russian Downgrades
BY MICHAEL FERLEZ
U.S.
U.S. rating change activity remained overwhelming positive
last week, with upgrades accounting for nearly three-fourths
of total activity and more than 90% of affected debt. Rating
change activity was split across a broad range of industries,
with speculative-grade companies representing most of the
changes.
The largest upgrade in terms of affected debt was made to
Uber Technologies, Inc. which saw its Corporate Family
Rating upgraded to B1 and its senior secured loan and senior
unsecured debt rating upgraded to Ba3 and B2, respectively.
In Moody’s Investors Service rating rationale, Moody’s
analyst Raj Joshi said, “The upgrade of the CFR to B1 reflects
a significant turnaround in Uber's adjusted EBITDA in the
second half of 2021 and our expectations for rapid and
sustained improvements in profitability and operating cash
flow over the next 12 to 24 months.” In total, the upgrade
impacted $6 billion in outstanding senior unsecured debt.
Europe
Western European rating change activity saw a significant
number of downgrades last week, with most changes
stemming from Moody’s Investors Service’s downgrade of
the rating for 95 Russian nonfinancial corporates. For the
week ended March 15, there were a total of 31 downgrades
and one upgrade. Ireland led all countries, recording 16 firms
with rating changes, followed by Cyprus , which saw six
changes. The Netherlands , Switzerland and the U.K. each
saw two firms receive rating changes, while Spain and
Austria each recorded one. Moody’s Investors Service’s
downgrades of nonfinancial Russian corporate ratings
follows the downgrade on March 6 of the Government of
Russia’s long-term issuer rating and senior unsecured ratings
to Ca.
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
15
RATINGS ROUND-UP
0.0
0.2
0.4
0.6
0.8
1.0
0.0
0.2
0.4
0.6
0.8
1.0
Apr01
Aug04
Dec07
Apr11
Aug14
Dec17
Apr21
FIGURE 1
Rating Changes - US Corporate & Financial Institutions: Favorable as a % of Total Actions
By Count of Actions
By Amount of Debt Affected
* Trailing 3-month average
Source: Moody's
FIGURE 2
BCF
Bank Credit Facility Rating
MM
Money-Market
CFR
Corporate Family Rating
MTN
MTN Program Rating
CP
Commercial Paper Rating
Notes
Notes
FSR
Bank Financial Strength Rating
PDR
Probability of Default Rating
IFS
Insurance Financial Strength Rating
PS
Preferred Stock Rating
IR
Issuer Rating
SGLR
Speculative-Grade Liquidity Rating
JrSub
Junior Subordinated Rating
SLTD
Short- and Long-Term Deposit Rating
LGD
Loss Given Default Rating
SrSec
Senior Secured Rating
LTCF
Long-Term Corporate Family Rating
SrUnsec
Senior Unsecured Rating
LTD
Long-Term Deposit Rating
SrSub
Senior Subordinated
LTIR
Long-Term Issuer Rating
STD
Short-Term Deposit Rating
Rating Key
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
16
FIGURE 3
Rating Changes: Corporate & Financial Institutions - US
Date
Company
Sector
Rating
Amount
($ Million)
Up/
Down
Old
LTD
Rating
New LTD
Rating
IG/S
G
3/9/2022
ENCORE CAPITAL GROUP, INC.
Financial
SrSec/LTCFR
1648.45
U
Ba3
Ba2
SG
3/10/2022
OWENS & MINOR, INC.
Industrial
SrSec/SrUnsec
991.96
D
Ba2
Ba3
SG
3/10/2022
GOLDEN ENTERTAINMENT, INC.
Industrial
SrUnsec/LTCFR/PDR
375.00
U
Caa1
B3
SG
3/10/2022
SMYRNA READY MIX CONCRETE, LLC
Industrial
SrSec/LTCFR/PDR
1100.00
U
B1
Ba3
SG
3/11/2022
TENET HEALTHCARE CORPORATION
Industrial
SrUnsec/LTCFR/PDR
4782.00
U
Caa1
B3
SG
3/11/2022
BACKYARD MIDCO, INC.
Industrial
SrSec/BCF/LTCFR/PDR
U
B2
B1
SG
3/11/2022
SKILLZ INC.
Industrial
SrSec/LTCFR/PDR
300.00
D
B3
Caa1
SG
3/15/2022
HASBRO, INC.
Industrial
SrUnsec/CP
3484.90
U
Baa3
Baa2
IG
3/15/2022
U.S. TELEPACIFIC HOLDINGS CORPORATION-
U.S. TELEPACIFIC CORP.
Industrial
SrSec/BCF/LTCFR
D
B3
Caa1
SG
3/15/2022
UBER TECHNOLOGIES, INC.
Industrial
SrUnsec/SrSec/BCF/LTCF
R/PDR
5700.00
U
B3
B2
SG
3/15/2022
COVIA HOLDINGS LLC
Industrial
SrSec/BCF/LTCFR/PDR
U
B3
B2
SG
Source: Moody's
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
17
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
3/10/2022
LUKOIL , PJSC-LUKOIL CAPITAL DAC
Industrial
SrUnsec
4300.00
D
Baa2
Caa2
IG IRELAND
3/10/2022
ALROSA PJSC-ALROSA FINANCE S.A .
Industrial
SrUnsec
500.00
D
Baa2
Caa2
IG LUXEMBOURG
3/10/2022
PAO SEVERSTAL-STEEL CAPITAL S.A .
Industrial
SrUnsec/MTN
1434.05
D
Baa2
Caa2
IG LUXEMBOURG
3/10/2022
MAGNITOGORSK IRON & STEEL WORKS-
MMK INTERNATIONAL CAPITAL DAC
Industrial
SrUnsec
500.00
D
Baa2
Caa2
IG IRELAND
3/10/2022
SIBUR HOLDING, PJSC-SIBUR SECURITIES
DAC
Industrial
SrUnsec
1500.00
D
Baa3
Caa2
IG IRELAND
3/10/2022
SISTEMA PUBLIC JOINT STOCK FINANCIAL
CORPORATION-MTS INTERNATIONAL
FUNDING LIMITED
Industrial
SrUnsec
500.00
D
Baa3
Caa2
IG IRELAND
3/10/2022
NLMK-STEEL FUNDING D.A.C.
Industrial
SrUnsec
1782.32
D
Baa2
Caa2
IG IRELAND
3/10/2022
MMC NORILSK NICKEL, PJSC-MMC FINANCE
DAC
Industrial
SrUnsec
2750.00
D
Baa2
Caa2
IG IRELAND
3/10/2022
SOVCOMFLOT PAO-SCF CAPITAL
DESIGNATED ACTIVITY COMPANY
Industrial
SrUnsec
498.43
D
Baa3
Caa2
IG IRELAND
3/10/2022
X5 RETAIL GROUP N.V.
Industrial
LTCFR/PDR
D
Ba1
Caa2
SG NETHERLANDS
3/10/2022
PAO NOVATEK-NOVATEK FINANCE LIMITED Industrial
SrUnsec
1000.00
D
Baa2
Caa2
IG IRELAND
3/10/2022
RUSHYDRO, PJSC-RUSHYDRO CAPITAL
MARKETS DAC
Utility
SrUnsec
497.29
D
Baa3
Caa2
IG IRELAND
3/10/2022
MHP SE
Industrial
LTCFR/PDR
D
B3
Caa3
SG CYPRUS
3/10/2022
TRANSPORTATION INVESTMENTS HOLDING
LIMITED-GLOBALTRANS INVESTMENT PLC
Industrial
LTCFR/PDR
D
Ba1
Caa2
SG CYPRUS
3/10/2022
PETRO WELT TECHNOLOGIES AG
Industrial
LTCFR
D
Ba3
Caa2
SG AUSTRIA
3/10/2022
JSC HOLDING COMPANY METALLOINVEST-
METALLOINVEST FINANCE D.A.C.
Industrial
SrUnsec
650.00
D
Baa3
Caa2
IG IRELAND
3/10/2022
METINVEST B.V.
Industrial
LTCFR/PDR
D
B3
Caa3
SG NETHERLANDS
3/10/2022
PJSC KOKS
Industrial
SrUnsec/LTCFR/PDR
350.00
D
B1
Caa2
SG IRELAND
3/10/2022
FERREXPO PLC
Industrial
LTCFR/PDR
D
B3
Caa2
SG SWITZERLAND
3/10/2022
PJSC PHOSAGRO-PHOSAGRO BOND
FUNDING DESIGNATED ACTIVITY COMPANY
Industrial
SrUnsec
1500.00
D
Baa3
Caa2
IG IRELAND
3/10/2022
GLOBAL PORTS INVESTMENTS PLC
Industrial
SrUnsec/LTCFR/PDR
313.58
D
Ba1
Caa2
SG CYPRUS
3/10/2022
URALKALI PJSC
Industrial
SrUnsec/LTCFR/PDR
500.00
D
Ba2
Caa2
SG IRELAND
3/10/2022
POLYUS GOLD INTERNATIONAL LIMITED-
POLYUS FINANCE PLC
Industrial
SrUnsec
1852.61
D
Baa3
Caa2
IG UNITED KINGDOM
3/10/2022
NORD GOLD PLC
Industrial
SrUnsec/LTCFR/PDR
400.00
D
Ba1
Caa2
SG IRELAND
3/10/2022
EVRAZ PLC
Industrial
SrUnsec
1450.00
D
Ba1
Caa2
SG UNITED KINGDOM
3/10/2022
OMEGA FUNDS INVESTMENT LTD
Financial
LTIR
D
B2
Ca
SG CYPRUS
3/10/2022
O1 PROPERTIES LIMITED
Industrial
LTCFR
D
Caa2
Caa3
SG CYPRUS
3/10/2022
TENDAM BRANDS S.A.U.
Industrial
SrSec/LTCFR/PDR
1244.12
U
B3
B2
SG SPAIN
3/10/2022
DME LIMITED ( MOSCOW DOMODEDOVO
AIRPORT)
Industrial
SrUnsec/LTCFR/PDR
657.72
D
Ba1
Caa2
SG CYPRUS
3/10/2022
EUROCHEM GROUP AG
Industrial
SrUnsec/LTCFR/PDR
700.00
D
Ba2
Caa2
SG SWITZERLAND
3/10/2022
PJSC PIK - SPECIALIZED HOMEBUILDER-PIK
SECURITIES DAC
Industrial
SrUnsec/LTIR/LTCFR/PDR 525.00
D
Ba3
Caa3
SG IRELAND
3/14/2022
EIRCOM HOLDINGS IRELAND LIMITED-
EIRCOM FINANCE DESIGNATED ACTIVITY
COMPANY
Industrial
SrSec/BCF
3377.47
D
B1
B2
SG IRELAND
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
Mar. 16
Mar. 9
Senior Ratings
McDonald's Corporation
Aa2
Aa3
Baa1
Procter & Gamble Company (The)
Aa1
Aa2
Aa3
Amgen Inc.
A1
A2
Baa1
Kraft Heinz Foods Company
Baa2
Baa3
Baa3
Lumen Technologies, Inc.
B2
B3
B2
Northrop Grumman Corporation
Aa1
Aa2
Baa1
Danaher Corporation
A2
A3
Baa1
Newmont Corporation
A1
A2
Baa1
ERP Operating Limited Partnership
Aa3
A1
A3
McKesson Corporation
A1
A2
Baa2
CDS Implied Rating Declines
Issuer
Mar. 16
Mar. 9
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
Mar. 16
Mar. 9
Spread Diff
Talen Energy Supply, LLC
Caa2
7,717
5,201
2,516
K. Hovnanian Enterprises, Inc .
Caa3
889
795
95
Staples, Inc.
Caa2
1,311
1,228
83
Nabors Industries, Inc .
Caa2
583
523
60
Rite Aid Corporation
Caa2
1,412
1,366
46
Liberty Interactive LLC
B2
703
659
44
MGM Resorts International
Ba3
311
273
38
Nissan Motor Acceptance Company LLC
Baa3
275
240
35
SLM Corporation
Ba1
481
450
31
Realogy Group LLC
B2
430
405
25
CDS Spread Decreases
Issuer
Senior Ratings
Mar. 16
Mar. 9
Spread Diff
American Airlines Group Inc.
Caa1
1,014
1,168
-154
United Airlines , Inc.
Ba3
681
733
-53
Carnival Corporation
B2
560
587
-28
Lumen Technologies, Inc.
B2
447
474
-28
Commercial Metals Company
Ba2
198
224
-27
International Game Technology
B2
319
343
-24
Qwest Corporation
Ba2
236
257
-21
Meritage Homes Corporation
Ba1
204
224
-20
Dillard's, Inc.
Baa3
101
121
-20
Service Corporation International
Ba3
188
207
-19
Source: Moody's, CMA
CDS Spreads
CDS Implied Ratings
CDS Implied Ratings
CDS Spreads
Figure 3. CDS Movers - US ( March 9, 2022 – March 16, 2022)
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
20
CDS Movers
CDS Implied Rating Rises
Issuer
Mar. 16
Mar. 9
Senior Ratings
Raiffeisen Bank International AG
Baa3
Ba2
A2
BASF (SE)
A1
A3
A3
Danone
Aa2
A1
Baa1
Bertelsmann SE & Co. KGaA
Aa2
A1
Baa2
BAE SYSTEMS plc
Aa3
A2
Baa2
Erste Group Bank AG
A3
Baa1
A2
Orange
A1
A2
Baa1
TotalEnergies SE
Aa2
Aa3
A1
Vodafone Group Plc
Baa1
Baa2
Baa2
Deutsche Telekom AG
A1
A2
Baa1
CDS Implied Rating Declines
Issuer
Mar. 16
Mar. 9
Senior Ratings
UniCredit Bank AG
A3
A1
A2
UniCredit Bank Austria AG
A2
Aa3
Baa1
KBC Group N.V.
Baa3
Baa1
Baa1
Pearson plc
Ba1
Baa2
Baa3
Societe Generale
A3
A2
A1
UniCredit S.p.A .
Baa3
Baa2
Baa1
Nordea Bank Abp
Aa2
Aa1
Aa3
Svenska Handelsbanken AB
Aa3
Aa2
Aa2
Swedbank AB
A1
Aa3
Aa3
Standard Chartered Bank
A1
Aa3
A1
CDS Spread Increases
Issuer
Senior Ratings
Mar. 16
Mar. 9
Spread Diff
Pearson plc
Baa3
180
95
85
Fortum Oyj
Baa2
213
159
55
Vue International Bidco plc
Ca
835
790
46
Avon Products, Inc.
Ba3
407
373
34
KBC Group N.V.
Baa1
106
72
33
Banca Monte dei Paschi di Siena S.p.A .
Caa1
477
460
17
FCE Bank plc
Baa3
191
176
15
Jaguar Land Rover Automotive Plc
B1
559
550
9
UniCredit Bank AG
A2
55
47
8
UniCredit Bank Austria AG
Baa1
49
42
7
CDS Spread Decreases
Issuer
Senior Ratings
Mar. 16
Mar. 9
Spread Diff
Casino Guichard-Perrachon SA
Caa1
911
990
-80
Raiffeisen Bank International AG
A2
124
201
-77
Novafives S.A.S.
Caa2
1,092
1,162
-70
Telefonaktiebolaget LM Ericsson
Ba1
161
212
-51
CMA CGM S.A.
B2
354
403
-49
Hammerson Plc
Baa3
200
235
-35
Boparan Finance plc
Caa1
2,100
2,131
-32
thyssenkrupp AG
B1
259
290
-31
Atlantia S.p.A .
Ba3
152
182
-29
Deutsche Lufthansa Aktiengesellschaft
Ba2
316
344
-29
Source: Moody's, CMA
CDS Spreads
CDS Implied Ratings
CDS Implied Ratings
CDS Spreads
Figure 4. CDS Movers - Europe ( March 9, 2022 – March 16, 2022)
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
21
CDS Movers
CDS Implied Rating Rises
Issuer
Mar. 16
Mar. 9
Senior Ratings
Honda Motor Co., Ltd.
Aa3
A3
A3
JFE Holdings, Inc.
A2
Baa1
Baa3
NIPPON STEEL CORPORATION
Aa3
A2
Baa2
Development Bank of Kazakhstan
B1
B3
Baa2
Mitsubishi Corporation
Aa1
Aa2
A2
Toyota Motor Corporation
Aaa
Aa1
A1
Kazakhstan , Government of
Ba2
Ba3
Baa2
Tokyo Electric Power Company Holdings, Inc.
A3
Baa1
Ba1
Mitsui & Co., Ltd.
Aa3
A1
A3
ITOCHU Corporation
Aa1
Aa2
A3
CDS Implied Rating Declines
Issuer
Mar. 16
Mar. 9
Senior Ratings
Kansai Electric Power Company, Incorporated
A1
Aa2
A3
Norinchukin Bank (The)
A3
A1
A1
China , Government of
A3
A2
A1
Sumitomo Mitsui Banking Corporation
Aa2
Aa1
A1
MUFG Bank, Ltd .
Aa3
Aa2
A1
Oversea-Chinese Banking Corp Ltd
A1
Aa3
Aa1
China Development Bank
Baa2
Baa1
A1
Export-Import Bank of China (The)
Baa1
A3
A1
Mizuho Bank, Ltd.
Aa3
Aa2
A1
Telstra Corporation Limited
A2
A1
A2
CDS Spread Increases
Issuer
Senior Ratings
Mar. 16
Mar. 9
Spread Diff
Tata Motors Limited
B1
317
266
51
SoftBank Group Corp.
Ba3
423
387
36
Halyk Savings Bank of Kazakhstan
Ba2
402
385
17
Kansai Electric Power Company, Incorporated
A3
44
36
8
Industrial & Commercial Bank of China Ltd
A1
80
73
7
MTR Corporation Limited
Aa3
40
34
7
Sumitomo Mitsui Banking Corporation
A1
37
31
6
China Development Bank
A1
78
72
6
Export-Import Bank of China (The)
A1
66
60
6
Norinchukin Bank (The)
A1
55
49
6
CDS Spread Decreases
Issuer
Senior Ratings
Mar. 16
Mar. 9
Spread Diff
Development Bank of Kazakhstan
Baa2
362
492
-130
Kazakhstan , Government of
Baa2
201
274
-72
Nippon Yusen Kabushiki Kaisha
Ba3
63
83
-20
Honda Motor Co., Ltd.
A3
38
57
-19
Mitsui O.S.K. Lines, Ltd.
B1
80
97
-17
JFE Holdings, Inc.
Baa3
49
65
-16
NIPPON STEEL CORPORATION
Baa2
41
54
-12
Vietnam , Government of
Ba3
119
131
-12
Holcim Finance ( Australia ) Pty Ltd
Baa2
117
130
-12
Marubeni Corporation
Baa2
38
49
-11
Source: Moody's, CMA
Figure 5. CDS Movers - APAC ( March 9, 2022 – March 16, 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
69.225
4.000
74.294
Year-to-Date
396.265
51.496
461.289
Investment-Grade
High-Yield
Total*
Amount
Amount
Amount
$B
$B
$B
Weekly
19.144
0.000
19.383
Year-to-Date
186.023
12.951
200.239
* 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
To order reprints of this report (100 copies minimum), please call 212.553.1658 .
Report Number: 1322704
Contact Us
Editor
Reid Kanaley
Americas
+1.212.553.1658
Europe
+44.20.7772.5454
clientservices.emea@moodys.com
Asia (Excluding Japan )
+85 2 2916 1121
clientservices.asia@moodys.com
Japan
+81 3 5408 4100
clientservices.japan@moodys.com
MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK
25
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc. , Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES,
CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S
(COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT
MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR
IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL
FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT
LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER
OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO
INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS,
INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE
INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT
PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS
AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT
RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH
INVESTOR WILL, WITH DUE CARE , MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE,
HOLDING, OR SALE.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS
AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN
INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE
COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR
SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT
MOODY’S PRIOR WRITTEN CONSENT.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS
DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as
well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the
information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party
sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its
Publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for
any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to
use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of
such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is
not the subject of a particular credit rating assigned by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or
compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of
liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors,
officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such
information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY
CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.
Moody’s Investors Service, Inc. , a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities
(including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of
any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000 .
MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes.
Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors
Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at
under the heading “Investor
Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s
Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document
is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within
Australia , you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent
will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating
is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly owned by
Moody’s Overseas Holdings Inc., a wholly owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly owned credit rating agency subsidiary of MJKK. MSFJ is not a
Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are
assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit
rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and
preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions
and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000 .
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.