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Fast and Furious: Fed Version (Capital Market Research) (Weekly Market Outlook)

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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.

Fast and Furious: Fed Version

The minutes from the December

meeting of the Federal Open Market

Committee showed the central bank
believed the time to begin removing

policy accommodation was near and
that policymakers favor interest rates

over balance-sheet reduction as the

primary tool. There were clear signs of
concerns about inflation in the minutes,

raising the odds of an earlier and faster
increase in the target range for the fed

funds rate.

There was a lot of discussion about
reducing the balance sheet, but no

consensus on either the timing or

procedure. The Fed has thrown in the
towel on "transitory" inflation, scrubbing

the word from both the post-meeting
statement and minutes.

Fed officials feel more comfortable

about reducing the size of the balance sheet this time around, having learned from the
process in 2017 and 2018. Last time, the Fed waited two years between the first rate hike

and reducing the balance sheet. That won’t happen this time around. The minutes show

support for reducing the balance sheet around the time of the first rate hike. This
challenges the Fed’s efforts to divorce its interest rate and balance sheet policies.

The Fed has a few more meetings in which to iron out the details of how it wants to

reduce its balance sheet, but it does appear that it will use caps again. It doesn't need a
new playbook. The one used last time to shrink the balance sheet will still work, it will

just move more quickly and begin shortly after the first rate hike.

The runoff this time will be faster, as the Fed is more comfortable with the process,
having done it before. This time the Fed has set up a backstop in the Standing Repo

Facility. This is protection against the central bank overdoing it on quantitative tightening

because the New York Fed conducts daily overnight repo transactions under a Standing
Repo Facility to support the effective implementation of monetary policy and smooth

market functioning.

WEEKLY MARKET

OUTLOOK

JANUARY 6, 2022

Lead Authors

Ryan Sweet

Senior Director-Economic Research

Mark Zandi

Chief Economist

Asia-Pacific

Shahana Mukherjee

Economist

Denise Cheok

Economist

Europe

Ross Cioffi

Economist

Evan Karson

Economist

U.S.

Michael Ferlez

Economist

Ryan Kelly

Data Specialist

Podcast

Join the Conversation

Table of Contents

Top of Mind ....................................... 4

Week Ahead in Global Economy ...7

Geopolitical Risks ............................ 8

The Long View

U.S. ....................................................................... 9
Europe ............................................................... 13
Asia-Pacific ..................................................... 15

Ratings Roundup ............................ 16

Market Data .................................... 19

CDS Movers .................................... 20

Issuance ........................................... 23

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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

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The implications for financial markets will likely be an
increase in bond and equity market volatility. However, it’s

hard to say with any confidence if the equity market, which
hit a bump when the Fed used QT last time, will repeat

itself. One reason, at least initially, why it may appear that

financial markets are brushing off QT is that there will still
be a lot of excess liquidity—a little less than $1 trillion—

when the central bank’s balance sheet does begin to decline.

This excess liquidity will be reduced naturally, since the
economy is expected to grow noticeably more quickly than

the M2 money supply next year. Marshallian K, or the
difference between year-over-year growth in M2 money

supply and GDP, turned negative in the second quarter, but

then was positive in the third quarter and is set to steadily
decline over the next year. Another reason the runoff will be

faster this time around is that the Fed has a lot more
Treasuries maturing, on average around $60 billion to $70

billion per month next year. This provides the Fed a lot of
flexibility in adjusting the amount of balance sheet runoff.

Something that could spook the Fed

The minutes show the Fed doesn’t see any relief on the

inflation front soon. The third-quarter Employment Cost
Index contributed to policymakers' hawkish pivot, and the

Fed won’t like the ECI in the fourth quarter, either. It will be
released later this month.

Fed Chairman Jerome Powell recently pointed to the strong

gain in the ECI during the third quarter as the reason for the
central bank’s hawkish shift. Though one quarter isn’t a

trend, odds are that wage pressures didn’t ease in the fourth

quarter and may not do so early this year. This will fan
concerns that risks have risen that a wage-price spiral is

setting in.

Inflation becomes a pernicious problem when there is
widespread belief that inflation will remain high, and

workers demand bigger wage increases to compensate.
Businesses then pass on their higher labor costs in even

higher prices. A dreaded wage-price spiral takes hold. This

vicious cycle was behind the high inflation we suffered more
than 30 years ago. The Fed views the risks of a regime of

high inflation as greater than the downside risks of low
inflation. This points toward a potential policy error by the

Fed in tightening monetary policy too soon and/or too

aggressively.

We forecast what the Fed will do, not what it should.
Therefore, we are paying close attention to the ECI,

particularly for wages. It looks like there was another strong
year-over-year increase in the ECI for wages in the fourth

quarter. Wages and salaries for all workers jumped 1.5% in
the third quarter, nearly doubling the precrisis peak of 0.9%

in the first quarter of 2020.

The quits rate is sending a warning about the fourth-quarter
ECI for wages. The quits rate increased from 2.8% in

October to 3% in November, matching the highest since
the inception of the data in the early 2000s. The correlation

coefficient between the quits rate and year-over-year

growth in the ECI for wages is 0.74 since 2002. Correlation
doesn’t imply causation. Therefore, we used Granger

causality tests to see if there is a causal relationship
between the quits rate and growth in the ECI for wages.

With no lags, the quits rate was found to Granger-cause
changes in the ECI for wages. There was also a causal

relationship with a one- and two-quarter lag. The results

showed that the causality runs one way. With the quits rate
climbing, wage pressures could intensify and that won’t sit

well with the Fed.

U.S. bond market shrugging off Omicron

The U.S. bond market views the Omicron variant of the

COVID-19 virus as a temporary issue for growth while

potentially causing inflation to remain higher for longer. The
10-year U.S. Treasury yield has risen more than 25 basis

points since mid-December. The bond market is buying into
the news that the Omicron variant isn’t as virulent, which

would mean the hit to GDP growth could be lighter than
from Delta, but it could still cause disruptions to supply

chains and, by extension, keep U.S. inflation from

moderating as quickly as previously thought.

Our January baseline forecast will likely cut noticeably into
first-quarter GDP. Our preliminary forecast for first-quarter

GDP is coming in around 2% at an annualized rate,
compared with 5% in the December baseline. We haven’t

finalized the January baseline yet, but it is clear that
Omicron is going to deliver a big blow to growth early this

year. We’re using the Delta wave's hit to GDP growth as our

benchmark.

Risks are actually weighted toward a smaller dent to growth.
We’ve already mentioned the possibility that Omicron

won’t hit as hard as Delta. One reason is because of autos.
Delta roiled global supply chains, which had an enormous

impact on U.S. auto production and sales. Autos subtracted
2 percentage points from GDP growth during the Delta

wave, something that is unlikely to be repeated during the

Omicron wave. So far, COVID-19 cases in the Asia-Pacific
region haven’t surged like they have in North America and

Europe .

Also, supply-chain issues were deteriorating before the Delta
variant hit. This time around, our U.S. Supply-Chain Stress

Index has begun to improve and stress likely dropped further

in December, before Omicron. Though the new variant
could slow or reverse some of the recent improvement, it is

unlikely to be as disruptive to global supply chains as prior

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3

waves. And we don’t believe Omicron will be as inflationary
as the bond market is betting on.

Market-based measures of inflation expectations have

moved higher, with the five-year break-even rate hitting 3%
on Tuesday, up from the 2.7% seen in the second half of

December. Yet, the good news for the Fed is that long-term

market-based inflation expectations remain anchored. The
five-year, five-year forward U.S. inflation break-even rate is

right where the Fed wants it to be. Also, the message from
the inflation swap curve is that inflation will return to the

Fed’s target, over time.

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TOP OF MIND

Risks Rising

BY MARK ZANDI

The U.S. economic recovery is set to turn soft at the start of

the year as the Omicron wave of

COVID-19

hits with full

force and the tailwinds of monetary and fiscal support turn

to headwinds. Global investors are looking through this.

Stock prices continue to post record highs almost on a daily
basis, house prices are sizzling, capitalization rates on

commercial real estate properties are about as low as
they’ve ever been, and credit spreads in the bond market are

paper thin. Then there are crypto prices. Investors are

forward looking and rightly figure that the economic
recovery will quickly revive once Omicron fades. But they

appear to be getting ahead of themselves and a re-pricing of
asset markets seems increasingly likely. Although any selloff

in asset markets is unlikely to be serious enough to
undermine the recovery, this will become increasingly

difficult to say if asset prices continue to appreciate rapidly.

COVID-19 calls the shots

The pandemic continues to call the shots for the economy.
The Delta wave significantly weighed on growth and fanned

inflation this past fall, and Omicron is already doing
significant economic damage: Credit card spending turned

soft in recent weeks, particularly for travel; restaurant

bookings are off; the National Hockey League suspended
play for a time; much of Broadway has gone dark again; and

the airlines are struggling with flight cancellations as pilots
and other personnel get sick. These won’t show up in the

economic statistics for a few more weeks. Indeed, jobs for

December, to be released Friday, should be up a strong close
to 750,000, since they are based on a Bureau of Labor

Statistics survey taken in the wake of Delta but before
Omicron.

We have revised down our forecast for real GDP growth in

the first quarter from about 5% annualized to closer to 2%.
This is roughly consistent with the impact the Delta wave

had on

GDP growth

in the third quarter of last year. Also,

like Delta, Omicron will not have much of an impact on
hiring. Businesses will largely ignore the wave, knowing it

will be temporary. Instead, they’ll focus on their persistent
problem of labor shortages. We are revising up our GDP

growth outlook for the second quarter. Activity will pick up
quickly once the wave passes, which we assume happens

faster than with Delta. Omicron will thus not have a

material impact on calendar year 2022 growth, which we
expect to be 4%.

Unlike Delta, Omicron’s impact on inflation should be

modest. Businesses have made meaningful progress easing

the bottlenecks in their global supply chains that became

evident during Delta. The impact on labor force participation
will also be less pronounced; though more workers will get

sick with Omicron than Delta, they should get back on the

job more quickly. That’s because they will be less sick, and
the CDC recently cut the recommended isolation period

after getting ill to five days from 10.

Investors sanguine

Global investors seem unperturbed by the Omicron wave or

any other potential threat to the economic recovery. Asset

prices are surging. Stock prices rose nearly 30% in 2021 and
national house values were up an estimated close to 20%.

Reflecting these price gains and the increase in household
savings, the value of all assets (excluding crypto) owned by

U.S. households increased an estimated 13.5% in 2021. This

is far and away the strongest gain on record going back to
the early 1950s, and about double the average annual

increase over the period. It is worth noting that the
gangbuster 2021 is not being flattered by a weak 2020. That

year, household assets increased 6%. Stock prices cratered
when the pandemic first struck in early 2020, but quickly

rallied.

To be sure, asset prices should be high given the quickly
recovering economy and strong growth in business profits,

rents, and other income that ultimately support asset

values. Corporate profits are swelling, up an estimated close
to 20% in 2021. Profit margins have rarely been as wide,

since businesses have been able to raise prices more quickly
than their labor and other costs have risen. The recent bout

of inflation has been a positive for profits, at least so far.
Businesses are garnering close to their largest share of

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national income ever. That is, businesses’ slice of the
economic pie has never been bigger. Housing rents have

also taken off, fueled by the severe shortage of homes for
rent and sale. The lack of housing is set to become even

more acute given strong demand as many new households

formed post-lockdown and constrained housing supply due
to the global supply-chain problems for building materials

and labor shortages in the construction trades.

However, the asset price gains have significantly outpaced

the growth in profits, rental, and other income that support

asset values. Asset valuations are thus extraordinarily high
compared with any historical norm. At year-end 2021, the

ratio of the value of assets owned by households to GDP
rose to a record 7.5 times. Think of this as an economywide

price-earnings multiple, with asset prices in the numerator,

and GDP, which is roughly the sum of profits and income, in
the denominator. Prior to the pandemic, this multiple was

six times, which itself was a new high, besting the previous
record set when the housing bubble was at its most inflated.

Other tried-and-true measures of asset valuations such as
stock price multiplies, price-to-rent ratios, credit spreads,

and capitalization rates are also historically out of bounds.

Record-low interest rates help to partly explain the high
valuations. Low interest rates increase the present value of

future profits and income, while high interest rates decrease
them. It’s no surprise that valuations were at their nadir

when interest rates spiked in the late 1970s. But valuations

appear to have stretched well beyond what can be explained
by low rates and appear increasingly frothy. So-called meme

stocks, SPACs, and the wave of IPOs, particularly of high-
flying technology companies, are such signs in the stock

market.

In the housing market, it is the recent spike in the share of
home sales by housing investors. Investor purchases have

almost doubled over the past year and suddenly account for

one-fourth of home sales. Sales to typical households are
actually down a bit. Large institutional investors have

especially ramped up their buying to feed their buy-to-rent
business models. These investors are for the most part not

speculators or flippers—buyers whose intention is to sell
quickly to make a fast buck. That’s good. Flippers had

infected housing in the bubble that burst causing the

financial crisis.

But the bulk of investors in the crypto markets are

speculating. They’ve been mesmerized by the parabolic

increase in prices and believe there will be other investors to
buy their crypto at a much higher price than they paid. It’s

the greater fool theory at work—prices go up because
people are able to sell their crypto to a greater fool. That is,

of course, until there are no greater fools left.

Asset prices are thus highly vulnerable to significant
corrections, and the catalyst may well be the pending shifts

in monetary and fiscal policy. If things hold together as we

anticipate, the Federal Reserve will wind down its
quantitative easing by this spring and lift the federal funds

rate off the zero lower bound by summer. Interest rates are
headed higher; it is only a question of how high and how

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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

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fast. It is hard to fathom how asset valuations can remain as
lofty as they are, even with only a modest increase in rates.

The economic thrust of fiscal policy is also quickly turning

less supportive, which is sure to crimp economic growth and
business profits. Even if lawmakers are able to get it together

soon and pass some version of President Biden’s Build Back
Better legislation, the winding down of funds made available

by the American Rescue Plan will weigh on growth. Without

BBB, the slowdown will be more pronounced. Residential
rent growth is also expected to roll over by this time next

year as household formation growth slows, supply chains
and the job market sort themselves out, and homebuilding

picks up more substantially.

If asset markets sold off today, the selloff is unlikely to be
deep and persistent enough to undermine the economic

recovery. The resulting negative wealth effects—the impact

of changes in wealth on consumer spending—would likely
be modest, since the runup in wealth in the pandemic

doesn’t appear to have had much if any impact on
household saving and spending. Rising wealth in times past

has made households more confident, leading to less saving
and more spending. It is difficult to disentangle things, but

this has not happened during the pandemic. Lower stock
and bond prices will increase the cost of capital for

businesses but likely not nearly enough to forestall much

investment. Moreover, households have not overly
borrowed to finance their asset purchases. Although margin

debt, which is used to finance stock purchases, and
mortgage debt have recently begun to increase quickly, it is

still premature to send off red flares.

Having said this, this sanguine perspective will not hold
much longer if asset prices continue to climb and leverage

continues to build at the pace of the past year. The

economy has become prone to asset bubbles. There was the
stock market bubble of Y2K and the housing bubble of the

mid-2000s. When these bubbles ultimately deflated, they
did significant damage to the economy. It is premature to

think that we are in the next asset bubble, but it is not
premature to worry that one is forming.

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The Week Ahead in the Global Economy

U.S.

It will be another busy week on the U.S. economic data
front. The focus will be on the December consumer price

index. It’s unlikely that the CPI will duplicate the 0.8% gain

in November. Omicron won’t have any impact on the
December CPI but it could in January. The Fed fears that

inflation could remain higher for longer.

However, inflation could moderate more quickly than some
anticipate next year as the year-over-year comparisons

become extremely difficult. For example, monthly growth in

the CPI averaged 0.58% last year. If this is the increase in
2022, year-over-year growth next December would be

2.2%.

Other key data released next week are producer prices, retail

sales and industrial production. We also get our first look at
consumer confidence in January, which could be adversely

affected by surging COVID-19 cases.

Europe

The euro zone’s industrial production likely continued to

grow in November, by 0.5% m/m, adding to the 1.1%
increase in October. A rebound in output from automakers

drove growth in October and likely kept the growth rate
positive in November as well. However, output should cool

again as inventories tighten once more for key inputs like

semiconductors.

Unemployment in the euro zone was likely stable in
November. We expect the unemployment rate was

unchanged at 7.3%. Despite headwinds this winter, firms are
eager to keep their rosters. They are also benefitting as well

from short-time work schemes, which are ideal for supply-

side caused disruptions to activity.

The euro zone’s external trade surplus likely remained
depressed at €11 billion in November, down from 25.2

billion a year earlier. Supply issues kept a lid on export

growth, but the resumption in industrial production in
October and presumably November, should allow for an

increase in exports with respect to October. Imports likely
remained strong either way, given the heightened need for

energy goods in the lead up to winter.

The U.K. , meanwhile, will likely report a 0.2% m/m increase

in GDP for November, following a 0.1% gain in October.
Retail sales were strong during the month, pointing to

increased household consumption. But supply difficulties
likely continued to hold back the industrial and construction

sectors. Throughout December, however, the uptick in

COVID-19 infections led to tighter social distancing
measures, which will be bad news for December activity.

Asia-Pacific

China’s inflation reading for December will be the highlight
on the economic calendar. We expect annual inflation to

have moderated to 1.8% in December from 2.3% in
November. Consumer inflation likely softened due to some

cooling in energy and food prices. The effect will have been
reinforced by the broader property market slump and a

resurgence of COVID-19 cases in some regions, which

potentially suppressed domestic demand over this period.
China’s producer prices are also likely to have grown at a

more moderate pace of 11% year on year in December,
easing from 12.9% in November.

Australia’s retail sales are likely to have risen 2.8% month on

month in November, following a 4.9% increase in October,
on the back of improving household confidence, materially

relaxed restrictions in major states, and stronger spending

ahead of the holiday season. India’s industrial output is likely
to have expanded by 3.6% year on year in November,

following a 3.2% expansion in October, aided by recovering
manufacturing production as well as some gains in mining

and quarrying.

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Geopolitical Calendar

Date

Country

Event

Economic
Importance

Financial Market Risk

9-Mar-22

South Korea

Presidential election

Medium

Medium

27-Mar-22

Hong Kong

Chief Executive election

Low

Low

10-Apr-22

France

General elections

Medium

Medium

9-May-22

Philippines

Presidential election

Low

Low

29-May-22

Colombia

Presidential elections

Medium

Low

Jun

Switzerland

World Economic Forum annual meeting

Medium

Low

Jun/Jul-22

PNG

National general election

Low

Low

2-Oct-22

Brazil

Presidential and congressional elections

High

Medium

Oct/Nov-22

China

National Party Congress

High

Medium

7-Nov-22

U.N.

U.N. Climate Change Conference 2022 (COP 27)

Medium

Low

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THE LONG VIEW: U.S.

Inventories Add to Growth, for Now

BY RYAN SWEET

CREDIT SPREADS

Moody's long-term average corporate bond spread is 111

basis points, a touch wider than this time last week, but still

tighter than the 113 average in December. Over the last 12

months, the highest average corporate bond spread was 113

bps, while the low was 95. The long-term average industrial

corporate bond spread was little changed over the past

week and is now 98 bps. This is below the high over the past

12 months of 102 bps but above the low of 86.
The recent ICE BofA U.S. high-yield option adjusted bond

spread narrowed over the past week to 309 basis points.

This is below its recent high of 367 bps in early December.

The Bloomberg Barclays high-yield option adjusted spread

widened by 5 bps to 286. The high-yield option adjusted

bond spreads approximate what is suggested by the

accompanying long-term Baa industrial company bond yield

spread and are roughly consistent with a VIX of 20.

Defaults

Defaults remain very low. The latest Moody’s monthly

default report showed the trailing 12-month global

speculative-grade default rate came in at 1.8% in

November, down from 2.1% in October and the lowest in

several years. The trailing 12-month global speculative-grade

default rate also declined in November, falling from 2.3% to

2%.

In light of our expectation of a continued economic recovery
and accommodative funding conditions in the coming year,

Moody's Credit Transition Model projects that the global
default rate will continue to fall over the next few months,

bottoming at 1.3% in March. Thereafter, the default rate
climbs to hit 2.35% in November.

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.

In the week ended January 2, there wasn’t any US$-
denominated investment grade or high-yield corporate

bond issuance. This was not surprising due to the holidays.

U.S. ECONOMIC OUTLOOK

There were some tweaks to our U.S. baseline forecast in
December, including bringing forward the timing of the first

rate hike by the Federal Reserve . Changes to GDP growth
this year and next were modest, but the Omicron variant of

COVID-19 lends downside risk. Our assumption that each

passing wave of COVID-19 will have smaller economic costs
will be tested with Omicron. We didn’t significantly alter the

forecast because of the new variant, as it's unclear how
much of an effect it will have. We should have more

information on how infectious it is soon and what this

means for hospitalizations.

Turning to fiscal policy, we maintained our assumption of a

$1.75 trillion social safety net and climate spending bill,

which would be almost fully paid for by higher taxes on
corporations and well-to-do households. The bill, known as

the Build Back Better Act, was assumed to pass in late

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10

December, with implementation starting in early 2022.
Under current law, the monthly Child Tax Credit advances

ended after December.

We believed the top-line $1.75 trillion figure was a
compromise framework amenable to key moderate

senators, who are balking at the House-passed BBBA that
packs more than $2 trillion in spending and tax breaks. As

opposed to the House-passed legislation, the BBBA,

assumed in our forecast, does not include immigration
funding, paid-leave investments, nor an increase to the

existing limit on the state and local tax deduction. All told,
the contours of our $1.75 trillion assumption were largely

the same as in November. Clean-energy and climate

provisions amounted to nearly $600 billion ; childcare and
preschool investments totaled nearly $400 billion ; and more

than $300 billion funded an expansion of healthcare
coverage. Other measures included extending the expanded

Child and Earned Income Tax Credits, investing in affordable
housing, and boosting other social safety net programs.

COVID-19 assumptions

We adjusted our epidemiological assumptions to anticipate

that total confirmed COVID-19 cases in the U.S. will be 57.2
million, compared with 49.12 million in the November

baseline. The seven-day moving average of daily confirmed
cases has declined recently, but this could be misleading

because of reporting issues around the Thanksgiving holiday.

Also, there have been reported cases of the Omicron variant
in the U.S. , which we will be watching closely, as it would

warrant additional changes to our COVID-19 assumptions
next month.

The date for abatement of the pandemic changed slightly; it

is now February 13, a couple of months later than in the
prior baseline. Herd resiliency, which is a 65%-or-greater

share of the adult population being fully vaccinated or

previously infected, was achieved on August 30. The
forecast assumes that COVID-19 will be endemic and

seasonal.

There has been some good news recently regarding
vaccinations for children and the discovery of effective

therapies that can either prevent or cure infection, which
should further weaken the linkage between COVID-19

infections, consumer confidence and economic activity. This

will likely reduce the future economic costs from waves of
COVID-19. Waves won’t be avoidable, particularly in the

winter. There is a strong correlation between average
temperatures and the number of COVID-19 cases.

Therefore, odds are high that a wave will occur this winter.

Another solid year ahead

The Delta wave that hit last summer did significant damage
to the recovery—hurting growth and juicing up inflation. As

Delta has receded, growth has quickly rebounded, and
inflation is near a peak. Of course, the next wave formed on

the fast-spreading Omicron variant of the virus. We assume
this wave will be less disruptive to the healthcare system

and economy than Delta, but this is a tenuous assumption.

The next few weeks will tell.

In the December baseline, we kept our forecast for 2021

GDP growth at 5.6%, identical to the prior baseline. We look

for GDP growth to be 4.4% in 2022, 0.2 of a percentage
point lighter than in the November baseline. We nudged our

forecast for growth in 2023 higher, from 2.8% to 2.9%.

Inventories should add a lot to growth in the fourth quarter
and in the first half of 2022 but could cause problems down

the road. The volatility in consumer and producer prices
today could set the stage for the cobweb theorem, which

normally plagues agriculture, to affect other industries. The

cobweb model describes cyclical supply and demand in
markets where the amount of supply tends to be

determined before prices are fully observed. This has
typically applied to agriculture, as farmers need to decide

what crop to produce and how much before the market

price is set. This agriculture model applies to an economy
emerging from a pandemic, where there is uncertainty that

prices today will hold in a few months and the effect will be
mitigated or magnified by the price elasticity of demand.

Volatility in prices will lead to mistakes, either in over- or

underbuilding inventories. We looked at the five-year rolling
correlation between the contribution of each component to

GDP and total GDP growth. This is then multiplied by the

five-year rolling standard deviation of the components'
contribution to GDP divided by the rolling standard

deviation in GDP growth. This would imply that inventories
are contributing little to the volatility in GDP growth.

However, if we cut the sample down to the past two years
to include the pandemic, inventories are contributing more

to the volatility of GDP growth. This isn’t surprising, but as

we learned in the third quarter, inventories can make the
difference between a positive, flat or negative GDP print.

Global supply-chain issues remain a downside risk to the

near-term forecast. There has been a little improvement
recently, according to our U.S. Supply-Chain Stress Index.

The Omicron variant could unwind this or delay further
improvement.

Business investment and housing

There was a small upward revision to the forecast for real

business equipment investment in 2022, as it is forecast to
increase 9.9%, compared with the 9.2% in the prior

baseline. We nudged the forecast for 2023 lower; we now
expect real business equipment investment to increase

4.6%.

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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

11

Risks are roughly balanced to the forecast, as fundamentals,
including supportive financial market conditions and better

after-tax corporate profits as a share of nominal GDP,
should continue to spur investment into 2022. Also, banks

are easing lending standards and corporate credit spreads

are very tight, supporting investment-grade and high-yield
corporate bond issuance.

Another favorable development for business investment is

that the rate of new-business formations remains strong.
The biggest downside risk was a sudden tightening in

financial market conditions or a sudden and significant bout
of economic policy uncertainty in the fourth quarter

because of the threat of a partial government shutdown and

decision about the debt ceiling.

The real nonresidential structures forecast was not revised

significantly over the next few years. New data and revisions

to prior months led us to revise lower the forecast for
housing starts. Housing starts were forecast to rise 12.4% in

2021, compared with 13.8% in the November baseline. We
revised the forecast higher for growth in 2022 housing starts

from 9.9% to 12.4%. Lower construction costs, additional

labor supply, and strong demand will be supportive for
residential construction this year.

We had been steadily revising our forecast higher for house

prices during the past several months. We boosted the
forecast for the FHFA All-Transactions House Price Index to

increase 12.9% in 2021, stronger than the 10.6% in the
November baseline. House price growth is also stronger

because of the imbalance between supply and demand; in

2022, we look for prices to rise 8.7%, compared with the
6.7% in the November baseline.

Tale of two surveys

U.S. job growth fell well short of expectations in November,
but this didn’t deter the Federal Reserve from announcing

that it is doubling the amount by which it is tapering
monthly asset purchases. Don’t fixate on the headline

increase in nonfarm employment, because the details

elsewhere were noticeably stronger.

For example, the prime-age employment-to-population
ratio jumped from 78.3% to 78.8%. Historically, a prime-

age employment-to-population ratio of 80% is consistent
with an economy at full employment. With the labor market

quickly approaching that threshold, the Fed will want the

flexibility to raise the target range for the fed funds rate in
2022. Also, the unemployment rate is on track to drop

below 4% early this year. Add to this mix that inflation will
remain elevated, and the November employment report

won’t alter the Fed’s hawkish shift.

The labor market added only 210,000 jobs for November,
and the revisions to September and October were modest,

adding 82,000 more positions. The gain fell well short of our
and the consensus expectation but is far from a dud. The

increase in November was stronger than average monthly

job growth during the last expansion.

Declines in retail trade and government and weak gains in

leisure/hospitality pulled down the top line. However,

technical factors were at play that weighed on job growth in
November. For retail, it was an earlier payroll reference

period, and this reduced the number of seasonal hires who
were counted for the holiday shopping season. Also, the

seasonal adjustment factor was significantly less favorable

than we had anticipated. In fact, the difference between the
change in not seasonally and seasonally adjusted

employment was more than 500,000, the largest reduction
for any November on record.

It was difficult to find anything bad in the household survey.

Adjusted household employment was up 1.9 million in
November. The adjusted household employment series is

calculated by subtracting from total employment agriculture

and related employment, the unincorporated self-employed,
unpaid family and private household workers, and workers

absent without pay from their jobs, and then adding
nonagricultural wage and salary multiple jobholders. This

makes it a more apples-to-apples comparison with the
establishment survey. Given the small survey sample, this

measure is also more volatile than the payroll estimate. Still,

cumulative increases in the establishment and adjusted
household survey are 6.1 million in 2021. Therefore,

underlying job growth is running at 555,000.

We look for average monthly job growth in 2022 to be
352,000, stronger than the 340,000 in the November

baseline. Job growth will moderate further in 2023, with
average job growth of 145,000, a touch weaker than the

150,000 in November.

The unemployment rate was forecast to average 4.3% in the

fourth quarter, compared with the 4.5% in the prior
baseline. This incorporates the new data on the

unemployment rate for November. The unemployment rate
will average 3.5% at the end of this year, in line with the

prior baseline. Our rule of thumb is that a prime-age
employment-to-population ratio of 80% is consistent with

an economy at full employment, and our back-of-the-

envelope forecast would have the economy hitting that
threshold in the fourth quarter of 2022.

The Fed’s hawkish pivot

There were some material changes to the forecast for
growth in the core PCE deflator. Year-over-year growth in

core inflation is now expected to be north of 4% for the

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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

12

fourth quarter of 2021 and first quarter of 2022 before it
decelerates and ends the year just north of 2%. The core CPI

follows a similar pattern.

Something that isn’t getting enough attention is the sheer
amount by which supply-chain stress is boosting the U.S.

CPI. Building off of our prior work on estimating the
reopening effect on the CPI, we created a supply-chain

constrained CPI. In October, our supply-chain constrained

CPI added 1.6 percentage points to year-over-year growth in
the headline CPI and has boosted it by at least a full

percentage point since April. Therefore, absent stress in the
U.S. supply chain, year-over-year growth in the CPI in

October would have been 4.6%, still the strongest since

2008, when energy prices were spiking. Higher global energy
prices, which have been proven to have a temporary effect

on the CPI, added 2.2 percentage points to year-over-year
growth in the CPI in October. Excluding supply-chain

constrained components and energy, the CPI would have
been up only 2.4%, near the Fed’s 2% objective.

The Federal Reserve announced that it is accelerating its

tapering process at the December meeting of the Federal

Open Market Committee. The risks that the Fed would
increase the amount by which it reduces its monthly asset

purchases had risen noticeably after the October CPI, which
likely altered the central bank’s near-term forecast for

inflation. The Fed had warned that an adjustment to the
outlook could warrant a change to the tapering process. The

Fed decided to increase the monthly taper by $15 billion to
$30 billion .

Our December baseline forecast brought the first increase in

the target range for the fed funds rate forward, from
December 2022 to September 2022. We don’t like to be

whipsawed by changing the forecast for the path of interest
rates, but another change is likely for the January 2022

baseline. Doubling the pace of accommodation increases

the odds of the first rate hike next June, as asset purchases
would be zero by the end of March. A probabilistic

forecasting approach based on the subjective probabilities of
a fed hike versus a cut would have the first hike occurring

earlier than next September.

There were no significant changes to the 10-year Treasury
yield. The forecast is that the Dow Jones Industrial Average

peaks in early 2022. However, the rest of the contours of

the forecast did not change, as we expect the Dow to
steadily decline through this year. The decline in stock prices

is forecast to be orderly, but it could turn into something
worse. One potential catalyst would be an explosion in the

value of margin accounts at brokers and dealers, which

amounted to $595 billion in last year’s second quarter,
nearly double the pre-pandemic level. A drop in stock prices

could trigger margin calls. These occur when the equity in
your investing account drops to a certain level and you owe

money to your brokerage firm. If there is no money,
investors have to sell other assets.

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13

THE LONG VIEW: EUROPE

Germany Braces for Its Turn With Omicron

BY EVAN KARSON

Germany

managed to repel a surge in

COVID-19

infections

in late 2021, but the fourth quarter’s wave owed largely to

the Delta variant of the virus. Over the next few weeks,
Europe’s largest economy is all but guaranteed to face down

another rush of infections as the highly transmissible

Omicron variant becomes the dominant strain.

The pace of new infections has already started perking up,
and if France , Italy , and the U.K. provide guidance, Germany

will soon see its sharpest spike in cases yet. Hospitalizations
are currently breathing easier than a month ago, but the

public health system will come under significant stress in the
weeks ahead.

Omicron’s high transmissibility and lower virulence,
especially for vaccinated people, increase the likelihood that

the developing wave of infections will burn out quickly and
cause less overall disruption. South Africa , where Omicron

was first detected, provides one datapoint to support this

possibility. The infection rate in South Africa peaked after
about four weeks and receded almost as quickly. Taking

South Africa’s experience into account, our baseline forecast
assumes infections in Germany will more or less wind down

by early to mid-March. We expect Germany will once again

avoid a full lockdown, leaning on targeted restrictions to
limit strain on hospitals and ICUs. Despite some peaks and

valley, the ratio of hospitalizations to infections has declined
steadily since the pandemic began, partly due to vaccines.

The January baseline features only slight forecast

downgrades as a result of these new assumptions. Even
though Omicron presents new headwinds to growth, the

recent Delta-driven wave of infections wound down more
quickly than we expected. These two developments

essentially come out to a wash in the January baseline. Real

GDP growth in the first quarter of 2022 will modestly
underperform the euro area average under pressure from

softening consumption and fading fiscal stimulus.

Expect healthy industrial production results

Friday's industrial production release is expected to show

that

Germany

's output expanded modestly in November,

rising somewhere between 0.75% and 1% month-over-

month. Industrial production grew a healthy 3.2% m/m in

October, which would typically signal some near-term
softening. From 1991 to 2019, monthly industrial production

rose by more than 2% only 30 times; in two-thirds of those
instances, output dropped the following month.

Solid readings on truck toll mileage underly our prediction

for a modest gain in output. Truck toll mileage correlates
strongly with industrial production and recorded its third

increase in a row in November. A forecast model predicting

industrial production growth based on the change in truck
toll mileage in the current and previous two months

estimates a 2.8% m/m gain in industrial production for
November. An increase of this magnitude would be



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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

14

surprising but not wholly impossible given how volatile and
unpredictable trade has become as a result of the pandemic.

On the flip side, a decline in output would not be a major

shock. Supply-chain disruptions remain a pressing issue for
manufacturers, and our baseline forecast does not anticipate

significant relief until the second half of 2022.

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15

THE LONG VIEW: ASIA-PACIFIC

Singapore Outpaces Expectations

BY SHAHANA MUKHERJEE and DENISE CHEOK

Singapore’s economy powered ahead of expectations in the
fourth quarter of 2021. GDP grew 2.6% quarter over quarter,

strengthening from the previous quarter’s 1.2% increase.

This brought full-year GDP growth to 7.2%, ahead of the
Moody’s Analytics forecast for a 6.8% expansion and the

Ministry of Trade and Industry’s forecast for 7% growth.

As expected, the all-important manufacturing sector was
the key source of growth. It expanded 2.2% in quarterly

terms in the December quarter, from 1.2% in the prior
quarter, amidst sustained global demand for electronics and

the semiconductor shortage. Service industries picked up as

social distancing measures began to ease. Accommodation
and food services, real estate, and administrative and other

services expanded by 4.9% quarter over quarter, compared
with a modest 0.8% expansion in the prior quarter.

Information and communications together with financial

and related services grew 3.1%, up from 1.2% in the prior
quarter. In comparison, wholesale and retail trade were up

2.3%, a turnaround from the 1.3% contraction in the
September quarter.

Although Singapore’s output exceeded pre-pandemic levels

by the September quarter last year, growth remains highly
uneven. Contact-sensitive sectors have been subjected to a

staggered revival, and important segments such as

wholesale and retail trade, transport, and construction
remain below pre-pandemic levels, tightly tethered to the

pandemic’s trajectory. Expansion of vaccinated travel lanes
initially brought some optimism, but the rapid spread of the

Omicron variant of COVID-19 and quick reimposition of
travel restrictions highlight that governments remain jittery

despite high vaccination rates in most countries.

Regional bellwether

Singapore is one of the earliest to release preliminary
growth numbers for the December quarter and serves as a

bellwether for the region. The better-than-expected
numbers reflect improving momentum towards the end of

the year, particularly for some of the trade-reliant

economies in Asia . For Singapore , the notable growth in
manufacturing is also indicative of some resilience in

regional supply chains despite the slowdown in China’s
factory activity.

Gains to continue

Looking ahead, Singapore’s near-term growth outlook has

some upsides. Manufacturing output should continue to
record notable gains over the next few quarters, likely to be

driven by sustained overseas demand for electronics and the
semiconductor shortage. Despite Singapore leading the

Asia-Pacific region’s vaccination drive, its services industries

are likely to witness another phase of a dual-speed and
volatile revival. The temporarily reinstated border measures

have potentially significant implications for the timely
resumption of international travel, mobility and tourism.

They could also potentially delay investment decisions.

In light of improved vaccination rates and a gradual policy
pivot towards living with COVID-19, policymakers are

calibrating their approach to the evolving COVID-19

situation. Conditions and the broader economic outlook can
certainly change in the coming months. For now,

Singapore’s policy priorities might not change much. In
particular, Singapore’s outsize fiscal spending of the past

two years is likely to start tapering, with the government
gradually turning its attention toward fiscal consolidation.

Similarly, it is possible that the Monetary Authority of

Singapore will tighten monetary settings in its April meeting
as rising inflation pressures take the stage after two years of

pandemic-induced uncertainty.

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16

RATINGS ROUNDUP

Strong Year-End Finish for U.S. Change Activity

BY MICHAEL FERLEZ

U.S.

U.S. rating change activity finished last year on a strong

note. In the second half of December, upgrades
outnumbered downgrades 2-1 and accounted for 95% of

the reported affected debt. Although speculative-grade
companies led upgrades for most of 2021, it was

investment-grade companies that headlined rating changes

to end the year. The most notable upgrade was made to
Apple Inc., which saw its senior unsecured rating upgraded

to Aaa. In Moody’s Investors Service rating action, Moody’s
analyst Raj Joshi was quoted saying, “The upgrade of Apple 's

rating to Aaa reflects the company's exceptional liquidity,
robust earnings that we expect will continue to grow over

the next 2 to 3 years, and its very strong business profile.

Apple 's ecosystem of products and services provides
enhanced revenue visibility over time despite some level of

volatility that is inherent in its business from product
introduction cycles." The upgrade impacted $118 billion in

outstanding debt.

Europe

Western European rating change activity was balanced over

the past several weeks, with rating changes split evenly
between upgrades and downgrades. The most notable rating

change in terms of affected debt was made to Bank of
Cyprus Public Company Limited . On December 15, Moody’s

Investors service upgraded several of the Bank of Cyprus’

credit ratings, including its senior unsecured and
subordinated debt and its long-term bank deposit rating. In

the rating action, Moody’s Investors Service cited the Bank
of Cyprus’ significant ongoing improvement to its asset

quality as one factor for the upgrade.


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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

17

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

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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

18

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

12/15/2021

HUNTINGTON BANCSHARES
INCORPORATED-TCF NATIONAL BANK

Financial

Sub

810.00

U

Baa1

A3

IG

12/15/2021

KAMC HOLDINGS, INC.

Industrial

SrSec/BCF/LTCFR/PDR

D

B2

B3

SG

12/16/2021

BAXTER INTERNATIONAL INC.

Industrial

SrUnsec

5641.61

D

Baa1

Baa2

IG

12/16/2021

ARRAY TECHNOLOGIES, INC. -ARRAY TECH,
INC.

Industrial

LTCFR/PDR

D

B1

B2

SG

12/17/2021

FAIRFAX FINANCIAL HOLDINGS LIMITED -
ALLIED WORLD ASSURANCE COMPANY
( U.S. ) INC.

Financial

IFSR

U

A3

A2

IG

12/17/2021

COOPER-STANDARD HOLDINGS INC. -
COOPER-STANDARD AUTOMOTIVE INC.

Industrial

SrSec/SrUnsec/BCF/
LTCFR/PDR

650.00

D

B1

B2

SG

12/17/2021

UNDER ARMOUR, INC.

Industrial

SrUnsec/LTCFR/PDR

600.00

U

B1

Ba3

SG

12/17/2021

MARINER WEALTH ADVISORS, LLC

Financial

SrSec/BCF

U

B1

Ba3

SG

12/20/2021

FREEPORT-MCMORAN INC.

Industrial

SrUnsec

8306.94

U

Ba1

Baa3

SG

12/20/2021

HORNBLOWER SUB, LLC

Industrial

LTCFR/PDR

U

Caa2

Caa1

SG

12/21/2021

APPLE INC.

Industrial

SrUnsec/MTN

118132.76

U

Aa1

Aaa

IG

12/23/2021

YELLOW CORPORATION

Industrial

LTCFR/PDR

U

Caa1

B3

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

e
w

IG/

SG

Country

12/15/2021

STMICROELECTRONICS N.V.

Industrial

LTIR

U

Baa3

Baa2

IG NETHERLANDS

12/15/2021

IWH UK FINCO LIMITED

Industrial

SrSec/BCF/LTCFR/PDR

U

B3

B2

SG UNITED KINGDOM

12/15/2021

BANK OF CYPRUS HOLDINGS PUBLIC
LIMITED COMPANY

Financial

SrUnsec/LTD/Sub/MTN 989.95

U

Caa1

B3

SG IRELAND

12/17/2021

KEDRION S.P.A.

Industrial

SrSec/LTCFR/PDR

477.50

D

B1

B2

SG ITALY

12/20/2021

GO-AHEAD GROUP PLC (THE)

Industrial

SrUnsec

344.31

D

Baa3

Ba1

IG UNITED KINGDOM

1/4/2022

GROUPE CRELAN- AXA BANK BELGIUM

Financial

STD/LTD

D

P-1

P-2

IG BELGIUM

Source: Moody's

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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)

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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

20

CDS MOVERS

CDS Implied Rating Rises
Issuer

Jan. 5

Dec. 29

Senior Ratings

International Lease Finance Corporation

Aa3

A2

Baa3

AT&T Inc.

Baa2

Baa3

Baa2

American Express Credit Corporation

A1

A2

A2

Amazon.com, Inc.

Aa3

A1

A1

Coca-Cola Company (The)

Aa1

Aa2

A1

Philip Morris International Inc.

A2

A3

A2

FedEx Corporation

A2

A3

Baa2

Becton, Dickinson and Company

Baa1

Baa2

Baa3

Valero Energy Corporation

Baa3

Ba1

Baa2

Kroger Co. (The)

A3

Baa1

Baa1

CDS Implied Rating Declines
Issuer

Jan. 5

Dec. 29

Senior Ratings

CenterPoint Energy, Inc.

Baa2

A3

Baa2

PepsiCo, Inc.

A2

A1

A1

Philip Morris International Inc.

A2

A1

A2

General Electric Company

Baa3

Baa2

Baa1

Eli Lilly and Company

Aa2

Aa1

A2

FirstEnergy Corp.

Baa3

Baa2

Ba1

Emerson Electric Company

Baa1

A3

A2

Danaher Corporation

A3

A2

Baa1

Archer-Daniels-Midland Company

A2

A1

A2

United Rentals ( North America ), Inc.

Ba2

Ba1

Ba2

CDS Spread Increases
Issuer

Senior Ratings

Jan. 5

Dec. 29

Spread Diff

Talen Energy Supply, LLC

Caa1

4,339

4,273

67

Domtar Corporation

Ba3

433

372

61

Xcel Energy Inc.

Baa1

71

57

15

DPL Inc.

Ba1

143

128

15

Staples, Inc.

Caa1

1,142

1,128

14

Pitney Bowes Inc.

B1

482

469

13

iStar Inc.

Ba3

303

290

13

Crown Castle International Corp.

Baa3

65

55

10

Cargill, Incorporated

A2

44

34

9

Service Corporation International

Ba3

122

113

9

CDS Spread Decreases
Issuer

Senior Ratings

Jan. 5

Dec. 29

Spread Diff

Nabors Industries, Inc .

Caa2

685

734

-50

Rite Aid Corporation

Caa2

880

900

-21

United Airlines Holdings, Inc.

Ba3

401

422

-21

Travel + Leisure Co.

B1

171

191

-20

United States Steel Corporation

B1

311

331

-20

United Airlines , Inc.

Ba2

404

423

-19

Calpine Corporation

B2

331

350

-19

American Airlines Group Inc.

Caa1

751

771

-19

Service Properties Trust

Ba2

241

260

-18

Scripps (E.W.) Company (The)

Caa1

214

230

-16

Source: Moody's, CMA

CDS Spreads

CDS Implied Ratings

CDS Implied Ratings

CDS Spreads

Figure 3. CDS Movers - US ( December 29, 2021 – January 5, 2022)

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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

21

CDS Movers

CDS Implied Rating Rises
Issuer

Jan. 5

Dec. 29

Senior Ratings

Coca-Cola HBC Finance B.V .

A1

A3

Baa1

Spain , Government of

Aa2

Aa3

Baa1

Banco Santander S.A. ( Spain )

A1

A2

A2

ABN AMRO Bank N.V.

A1

A2

A1

Orange

Aa2

Aa3

Baa1

Bayerische Motoren Werke Aktiengesellschaft

A2

A3

A2

Daimler AG

A3

Baa1

A3

Deutsche Telekom AG

A1

A2

Baa1

Norddeutsche Landesbank GZ

Baa2

Baa3

A3

E.ON SE

Aa3

A1

Baa2

CDS Implied Rating Declines
Issuer

Jan. 5

Dec. 29

Senior Ratings

Banque Federative du Credit Mutuel

A2

Aa1

Aa3

Elisa Corporation

Baa2

A3

Baa2

Lloyds Bank plc

Aa3

Aa2

A1

Natixis

A1

Aa3

A1

DZ BANK AG

Aa2

Aa1

Aa2

Proximus SA de droit public

Baa1

A3

A1

3i Group plc

Ba1

Baa3

Baa1

NIBC Bank N.V.

Baa2

Baa1

Baa1

ABB Ltd

A1

Aa3

A3

United Kingdom , Government of

Aaa

Aaa

Aa3

CDS Spread Increases
Issuer

Senior Ratings

Jan. 5

Dec. 29

Spread Diff

Boparan Finance plc

Caa1

1,312

1,248

63

Iceland Bondco plc

Caa2

544

531

14

Banque Federative du Credit Mutuel

Aa3

37

26

12

Elisa Corporation

Baa2

53

43

10

Proximus SA de droit public

A1

50

42

7

DZ BANK AG

Aa2

32

26

6

3i Group plc

Baa1

97

92

5

Telecom Italia S.p.A .

Ba2

233

230

3

NIBC Bank N.V.

Baa1

56

52

3

KBC Group N.V.

Baa1

70

68

2

CDS Spread Decreases
Issuer

Senior Ratings

Jan. 5

Dec. 29

Spread Diff

Vedanta Resources Limited

B3

722

801

-79

Deutsche Lufthansa Aktiengesellschaft

Ba2

231

255

-25

CMA CGM S.A.

B2

288

308

-21

Premier Foods Finance plc

B3

184

201

-17

Novafives S.A.S.

Caa2

586

602

-16

Piraeus Financial Holdings S.A.

Caa2

544

554

-10

Greece , Government of

Ba3

102

110

-8

Rolls-Royce plc

Ba3

156

164

-8

Alpha Services and Holdings S.A.

Caa1

293

301

-8

Unibail-Rodamco-Westfield SE

Baa2

111

118

-7

Source: Moody's, CMA

CDS Spreads

CDS Implied Ratings

CDS Implied Ratings

CDS Spreads

Figure 4. CDS Movers - Europe ( December 29, 2021 – January 5, 2022)

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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

22

CDS Movers

CDS Implied Rating Rises
Issuer

Jan. 5

Dec. 29

Senior Ratings

Westpac Banking Corporation

Aa2

Aa3

Aa3

Philippines , Government of

Baa1

Baa2

Baa2

Thailand , Government of

Aa1

Aa2

Baa1

Macquarie Bank Limited

A1

A2

A2

Suncorp-Metway Limited

A2

A3

A1

Oversea-Chinese Banking Corp Ltd

A1

A2

Aa1

Export-Import Bank of China (The)

A1

A2

A1

Hong Kong SAR, China , Government of

Aa1

Aa2

Aa3

Bank of China Limited

Baa1

Baa2

A1

Central Japan Railway Company

Aa1

Aa2

A2

CDS Implied Rating Declines
Issuer

Jan. 5

Dec. 29

Senior Ratings

JFE Holdings, Inc.

A2

A1

Baa3

Pakistan , Government of

B3

B2

B3

Korea Expressway Corporation

Aa2

Aa1

Aa2

ITOCHU Corporation

Aa1

Aaa

A3

SK Hynix Inc.

Baa3

Baa2

Baa2

Vietnam , Government of

Ba1

Baa3

Ba3

SK Innovation Co. Ltd.

Ba1

Baa3

Baa3

Japan , Government of

Aaa

Aaa

A1

China , Government of

A2

A2

A1

Australia , Government of

Aaa

Aaa

Aaa

CDS Spread Increases
Issuer

Senior Ratings

Jan. 5

Dec. 29

Spread Diff

SK Hynix Inc.

Baa2

72

64

8

Development Bank of Kazakhstan

Baa2

143

137

6

Nissan Motor Co., Ltd.

Baa3

77

74

3

SK Innovation Co. Ltd.

Baa3

95

92

3

Korea , Government of

Aa2

22

21

2

Norinchukin Bank (The)

A1

32

30

2

Korea Expressway Corporation

Aa2

29

27

2

Nomura Holdings, Inc.

Baa1

75

74

1

JFE Holdings, Inc.

Baa3

37

36

1

Kazakhstan , Government of

Baa2

62

61

1

CDS Spread Decreases
Issuer

Senior Ratings

Jan. 5

Dec. 29

Spread Diff

Amcor Pty Ltd

Baa2

73

79

-6

Suncorp-Metway Limited

A1

40

45

-5

SoftBank Group Corp.

Ba3

256

261

-5

Central Japan Railway Company

A2

23

28

-5

Flex Ltd.

Baa3

73

78

-5

Tata Motors Limited

B1

244

249

-5

Commonwealth Bank of Australia

Aa3

27

30

-3

National Australia Bank Limited

Aa3

28

31

-3

Thailand , Government of

Baa1

24

27

-3

Australia and New Zealand Banking Grp. Ltd .

Aa3

27

29

-3

Source: Moody's, CMA

Figure 5. CDS Movers - APAC ( December 29, 2021 – January 5, 2022)

CDS Implied Ratings

CDS Implied Ratings

CDS Spreads

CDS Spreads

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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

23

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

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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

24

ISSUANCE

Investment-Grade

High-Yield

Total*

Amount

Amount

Amount

$B

$B

$B

Weekly

0.000

0.000

0.080

Year-to-Date

0.000

0.000

0.080

Investment-Grade

High-Yield

Total*

Amount

Amount

Amount

$B

$B

$B

Weekly

0.000

0.000

0.000

Year-to-Date

0.000

0.000

0.000

* Difference represents issuance with pending ratings.

Source: Moody's/ Dealogic

USD Denominated

Euro Denominated

Figure 8. Issuance: Corporate & Financial Institutions

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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

25

To order reprints of this report (100 copies minimum), please call 212.553.1658 .

Report Number: 1315817

Contact Us

Editor

Reid Kanaley

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Americas
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MOODY’S ANALYTICS CAPITAL MARKETS RESEARCH / WEEKLY MARKET OUTLOOK

26

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